Two-sided learning in new keynesian models: dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank (two-sided learning) in a New Keynesian framework in which both sides of the economy have asymmetric and imperfect knowledge about the true data generating process. We assume that all agents employ the data that they observe (which may be distinct for different sets of agents) to form beliefs about unknown aspects of the true model of the economy, use their beliefs to decide on actions, and revise these beliefs through a statistical learning algorithm as new information becomes available. We study the short-run dynamics of our model and derive its policy recommendations, particularly with respect to central bank communications. We demonstrate that two-sided learning can generate substantial increases in volatility and persistence, and alter the behavior of the variables in the model in a signifficant way. Our simulations do not converge to a symmetric rational expectations equilibrium and we highlight one source that invalidates the convergence results of Marcet and Sargent (1989). Finally, we identify a novel aspect of central bank communication in models of learning: communication can be harmful if the central bank's model is substantially mis-specified

EGASP: the human ENCODE Genome Annotation Assessment Project

Background: We present the results of EGASP, a community experiment to assess the state-ofthe-art in genome annotation within the ENCODE regions, which span 1% of the human genomesequence. The experiment had two major goals: the assessment of the accuracy of computationalmethods to predict protein coding genes; and the overall assessment of the completeness of thecurrent human genome annotations as represented in the ENCODE regions. For thecomputational prediction assessment, eighteen groups contributed gene predictions. Weevaluated these submissions against each other based on a ‘reference set’ of annotationsgenerated as part of the GENCODE project. These annotations were not available to theprediction groups prior to the submission deadline, so that their predictions were blind and anexternal advisory committee could perform a fair assessment.Results: The best methods had at least one gene transcript correctly predicted for close to 70%of the annotated genes. Nevertheless, the multiple transcript accuracy, taking into accountalternative splicing, reached only approximately 40% to 50% accuracy. At the coding nucleotidelevel, the best programs reached an accuracy of 90% in both sensitivity and specificity. Programsrelying on mRNA and protein sequences were the most accurate in reproducing the manuallycurated annotations. Experimental validation shows that only a very small percentage (3.2%) of the selected 221 computationally predicted exons outside of the existing annotation could beverified.Conclusions: This is the first such experiment in human DNA, and we have followed thestandards established in a similar experiment, GASP1, in Drosophila melanogaster. We believe theresults presented here contribute to the value of ongoing large-scale annotation projects and shouldguide further experimental methods when being scaled up to the entire human genome sequence.

What is the value of joint processing of pilots and data in block-fading channels?

The spectral efficiency achievable with joint processing of pilot and data symbol observations is compared with that achievable through the conventional (separate) approach of first estimating the channel on the basis of the pilot symbols alone, and subsequently detecting the datasymbols. Studied on the basis of a mutual information lower bound, joint processing is found to provide a non-negligible advantage relative to separate processing, particularly for fast fading. It is shown that, regardless of the fading rate, only a very small number of pilot symbols (at most one per transmit antenna and per channel coherence interval) shouldbe transmitted if joint processing is allowed.

Toleration and the fair terms of engagement with diversity

The aim of this paper is to examine the various controversies over the genuineproblems of toleration in a plurally diverse polity as both historically andconceptually, toleration is one of the foundational characteristics that defines thevery essence of a plurally diverse polity and the basic virtue associated with a liberalconception of citizenship. In section 1, I present the main philosophical andconceptual issues related to the toleration-based approach to diversity in liberalpolitical theory. In section 2 I identify the conditions and the circumstances oftoleration. I articulate in Section 3 the most pressing objections against toleration. Ipresent in section 4 two competing approaches to the toleration-based approach todiversity is faced with. In the concluding section, I outline a modified conception oftoleration that mediates between different requirements associated with the twoprincipled commitments of the liberal version of the rights-based conception ofcitizenship.

Ecologies of Value in a Wall Street Trading Room

Our task in this paper is to analyze the organization of trading in the era of quantitative finance. To do so, we conduct an ethnography of arbitrage, the trading strategy that best exemplifies finance in the wake of the quantitative revolution. In contrast to value and momentum investing, we argue, arbitrage involves an art of association-the construction of equivalence (comparability) of properties across different assets. In place of essential or relational characteristics, the peculiar valuation that takes place in arbitrage is based on an operation that makes something the measure of something else-associating securities to each other. The process of recognizing opportunities and the practices of making novel associations are shaped by the specific socio-spatial and socio-technical configurations of the trading room. Calculation is distributed across persons and instruments as the trading room organizes interaction among diverse principles of valuation.

Weak and Strong Altruism in Trait Groups: Reproductive Suicide, Personal Fitness, and Expected Value

A simple variant of trait group selection, employing predators as the mechanism underlying group selection, supports contingent reproductive suicide as altruism (i.e., behavior lowering personal fitness while augmenting that of another) without kin assortment. The contingent suicidal type may either saturate the population or be polymorphic with a type avoiding suicide, depending on parameters. In addition to contingent suicide, this randomly assorting morph may also exhibit continuously expressed strong altruism (sensu Wilson 1979) usually thought restricted to kin selection. The model will not, however, support a sterile worker caste as such, where sterility occurs before life history events associated with effective altruism; reproductive suicide must remain fundamentally contingent (facultative sensu West Eberhard 1987; Myles 1988) under random assortment. The continuously expressed strong altruism supported by the model may be reinterpreted as probability of arbitrarily committing reproductive suicide, without benefit for another; such arbitrary suicide (a "load" on "adaptive" suicide) is viable only under a more restricted parameter space relative to the necessarily concomitant adaptive contingent suicide.

The value of useless information

There are many situations in which individuals have a choice of whether or notto observe eventual outcomes. In these instances, individuals often prefer to remainignorant. These contexts are outside the scope of analysis of the standard vonNeumann-Morgenstern (vNM) expected utility model, which does not distinguishbetween lotteries for which the agent sees the final outcome and those for which hedoes not. I develop a simple model that admits preferences for making an observationor for remaining in doubt. I then use this model to analyze the connectionbetween preferences of this nature and risk-attitude. This framework accommodatesa wide array of behavioral patterns that violate the vNM model, and thatmay not seem related, prima facie. For instance, it admits self-handicapping, inwhich an agent chooses to impair his own performance. It also accommodatesa status quo bias without having recourse to framing effects, or to an explicitdefinition of reference points. In a political economy context, voters have strictincentives to shield themselves from information. In settings with other-regardingpreferences, this model predicts observed behavior that seems inconsistent witheither altruism or self-interested behavior.

Two-sided learning in New Keynesian models: Dynamics, (lack of) convergence and the value of information

This paper investigates the role of learning by private agents and the central bank(two-sided learning) in a New Keynesian framework in which both sides of the economyhave asymmetric and imperfect knowledge about the true data generating process. Weassume that all agents employ the data that they observe (which may be distinct fordifferent sets of agents) to form beliefs about unknown aspects of the true model ofthe economy, use their beliefs to decide on actions, and revise these beliefs througha statistical learning algorithm as new information becomes available. We study theshort-run dynamics of our model and derive its policy recommendations, particularlywith respect to central bank communications. We demonstrate that two-sided learningcan generate substantial increases in volatility and persistence, and alter the behaviorof the variables in the model in a significant way. Our simulations do not convergeto a symmetric rational expectations equilibrium and we highlight one source thatinvalidates the convergence results of Marcet and Sargent (1989). Finally, we identifya novel aspect of central bank communication in models of learning: communicationcan be harmful if the central bank's model is substantially mis-specified.

Fair pricing of deposit insurance. Is it possible? Yes. Is it desirable? No

This note elaborates on a recent article by Chan, Greenbaum and Thakor(1992) who contend that fairly priced deposit insurance is incompatiblewithfree competition in the banking sector, in the presence of adverseselection.We show here that at soon as one introduces a real economic motivationfromprivate banks to manage the deposits from the public, then fairly priceddeposit insurance becomes possible. However, we also show that sucha fairlypriced insurance is never desirable, precisely because of adverseselection.We compute the characteristics of the optimal premium schedule, whichtradesoff between the cost of adverse selection and the cost of ``unfaircompetition ''.

Value and depreciation of mineral resources over the very long run: An empirical contrast of different methods

The paper contrasts empirically the results of alternative methods for estimating thevalue and the depreciation of mineral resources. The historical data of Mexico andVenezuela, covering the period 1920s-1980s, is used to contrast the results of severalmethods. These are the present value, the net price method, the user cost method andthe imputed income method. The paper establishes that the net price and the user costare not competing methods as such, but alternative adjustments to different scenariosof closed and open economies. The results prove that the biases of the methods, ascommonly described in the theoretical literature, only hold under the most restrictedscenario of constant rents over time. It is argued that the difference between what isexpected to happen and what actually did happen is for the most part due to a missingvariable, namely technological change. This is an important caveat to therecommendations made based on these models.

Solving higher-dimensional continuous time stochastic control problems by value function regression

The paper develops a method to solve higher-dimensional stochasticcontrol problems in continuous time. A finite difference typeapproximation scheme is used on a coarse grid of low discrepancypoints, while the value function at intermediate points is obtainedby regression. The stability properties of the method are discussed,and applications are given to test problems of up to 10 dimensions.Accurate solutions to these problems can be obtained on a personalcomputer.