A contractive method for computing the stationary solution of the euler equation

A contractive method for computing stationary solutions of intertemporal equilibrium models is provide. The method is is implemented using a contraction mapping derived from the first-order conditions. The deterministic dynamic programming problem is used to illustrate the method. Some numerical examples are performed.

Numerical simulation of viscous three-dimensional flow over aerospace vehicles using Euler/boundary-layer zonal approach

This paper presents a viscous three-dimensional simulations coupling Euler and boundary layer codes for calculating flows over arbitrary surfaces. The governing equations are written in a general non orthogonal coordinate system. The Levy-Lees transformation generalized to three-dimensional flows is utilized. The inviscid properties are obtained from the Euler equations using the Beam and Warming implicit approximate factorization scheme. The resulting equations are discretized and approximated by a two-point fmitedifference numerical scheme. The code developed is validated and applied to the simulation of the flowfield over aerospace vehicle configurations. The results present good correlation with the available data.

On the geometry of solutions of the quasi-geostrophic and Euler equations

We study solutions of the two-dimensional quasi-geostrophic thermal active scalar equation involving simple hyperbolic saddles. There is a naturally associated notion of simple hyperbolic saddle breakdown. It is proved that such breakdown cannot occur in finite time. At large time, these solutions may grow at most at a quadruple-exponential rate. Analogous results hold for the incompressible three-dimensional Euler equation.

Notes on Agents’ Behavioral Rules Under Adaptive Learning and Studies of Monetary Policy

These notes try to clarify some discussions on the formulation of individual intertemporal behavior under adaptive learning in representative agent models. First, we discuss two suggested approaches and related issues in the context of a simple consumption-saving model. Second, we show that the analysis of learning in the NewKeynesian monetary policy model based on “Euler equations” provides a consistent and valid approach.

Finite Horizon Learning

Incorporating adaptive learning into macroeconomics requires assumptions about how agents incorporate their forecasts into their decision-making. We develop a theory of bounded rationality that we call finite-horizon learning. This approach generalizes the two existing benchmarks in the literature: Eulerequation learning, which assumes that consumption decisions are made to satisfy the one-step-ahead perceived Euler equation; and infinite-horizon learning, in which consumption today is determined optimally from an infinite-horizon optimization problem with given beliefs. In our approach, agents hold a finite forecasting/planning horizon. We find for the Ramsey model that the unique rational expectations equilibrium is E-stable at all horizons. However, transitional dynamics can differ significantly depending upon the horizon.

A General and Intuitive Envelope Theorem

We present an envelope theorem for establishing first-order conditions in decision problems involving continuous and discrete choices. Our theorem accommodates general dynamic programming problems, even with unbounded marginal utilities. And, unlike classical envelope theorems that focus only on differentiating value functions, we accommodate other endogenous functions such as default probabilities and interest rates. Our main technical ingredient is how we establish the differentiability of a function at a point: we sandwich the function between two differentiable functions from above and below. Our theory is widely applicable. In unsecured credit models, neither interest rates nor continuation values are globally differentiable. Nevertheless, we establish an Euler equation involving marginal prices and values. In adjustment cost models, we show that first-order conditions apply universally, even if optimal policies are not (S,s). Finally, we incorporate indivisible choices into a classic dynamic insurance analysis.

Energy and structure of dilute hard- and soft-sphere gases

The energy and structure of dilute hard- and soft-sphere Bose gases are systematically studied in the framework of several many-body approaches, such as the variational correlated theory, the Bogoliubov model, and the uniform limit approximation, valid in the weak-interaction regime. When possible, the results are compared with the exact diffusion Monte Carlo ones. Jastrow-type correlation provides a good description of the systems, both hard- and soft-spheres, if the hypernetted chain energy functional is freely minimized and the resulting Euler equation is solved. The study of the soft-sphere potentials confirms the appearance of a dependence of the energy on the shape of the potential at gas paremeter values of x~0.001. For quantities other than the energy, such as the radial distribution functions and the momentum distributions, the dependence appears at any value of x. The occurrence of a maximum in the radial distribution function, in the momentum distribution, and in the excitation spectrum is a natural effect of the correlations when x increases. The asymptotic behaviors of the functions characterizing the structure of the systems are also investigated. The uniform limit approach is very easy to implement and provides a good description of the soft-sphere gas. Its reliability improves when the interaction weakens.

Ground-state properties of a dilute homogeneous Bose gas of hard disks in two dimensions

The energy and structure of a dilute hard-disks Bose gas are studied in the framework of a variational many-body approach based on a Jastrow correlated ground-state wave function. The asymptotic behaviors of the radial distribution function and the one-body density matrix are analyzed after solving the Euler equation obtained by a free minimization of the hypernetted chain energy functional. Our results show important deviations from those of the available low density expansions, already at gas parameter values x~0.001 . The condensate fraction in 2D is also computed and found generally lower than the 3D one at the same x.

A METHOD FOR THE STUDY OF ACCRETION DISK EMISSION IN CATACLYSMIC VARIABLES. I. THE MODEL

We have developed a spectrum synthesis method for modeling the ultraviolet (UV) emission from the accretion disk from cataclysmic variables (CVs). The disk is separated into concentric rings, with an internal structure from the Wade & Hubeny disk-atmosphere models. For each ring, a wind atmosphere is calculated in the comoving frame with a vertical velocity structure obtained from a solution of the Euler equation. Using simple assumptions, regarding rotation and the wind streamlines, these one-dimensional models are combined into a single 2.5-dimensional model for which we compute synthetic spectra. We find that the resulting line and continuum behavior as a function of the orbital inclination is consistent with the observations, and verify that the accretion rate affects the wind temperature, leading to corresponding trends in the intensity of UV lines. In general, we also find that the primary mass has a strong effect on the P Cygni absorption profiles, the synthetic emission line profiles are strongly sensitive to the wind temperature structure, and an increase in the mass-loss rate enhances the resonance line intensities. Synthetic spectra were compared with UV data for two high orbital inclination nova-like CVs-RW Tri and V347 Pup. We needed to include disk regions with arbitrary enhanced mass loss to reproduce reasonably well widths and line profiles. This fact and a lack of flux in some high ionization lines may be the signature of the presence of density-enhanced regions in the wind, or alternatively, may result from inadequacies in some of our simplifying assumptions.

Testing the optimality of aggregate consumption decisions: is there rule-of-thumb behavior?

Consumption is an important macroeconomic aggregate, being about 70% of GNP. Finding sub-optimal behavior in consumption decisions casts a serious doubt on whether optimizing behavior is applicable on an economy-wide scale, which, in turn, challenge whether it is applicable at all. This paper has several contributions to the literature on consumption optimality. First, we provide a new result on the basic rule-of-thumb regression, showing that it is observational equivalent to the one obtained in a well known optimizing real-business-cycle model. Second, for rule-of-thumb tests based on the Asset-Pricing Equation, we show that the omission of the higher-order term in the log-linear approximation yields inconsistent estimates when lagged observables are used as instruments. However, these are exactly the instruments that have been traditionally used in this literature. Third, we show that nonlinear estimation of a system of N Asset-Pricing Equations can be done efficiently even if the number of asset returns (N) is high vis-a-vis the number of time-series observations (T). We argue that efficiency can be restored by aggregating returns into a single measure that fully captures intertemporal substitution. Indeed, we show that there is no reason why return aggregation cannot be performed in the nonlinear setting of the Pricing Equation, since the latter is a linear function of individual returns. This forms the basis of a new test of rule-of-thumb behavior, which can be viewed as testing for the importance of rule-of-thumb consumers when the optimizing agent holds an equally-weighted portfolio or a weighted portfolio of traded assets. Using our setup, we find no signs of either rule-of-thumb behavior for U.S. consumers or of habit-formation in consumption decisions in econometric tests. Indeed, we show that the simple representative agent model with a CRRA utility is able to explain the time series data on consumption and aggregate returns. There, the intertemporal discount factor is significant and ranges from 0.956 to 0.969 while the relative risk-aversion coefficient is precisely estimated ranging from 0.829 to 1.126. There is no evidence of rejection in over-identifying-restriction tests.

Testing consumption optimality using aggregate data

The objective of this paper is to test for optimality of consumption decisions at the aggregate level (representative consumer) taking into account popular deviations from the canonical CRRA utility model rule of thumb and habit. First, we show that rule-of-thumb behavior in consumption is observational equivalent to behavior obtained by the optimizing model of King, Plosser and Rebelo (Journal of Monetary Economics, 1988), casting doubt on how reliable standard rule-of-thumb tests are. Second, although Carroll (2001) and Weber (2002) have criticized the linearization and testing of euler equations for consumption, we provide a deeper critique directly applicable to current rule-of-thumb tests. Third, we show that there is no reason why return aggregation cannot be performed in the nonlinear setting of the Asset-Pricing Equation, since the latter is a linear function of individual returns. Fourth, aggregation of the nonlinear euler equation forms the basis of a novel test of deviations from the canonical CRRA model of consumption in the presence of rule-of-thumb and habit behavior. We estimated 48 euler equations using GMM, with encouraging results vis-a-vis the optimality of consumption decisions. At the 5% level, we only rejected optimality twice out of 48 times. Empirical-test results show that we can still rely on the canonical CRRA model so prevalent in macroeconomics: out of 24 regressions, we found the rule-of-thumb parameter to be statistically signi cant at the 5% level only twice, and the habit ƴ parameter to be statistically signi cant on four occasions. The main message of this paper is that proper return aggregation is critical to study intertemporal substitution in a representative-agent framework. In this case, we fi nd little evidence of lack of optimality in consumption decisions, and deviations of the CRRA utility model along the lines of rule-of-thumb behavior and habit in preferences represent the exception, not the rule.

Cálculo variacional: aspectos teóricos e aplicações

Pós-graduação em Matemática Universitária - IGCE

Bayesian Analysis of Linear Inverse Problems with Applications in Economics and Finance

In my PhD thesis I propose a Bayesian nonparametric estimation method for structural econometric models where the functional parameter of interest describes the economic agent's behavior. The structural parameter is characterized as the solution of a functional equation, or by using more technical words, as the solution of an inverse problem that can be either ill-posed or well-posed. From a Bayesian point of view, the parameter of interest is a random function and the solution to the inference problem is the posterior distribution of this parameter. A regular version of the posterior distribution in functional spaces is characterized. However, the infinite dimension of the considered spaces causes a problem of non continuity of the solution and then a problem of inconsistency, from a frequentist point of view, of the posterior distribution (i.e. problem of ill-posedness). The contribution of this essay is to propose new methods to deal with this problem of ill-posedness. The first one consists in adopting a Tikhonov regularization scheme in the construction of the posterior distribution so that I end up with a new object that I call regularized posterior distribution and that I guess it is solution of the inverse problem. The second approach consists in specifying a prior distribution on the parameter of interest of the g-prior type. Then, I detect a class of models for which the prior distribution is able to correct for the ill-posedness also in infinite dimensional problems. I study asymptotic properties of these proposed solutions and I prove that, under some regularity condition satisfied by the true value of the parameter of interest, they are consistent in a "frequentist" sense. Once I have set the general theory, I apply my bayesian nonparametric methodology to different estimation problems. First, I apply this estimator to deconvolution and to hazard rate, density and regression estimation. Then, I consider the estimation of an Instrumental Regression that is useful in micro-econometrics when we have to deal with problems of endogeneity. Finally, I develop an application in finance: I get the bayesian estimator for the equilibrium asset pricing functional by using the Euler equation defined in the Lucas'(1978) tree-type models.

Behavior of several two-dimensional fluid equations in singular scenarios

We give conditions that rule out formation of sharp fronts for certain two-dimensional incompressible flows. We show that a necessary condition of having a sharp front is that the flow has to have uncontrolled velocity growth. In the case of the quasi-geostrophic equation and two-dimensional Euler equation, we obtain estimates on the formation of semi-uniform fronts.