Creator: Hopenhayn, Hugo Andres and Vereshchagina, Galina. Series: Advances in dynamic economics Abstract:
Entrepreneurs bear substantial risk, but empirical evidence shows no sign of a positive premium. This paper develops a theory of endogenous entrepreneurial risk taking that explains why self-financed entrepreneurs may find it optimal to invest into risky projects offering no risk premium. The model has also a number of implications for firm dynamics supported by empirical evidence, such as a positive correlation between survival, size, and firm age.
关键词: Intertemporal firm choice, Investment, Borrowing constraints, Financing, Risk taking, Occupational choice, and Firm dynamics 学科: G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill, L25 - Firm Performance: Size, Diversification, and Scope, E21 - Macroeconomics: Consumption; Saving; Wealth, and L26 - Entrepreneurship
Creator: Fernandez-Villaverde, Jesus. and Rubio-Ramírez, Juan Francisco. Series: Joint committee on business and financial analysis Abstract:
This paper presents a method to perform likelihood-based inference in nonlinear dynamic equilibrium economies. This type of models has become a standard tool in quantitative economics. However, existing literature has been forced so far to use moment procedures or linearization techniques to estimate these models. This situation is unsatisfactory: moment procedures suffer from strong small samples biases and linearization depends crucially on the shape of the true policy functions, possibly leading to erroneous answers. We propose the use of Sequential Monte Carlo methods to evaluate the likelihood function implied by the model. Then we can perform likelihood-based inference, either searching for a maximum (Quasi-Maximum Likelihood Estimation) or simulating the posterior using a Markov Chain Monte Carlo algorithm (Bayesian Estimation). We can also compare different models even if they are nonnested and misspecified. To perform classical model selection, we follow Vuong (1989) and use the Kullback-Leibler distance to build Likelihood Ratio Tests. To perform Bayesian model comparison, we build Bayes factors. As an application, we estimate the stochastic neoclassical growth model.
关键词: Likelihood-based inference, Dynamic equilibrium economies, Sequential Monte Carlo methods, and Nonlinear filtering 学科: C15 - Statistical Simulation Methods: General, C13 - Estimation: General, C10 - Econometric and Statistical Methods and Methodology: General, and C11 - Bayesian Analysis: General
Creator: Martin, Vance, 1955- and Pagan, Adrian R. Series: Simulation-based inference in econometrics Abstract:
Procedures for computing the parameters of a broad class of multifactor continuous time models of the term structure based on indirect estimation methods are proposed. The approach consists of simulating the unknown factors from a set of stochastic differential equations which are used to compute synthetic bond yields. The bond yields are calibrated with actual bond yields via an auxiliary model. The approach circumvents many of the difficulties associated with direct estimation of this class of models using maximum likelihood. In particular, the paper addresses the identification issues arising from singularities in the yields and spreads which tend not to be recognised in existing estimation procedures and thereby overcome potential misspecification problems inherrent in direct methods. Indirect estimates of single and multifactor models are computed and compared with the estimates based on existing estimation procedures.
关键词: Continous time models, Indirect estimation, Multifactor models, Term structure, Testing factor models, Stochastic differential equations, and Singularities 学科: C30 - Multiple or simultaneous equation models - General, C51 - Econometric modeling - Model construction and estimation, and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Benhabib, Jess, 1948- and Farmer, Roger E. A. Series: Lucas expectations anniversary conference Abstract:
We introduce, into a version of the Real Business Cycle model, mild increasing returns-to-scale. These increasing returns-to-scale occur as a consequence of sector specific externalities, that is externalities where the output of the consumption and investment sectors have external effects on the output of firms within their own sector. Keeping the production technologies for both sectors identical for expositional simplicity, we show that indeterminacy can easily occur for parameter values typically used in the real business cycle literature, and in contrast to some earlier literature on indeterminacies, for externalities mild enough so that labor demand curves are downward sloping.
关键词: Cycle, Real business cycle, Business fluctuations, Indeterminacy, Sunspots, and Business cycles 学科: E00 - Macroeconomics and monetary economics - General - General, E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles, and E40 - Money and interest rates - General
Creator: Krusell, Per, Quadrini, Vincenzo, and Ríos-Rull, José-Víctor Series: Lucas expectations anniversary conference Abstract:
We use political-equilibrium theory and the neoclassical growth model to compare the quantitative properties of different tax systems. We first explore whether societies which can only use consumption taxes fare better than societies which can only use income taxes. We find that if government outlays are used mainly for redistribution through transfers, then the answer is no, contradicting conventional wisdom in public finance. The reason for this is that when taxes are endogenous, and voted on by a selfish constituency, the distortionary effects of taxation are taken into account in choosing the level of taxation. Hence, political equilibria have the property that taxes which are relatively distortionary will be relatively low. These results are overturned if the government outlays are used only for the providing of public goods, implying that less distortionary taxes give better outcomes. We also investigate the properties of a tax systems in which both consumption and income taxes are used and voted on simultaneously. Since the ability to use more tax instruments allows redistribution with less distortions, the total amount of transfers tends to be higher here than in one-tax systems. Typically, tax systems tend to be self-perpetuating in the sense that changes of the tax system result in a reduction in the welfare of the median voter.
关键词: Tax system, Tax, Consumption tax, Taxes, and Income tax 学科: E62 - Fiscal Policy, H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes, and H25 - Business Taxes and Subsidies including sales and value-added (VAT)
Creator: Aiyagari, S. Rao and Peled, Dan Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 503 Abstract:
It is often argued that with a positively skewed income distribution (median less than mean) a majority voting over proportional tax rates would result in higher tax rates than those that maximize average welfare, and will accordingly reduce aggregate savings. We reexamine this view in a capital accumulation model, in which distorting redistributive taxes provide insurance against idiosyncratic shocks, and income distributions evolve endogenously. We find small differences of either sign between the tax rates set by a majority voting and a utilitarian government, for reasonable parametric specifications. We show how these differences reflect a greater responsiveness of a utilitarian government to the average need for the insurance provided by the tax-redistribution scheme. These conclusions remain true despite the fact that the model simulations produce positively skewed distributions of total income across agents.
关键词: Votes, Taxes, and Income distribution 学科: E62 - Fiscal Policy and D72 - Political Processes: Rent-seeking, Lobbying, Elections, Legislatures, and Voting Behavior
Creator: Geweke, John Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 532 Abstract:
This paper integrates and extends some recent computational advances in Bayesian inference with the objective of more fully realizing the Bayesian promise of coherent inference and model comparison in economics. It combines Markov chain Monte Carlo and independence Monte Carlo with importance sampling to provide an efficient and generic method for updating posterior distributions. It exploits the multiplicative decomposition of marginalized likelihood into predictive factors, to compute posterior odds ratios efficiently and with minimal further investment in software. It argues for the use of predictive odds ratios in model comparison in economics. Finally, it suggests procedures for public reporting that will enable remote clients to conveniently modify priors, form posterior expectations of their own functions of interest, and update the posterior distribution with new observations. A series of examples explores the practicality and efficiency of these methods.
This paper was prepared for the inaugural Colin Clark Lecture, Australasian Meetings of the Econometric Society, July 1994.
关键词: Computation, Model comparison, Bayesian inference, and Econometric modeling 学科: C53 - Forecasting Models; Simulation Methods and C11 - Bayesian Analysis: General
Creator: Boyd, John H. and Gertler, Mark Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 531 Abstract:
This paper reexamines the conventional wisdom that commercial banking is an industry in severe decline. We find that a careful reading of the evidence does not justify this conclusion. It is true that on-balance sheet assets held by commercial banks have declined as a share of total intermediary assets. But this measure overstates any drop in banking, for three reasons. First, it ignores the rapid growth in commercial banks' off-balance sheet activities. Second, it fails to take account of the substantial growth in off-shore C&I lending by foreign banks. Third, it ignores the fact that over the last several decades financial intermediation has grown rapidly relative to the rest of the economy. We find that after adjusting the measure of bank assets to account for these considerations there is no clear evidence of secular decline. To corroborate these findings, we also construct an alternative measure of the importance of banking, using data from the National Income Accounts. Again, we find no clear evidence of a sustained declined. At most the industry may have suffered a slight loss of market share over the last decade. But as we discuss, this loss may reflect a transitory response to a series of adverse shocks and the phasing in of new regulatory requirements, rather than the beginning of a permanent decline.
关键词: Lending, Bank assets, Banking, Intermediation, and Commercial banks 学科: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages