H. Eugene Stanley, Xavier Gabaix, Parameswaran Gopikrishnan, and Vasiliki Plerou
- Published in print:
- 2005
- Published Online:
- October 2011
- ISBN:
- 9780195162592
- eISBN:
- 9780199850495
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780195162592.003.0005
- Subject:
- Economics and Finance, Economic Systems
To try to understand better puzzles regarding economic fluctuations, this chapter presents an overview of collaborative research between economists and physicists, which is focused on applying ideas ...
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To try to understand better puzzles regarding economic fluctuations, this chapter presents an overview of collaborative research between economists and physicists, which is focused on applying ideas of statistical physics. Describing outliers is one of the inquiries conducted to determine its existence. Outliers are phenomena that lie outside of patterns of statistical regularity. Evidence consistent with the possibility that such outliers may not exist is reviewed. This possibility is supported by the extensive numerical analysis of a huge database, containing every trade, which results in power-law descriptions of a number of quantities whose fluctuations are of interest. It is also supported by recent analysis of Plerou et al. of a database containing the bid, the ask, and the sale price of each trade of every stock. Further, the Plerou et al. analysis is consistent with a possible theoretical framework for understanding economic fluctuations.Less
To try to understand better puzzles regarding economic fluctuations, this chapter presents an overview of collaborative research between economists and physicists, which is focused on applying ideas of statistical physics. Describing outliers is one of the inquiries conducted to determine its existence. Outliers are phenomena that lie outside of patterns of statistical regularity. Evidence consistent with the possibility that such outliers may not exist is reviewed. This possibility is supported by the extensive numerical analysis of a huge database, containing every trade, which results in power-law descriptions of a number of quantities whose fluctuations are of interest. It is also supported by recent analysis of Plerou et al. of a database containing the bid, the ask, and the sale price of each trade of every stock. Further, the Plerou et al. analysis is consistent with a possible theoretical framework for understanding economic fluctuations.
Robert J. Shiller
- Published in print:
- 1998
- Published Online:
- November 2003
- ISBN:
- 9780198294184
- eISBN:
- 9780191596926
- Item type:
- book
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/0198294182.001.0001
- Subject:
- Economics and Finance, Macro- and Monetary Economics, Financial Economics
This book, which is part of the distinguished Clarendon Lectures in Economics series, puts forward a unique and authoritative set of detailed proposals for establishing new markets for the management ...
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This book, which is part of the distinguished Clarendon Lectures in Economics series, puts forward a unique and authoritative set of detailed proposals for establishing new markets for the management of the biggest economic risks facing governments and society. Robert Shiller argues that we have largely the wrong financial markets, and that establishing new ones may fundamentally alter and diminish international economic fluctuations (and thus enable better risk management) and reduce the inequality of incomes. Shiller argues that although some risks, such as natural disaster or temporary unemployment, are shared by society, most risks are borne by the individual, and standards of living are determined by luck. He investigates whether a new technology of markets could make risk sharing possible and shows how new contracts could be designed to hedge all manner of risks to the individual's living standards. He proposes new international markets for perpetual claims on national incomes, and on components and aggregates of national incomes, concluding that these markets may well dwarf our stock markets in their activity and significance. He also argues for new liquid international markets for residential and commercial property. Establishing such unprecedented new markets presents some important technical problems that Shiller attempts to solve with proposals for implementing futures markets on perpetual claims on incomes, and for the construction of index numbers for cash settlement of risk management contracts. These new markets could fundamentally alter and diminish international economic fluctuations, and reduce the inequality of incomes around the world. Much of the book is technical, and it is intended mostly for economists, contract designers at futures and options exchanges, originators of swaps and other financial deals, and designers of retail products associated with risk management (such as insurance, pension plans, and mortgages). However, the material within the book is mostly arranged so that a non‐technical reader can follow the broad themes, and until Ch. 6, most of the technical material is relegated to appendices.Less
This book, which is part of the distinguished Clarendon Lectures in Economics series, puts forward a unique and authoritative set of detailed proposals for establishing new markets for the management of the biggest economic risks facing governments and society. Robert Shiller argues that we have largely the wrong financial markets, and that establishing new ones may fundamentally alter and diminish international economic fluctuations (and thus enable better risk management) and reduce the inequality of incomes. Shiller argues that although some risks, such as natural disaster or temporary unemployment, are shared by society, most risks are borne by the individual, and standards of living are determined by luck. He investigates whether a new technology of markets could make risk sharing possible and shows how new contracts could be designed to hedge all manner of risks to the individual's living standards. He proposes new international markets for perpetual claims on national incomes, and on components and aggregates of national incomes, concluding that these markets may well dwarf our stock markets in their activity and significance. He also argues for new liquid international markets for residential and commercial property. Establishing such unprecedented new markets presents some important technical problems that Shiller attempts to solve with proposals for implementing futures markets on perpetual claims on incomes, and for the construction of index numbers for cash settlement of risk management contracts. These new markets could fundamentally alter and diminish international economic fluctuations, and reduce the inequality of incomes around the world. Much of the book is technical, and it is intended mostly for economists, contract designers at futures and options exchanges, originators of swaps and other financial deals, and designers of retail products associated with risk management (such as insurance, pension plans, and mortgages). However, the material within the book is mostly arranged so that a non‐technical reader can follow the broad themes, and until Ch. 6, most of the technical material is relegated to appendices.
Yves Balasko
- Published in print:
- 2009
- Published Online:
- August 2013
- ISBN:
- 9780262026543
- eISBN:
- 9780262255370
- Item type:
- book
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262026543.001.0001
- Subject:
- Economics and Finance, Econometrics
This book argues that, contrary to what many textbooks want readers to believe, the study of the general equilibrium model did not end with the existence and welfare theorems of the 1950s. These ...
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This book argues that, contrary to what many textbooks want readers to believe, the study of the general equilibrium model did not end with the existence and welfare theorems of the 1950s. These developments, which characterize the modern phase of the theory of general equilibrium, led to what this book calls the postmodern phase, marked by the reintroduction of differentiability assumptions and the application of the methods of differential topology to the study of the equilibrium equation. This study demonstrates the central role played by the equilibrium manifold in understanding the properties of the Arrow–Debreu model and its extensions. It argues that the tools of differential topology articulated around the concept of equilibrium manifold offer powerful methods for studying economically important issues, from existence and uniqueness to business cycles and economic fluctuations. After an examination of the theory of general equilibrium’s evolution in the hundred years between Walras and Arrow–Debreu, the book discusses the properties of the equilibrium manifold and the natural projection. It highlights the important role of the set of no-trade equilibria, the structure of which is applied to the global structure of the equilibrium manifold. The book also develops a geometric approach to the study of the equilibrium manifold. Applications include stability issues of adjustment dynamics for out-of-equilibrium prices, the introduction of price-dependent preferences, and aspects of time and uncertainty in extensions of the general equilibrium model that account for various forms of market frictions and imperfections.Less
This book argues that, contrary to what many textbooks want readers to believe, the study of the general equilibrium model did not end with the existence and welfare theorems of the 1950s. These developments, which characterize the modern phase of the theory of general equilibrium, led to what this book calls the postmodern phase, marked by the reintroduction of differentiability assumptions and the application of the methods of differential topology to the study of the equilibrium equation. This study demonstrates the central role played by the equilibrium manifold in understanding the properties of the Arrow–Debreu model and its extensions. It argues that the tools of differential topology articulated around the concept of equilibrium manifold offer powerful methods for studying economically important issues, from existence and uniqueness to business cycles and economic fluctuations. After an examination of the theory of general equilibrium’s evolution in the hundred years between Walras and Arrow–Debreu, the book discusses the properties of the equilibrium manifold and the natural projection. It highlights the important role of the set of no-trade equilibria, the structure of which is applied to the global structure of the equilibrium manifold. The book also develops a geometric approach to the study of the equilibrium manifold. Applications include stability issues of adjustment dynamics for out-of-equilibrium prices, the introduction of price-dependent preferences, and aspects of time and uncertainty in extensions of the general equilibrium model that account for various forms of market frictions and imperfections.
Yves Balasko
- Published in print:
- 2009
- Published Online:
- August 2013
- ISBN:
- 9780262026543
- eISBN:
- 9780262255370
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262026543.003.0411
- Subject:
- Economics and Finance, Econometrics
This chapter deals with an extension of the Arrow–Debreu model, namely, the fully stationary intertemporal Arrow–Debreu model where some consumers face restrictions in their ability to transfer ...
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This chapter deals with an extension of the Arrow–Debreu model, namely, the fully stationary intertemporal Arrow–Debreu model where some consumers face restrictions in their ability to transfer wealth between time periods. This extension represents one of the first steps into a genuinely general equilibrium analysis of economic fluctuations. The question here becomes whether a fully stationary model can feature equilibrium solutions that are not stationary. It shows that if there are no restrictions on intertemporal transfers, then all equilibrium solutions are asymptotically stationary, with little room left for fluctuations. However, if some restrictions exist on individual intertemporal transfers, nonstationary equilibrium allocations can exist. The equilibrium manifold approach is used to gain insight on these economies and to assess the role of restrictions in intertemporal wealth transfers in creating or amplifying economic fluctuations.Less
This chapter deals with an extension of the Arrow–Debreu model, namely, the fully stationary intertemporal Arrow–Debreu model where some consumers face restrictions in their ability to transfer wealth between time periods. This extension represents one of the first steps into a genuinely general equilibrium analysis of economic fluctuations. The question here becomes whether a fully stationary model can feature equilibrium solutions that are not stationary. It shows that if there are no restrictions on intertemporal transfers, then all equilibrium solutions are asymptotically stationary, with little room left for fluctuations. However, if some restrictions exist on individual intertemporal transfers, nonstationary equilibrium allocations can exist. The equilibrium manifold approach is used to gain insight on these economies and to assess the role of restrictions in intertemporal wealth transfers in creating or amplifying economic fluctuations.
Wu Jinglian, Ma Guochuan, Xiaofeng Hua, and Nancy Hearst
- Published in print:
- 2016
- Published Online:
- May 2016
- ISBN:
- 9780190223151
- eISBN:
- 9780190223182
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/acprof:oso/9780190223151.003.0015
- Subject:
- Economics and Finance, Development, Growth, and Environmental, International
Several rounds of economic overheating and inflation during the reform and opening period have posed major economic challenges for China. The government adopted expansionary fiscal and monetary ...
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Several rounds of economic overheating and inflation during the reform and opening period have posed major economic challenges for China. The government adopted expansionary fiscal and monetary policies to achieve short-term economic growth. Yet to create a favorable environment for reform, the economic growth rate must be set at a reasonable level; the pursuit of higher rates of production and increases in the amount output should be prevented; and economic overstretching and chaos must be avoided. China’s economic problems are symptoms of an internal imbalance between investment and consumption, and an external imbalance caused by large surpluses in trade and the balance of payments, leading to a monetary oversupply and higher inflationary pressures. These imbalances are related to shortcomings in China’s economic growth model. The key to addressing them is to improve economic efficiency by advancing reform and allowing the market to play a more important role in resource allocations.Less
Several rounds of economic overheating and inflation during the reform and opening period have posed major economic challenges for China. The government adopted expansionary fiscal and monetary policies to achieve short-term economic growth. Yet to create a favorable environment for reform, the economic growth rate must be set at a reasonable level; the pursuit of higher rates of production and increases in the amount output should be prevented; and economic overstretching and chaos must be avoided. China’s economic problems are symptoms of an internal imbalance between investment and consumption, and an external imbalance caused by large surpluses in trade and the balance of payments, leading to a monetary oversupply and higher inflationary pressures. These imbalances are related to shortcomings in China’s economic growth model. The key to addressing them is to improve economic efficiency by advancing reform and allowing the market to play a more important role in resource allocations.
Giovanni Melina and Rafael Portillo
- Published in print:
- 2018
- Published Online:
- April 2018
- ISBN:
- 9780198785811
- eISBN:
- 9780191827624
- Item type:
- chapter
- Publisher:
- Oxford University Press
- DOI:
- 10.1093/oso/9780198785811.003.0004
- Subject:
- Economics and Finance, Macro- and Monetary Economics, Behavioural Economics
The chapter compares business cycle fluctuations in sub-Saharan African countries to the rest of the world. Its main results are: (i) African economies stand out by their macroeconomic volatility, ...
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The chapter compares business cycle fluctuations in sub-Saharan African countries to the rest of the world. Its main results are: (i) African economies stand out by their macroeconomic volatility, which is reflected in the volatility of output and other macro variables; (ii) inflation and output tend to be negatively correlated in SSA countries; (iii) unlike advanced economies and emerging markets (EMs), trade balances and current accounts are acyclical in SSA; (iv) the volatility of consumption and investment relative to GDP is larger than in other countries; (v) the cyclicality of consumption and investment is smaller than in advanced economies and EMs; (vi) there is little comovement between consumption and investment; and (vii) consumption and investment are strongly positively correlated with imports. The chapter provides a tentative interpretation in terms of the main shocks hitting these economies and the nature of the mechanisms amplifying or dampening these shocks.Less
The chapter compares business cycle fluctuations in sub-Saharan African countries to the rest of the world. Its main results are: (i) African economies stand out by their macroeconomic volatility, which is reflected in the volatility of output and other macro variables; (ii) inflation and output tend to be negatively correlated in SSA countries; (iii) unlike advanced economies and emerging markets (EMs), trade balances and current accounts are acyclical in SSA; (iv) the volatility of consumption and investment relative to GDP is larger than in other countries; (v) the cyclicality of consumption and investment is smaller than in advanced economies and EMs; (vi) there is little comovement between consumption and investment; and (vii) consumption and investment are strongly positively correlated with imports. The chapter provides a tentative interpretation in terms of the main shocks hitting these economies and the nature of the mechanisms amplifying or dampening these shocks.
Roger W. Spencer and David A. Macpherson
- Published in print:
- 2014
- Published Online:
- May 2015
- ISBN:
- 9780262027960
- eISBN:
- 9780262325868
- Item type:
- chapter
- Publisher:
- The MIT Press
- DOI:
- 10.7551/mitpress/9780262027960.003.0021
- Subject:
- Economics and Finance, Economic History
This chapter describes the work of Joseph E. Stiglitz as an economist. Stiglitz received a Nobel Prize in 2001. Stiglitz was born in 1943 and earned his Ph.D. at MIT in 1967. He was appointed ...
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This chapter describes the work of Joseph E. Stiglitz as an economist. Stiglitz received a Nobel Prize in 2001. Stiglitz was born in 1943 and earned his Ph.D. at MIT in 1967. He was appointed professor of economics at Stanford University in 1974, and currently is a university professor at Columbia University. At MIT he tried to explain which assumption was responsible for fluctuations in the economy and the persistence of unemployment. He pointed out that the failure of neoclassical economics was due to the assumption of perfect information and that people were rational in their choices. From here, he developed his work in the economics of information and on the theory of screening. He also looked at macrostability issues related to economic efficiency and market stability. The Economic Role of the State and Globalization and Its Discontent are two of his key publications.Less
This chapter describes the work of Joseph E. Stiglitz as an economist. Stiglitz received a Nobel Prize in 2001. Stiglitz was born in 1943 and earned his Ph.D. at MIT in 1967. He was appointed professor of economics at Stanford University in 1974, and currently is a university professor at Columbia University. At MIT he tried to explain which assumption was responsible for fluctuations in the economy and the persistence of unemployment. He pointed out that the failure of neoclassical economics was due to the assumption of perfect information and that people were rational in their choices. From here, he developed his work in the economics of information and on the theory of screening. He also looked at macrostability issues related to economic efficiency and market stability. The Economic Role of the State and Globalization and Its Discontent are two of his key publications.
Seok-Kyun Hur
- Published in print:
- 2007
- Published Online:
- February 2013
- ISBN:
- 9780226386812
- eISBN:
- 9780226387062
- Item type:
- chapter
- Publisher:
- University of Chicago Press
- DOI:
- 10.7208/chicago/9780226387062.003.0004
- Subject:
- Economics and Finance, South and East Asia
This chapter examines whether fiscal adjustments can contribute to smoothing economic fluctuations, focusing on Korea. There have been two competing views on this issue, one of which—known as ...
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This chapter examines whether fiscal adjustments can contribute to smoothing economic fluctuations, focusing on Korea. There have been two competing views on this issue, one of which—known as Keynesian—emphasizes the effectiveness of fiscal policy, and the other of which—the so-called new classical school—refutes it on the grounds of the crowding-out effect and Ricardian equivalence. The chapter focuses on a trajectory of GDP induced by variations in fiscal expenditure and taxation policy. It estimates three variable vector autoregression models or structural VAR models with Korean fiscal data in order to measure the magnitudes of fiscal multipliers dynamically following changes in fiscal expenditure and taxation. However, the quarterly Korean fiscal and GDP data (covering the period from 1979 Q1 to 2000 Q4) reveal that expansive fiscal policy has no significant or substantial effect on boosting the economy. In order to check the robustness of these results, the chapter considers different combinations of identifying restrictions on the disturbances of the tested structural VAR systems and measures the corresponding fiscal multipliers.Less
This chapter examines whether fiscal adjustments can contribute to smoothing economic fluctuations, focusing on Korea. There have been two competing views on this issue, one of which—known as Keynesian—emphasizes the effectiveness of fiscal policy, and the other of which—the so-called new classical school—refutes it on the grounds of the crowding-out effect and Ricardian equivalence. The chapter focuses on a trajectory of GDP induced by variations in fiscal expenditure and taxation policy. It estimates three variable vector autoregression models or structural VAR models with Korean fiscal data in order to measure the magnitudes of fiscal multipliers dynamically following changes in fiscal expenditure and taxation. However, the quarterly Korean fiscal and GDP data (covering the period from 1979 Q1 to 2000 Q4) reveal that expansive fiscal policy has no significant or substantial effect on boosting the economy. In order to check the robustness of these results, the chapter considers different combinations of identifying restrictions on the disturbances of the tested structural VAR systems and measures the corresponding fiscal multipliers.