The n-dimensional bailey-divisia measure as a general-equilibrium measure of the welfare costs of inflation

This paper shows that in economies with several monies the Bailey-Divisia multidimensional consumers surplus formula may emerge as an exact general-equilibrium measure of the welfare costs of in ation, provided that preferences are quasilinear.

Essays in recursive equilibrium and market selection hypothesis

Este trabalho consiste em estudar modelos incluindo agentes com informação completa e incompleta sobre o ambiente econômico. Prova-se a existência de equilíbrio em que esses dois agentes coexistem e sob, algumas condições, obtêm-se que esse equilíbrio é recursivo e contínuo, ou seja, pode ser implementado por uma função contínua de transição que relaciona as variáveis de equilíbrio entre dois períodos consecutivos. Mostra-se, sob algumas hipóteses, que em equilíbrios recursivos contínuos, os agentes que cometem erros persistentes nas antecipações dos preços de equilíbrio são eliminados do mercado. Finalmente, exibimos diversos exemplos numéricos, no caso de mercados incompletos e informação completa, em que os agentes com expectativas racionais são eliminados do mercado. Usam-se métodos numéricos alternativos que possibilitam computar um equilíbrio em modelos com agentes heterogêneos.

Approximate recursive equilibrium with minimal state space

This paper shows existence of approximate recursive equilibrium with minimal state space in an environment of incomplete markets. We prove that the approximate recursive equilibrium implements an approximate sequential equilibrium which is always close to a Magill and Quinzii equilibrium without short sales for arbitrarily small errors. This implies that the competitive equilibrium can be implemented by using forecast statistics with minimal state space provided that agents will reduce errors in their estimates in the long run. We have also developed an alternative algorithm to compute the approximate recursive equilibrium with incomplete markets and heterogeneous agents through a procedure of iterating functional equations and without using the rst order conditions of optimality.

Preços de commodities agrícolas e o comportamento de mercado invertido (backwardation): o caso da soja

A relação entre preços do mercado spot e do mercado futuro e a evidência de Mercado Invertido (backwardation) na estrutura a termo de commodities têm tido ênfase na literatura de economia e de finanças. O objetivo deste trabalho é apresentar as principais causas responsáveis pelo comportamento de Mercado Invertido e identificar as propriedades que caracterizam o equilíbrio de preços em commodities agrícolas. Seja pela existência de prêmio de risco ou do benefício de conveniência, o entendimento dos efeitos sobre a replicação do preço futuro e sobre a estrutura a termo de preços ainda permanece em aberto. A premissa de perfeita replicação de portfólios e a ausência de fricções de mercado implicam, por outro lado, que o entendimento do comportamento de Mercado Invertido advém da compreensão do processo estocástico do próprio ativo subjacente. O apreçamento neutro ao risco, amparado pelos sinais de reversão de preços, permite a modelagem de preços conforme o proposto em Schwartz e Smith (2000), cuja calibração e os resultados serão apresentados para a soja.

Non-monotone insurence contracts and their empirical consequences

The goal of t.his paper is to show the possibility of a non-monot.one relation between coverage and risk which has been considered in the literature of insurance models since the work of Rothschild and Stiglitz (1976). We present an insurance model where the insured agents have heterogeneity in risk aversion and in lenience (a prevention cost parameter). Risk aversion is described by a continuou.'l parameter which is correlated with lenience and, for the sake of simplicity, we assume perfect correlation. In the case of positive correlation, the more risk averse agent has higher cost of prevention leading to a higher demand for coverage. Equivalently, the single crossing property (SCP) is valid and implies a positive correlation between coverage and risk in equilibrium. On the other hand, if the correlation between risk aversion and lenience is negative, not only may the sep be broken, but also the monotonicity of contracts, i.e., the prediction that high (Iow) risk averse types choose full (partial) insurance. In both cases riskiness is monotonic in risk aversion, but in the last case t,here are some coverage leveIs associated with two different risks (low and high), which implies that the ex-ante (with respect to the risk aversion distribution) correlation bet,ween coverage and riskiness may have every sign (even though the ex-post correlation is always positive). Moreover, using another instrument (a proxy for riskiness), we give a testable implication to disentangle single crossing and non single crossing under an ex-post zero correlation result: the monotonicity of coverage as a function of riskiness. Since by controlling for risk aversion (no asymmetric informat, ion), coverage is a monotone function of riskiness, this also gives a test for asymmetric information. Finally, we relate this theoretical results to empirica! tests in the recent literature, specially the Dionne, Gouriéroux and Vanasse (2001) work. In particular, they found an empirical evidence that seems to be compatible with asymmetric information and non single crossing in our framework. More generally, we build a hidden information model showing how omitted variabIes (asymmetric information) can bias the sign of the correlation of equilibrium variabIes conditioning on ali observabIe variabIes. We show that this may be t,he case when the omitted variabIes have a non-monotonic reIation with t,he observable ones. Moreover, because this non-monotonic reIat,ion is deepIy reIated with the failure of the SCP in one-dimensional screening problems, the existing lit.erature on asymmetric information does not capture t,his feature. Hence, our main result is to point Out the importance of t,he SCP in testing predictions of the hidden information models.

Empirical measures,learning and sunspot equilibrium

In this paper we construct sunspot equilibria that arrise from chaotic deterministic dynamics. These equilibria are robust and therefore observables. We prove that they may be learned by a sim pie rule based on the histograms or past state variables. This work gives the theoretical justification or deterministic models that might compete with stochastic models to explain real data.

Bailey's measure of the welfare costs of infiation as a general-equilibrium measure

Lucas (2000) has ShO\nl t hat Baile,\"'s formula for t hc \\'elfare costs of inflatioIl caIl bc rcgardpd as an approximation to t hc gcneral-equilibriuIll IllCaSllH'S \\"hich emerge from thc Sidrauski anrl the shopping-time models, In this paper \\'c shm\' that Baile~"s mcaSllrc can bc cxactly obtairlf'd in tllf' Siclrauski geIleral-equilibri1lIn framp\\'ork under the assUIllption of quasilinpar prefpreIlC'cs, The rpslllt. based on ",heter or not \\'Palt h pffpcts are incorporatccl into t hp analysis, is also helpful in darif\'ing \\'hy Lucas' Illeasurp clerin'd from the Siclrauski model turns 01lt to be aIl upper bOllIlcl to Bailp~"s, T,,'o eXaInplcs arp used to illustratc t he main C'ondusions,

Bertrand, Cournot and monopolistically competitive equilibria

Using an example, we study the analogs, for the differentiated product case, of the Cournot and Bertrand equilibria. These equilibria can be shown to exist and be uni que if we impose a sim pie and natural restriction on the elasticities of the demand functions for the differentiated products. Our characterizations of these equilibria make it possible to compare them and to determine how they are affected by the size of the market and the number of firms. We are also able to prove the existence of Cournot free-entry equilibria in which the number of firms is determined endogenously. In addition, we are able to prove that, in a large market, the Cournot free-entry equilibria approximate the Dixit-Stiglitz monopolistically competitive equilibria. The free-entry equilibrium concept we study is an analog of the one studied by Novshek for the case of firms selling products that are perfect substitutes. Our results are extensions of Novshek's. While we were unable to establish a general existence result for Bertrand free-entry equilibria, we were able to prove that, when these equilibria exist, they are unique and that in large markets they also approximate the Dixit-Stiglitz equilibria.

Demand-pull stagflation

This paper explores the possibility of stagflation emanating exc1usively from monetaJy sbocks, without concurrent supply shocks or shifts in potential output. This arises in connection with a tight money paradox. in the context of a fiscal theory of the price leveI. The paper exhibits perfect foresight equilibria with output and inflation fluctuating in opposite direetions as a consequence of small monetary shocks, and also following changes in monetaJy policy regime that launch the economy into hyperinflation or that produce dramatic stabilization of already high inflation. For that purpose, an analytically convenient dynamic general equilibrium macro model is deve10ped wbere nominal rigidities are represented by a cross between staggered two-period contracts and state dependent price adjustment in the presence of menu costs.

Moral hazard and nonlinear pricing in a general equilibrium model

The paper analyzes a two period general equilibrium model with individual risk and moral hazard. Each household faces two individual states of nature in the second period. These states solely differ in the household's vector of initial endowments, which is strictly larger in the first state (good state) than in the second state (bad state). In the first period households choose a non-observable action. Higher leveis of action give higher probability of the good state of nature to occur, but lower leveIs of utility. Households have access to an insurance market that allows transfer of income across states of oature. I consider two models of financiaI markets, the price-taking behavior model and the nonlínear pricing modelo In the price-taking behavior model suppliers of insurance have a belief about each household's actíon and take asset prices as given. A variation of standard arguments shows the existence of a rational expectations equilibrium. For a generic set of economies every equilibrium is constraíned sub-optímal: there are commodity prices and a reallocation of financiaI assets satisfying the first period budget constraint such that, at each household's optimal choice given those prices and asset reallocation, markets clear and every household's welfare improves. In the nonlinear pricing model suppliers of insurance behave strategically offering nonlinear pricing contracts to the households. I provide sufficient conditions for the existence of equilibrium and investigate the optimality properties of the modeI. If there is a single commodity then every equilibrium is constrained optimaI. Ir there is more than one commodity, then for a generic set of economies every equilibrium is constrained sub-optimaI.

General equilibrium model with restricted participation in financial markets

The paper analyses a general equilibrium model with financiaI markets in which households may face restrictions in trading financiaI assets such as borrowing constraints and collateral (restricted participation model). However, markets are not assumed to be incomplete. We consider a standard general equilibrium model with H > 1 households, 2 periods and S states of nature in the second period. We show that generically the set of equilibrium allocations ia indeterminate, provided the existence of at least one nominal asset and one household for who some restriction is binding. Suppose there are C > 1 commodities in each state of nature and assets pays in units of some commodity. In this case for each household with binding restrictions it is possible to reduce the set of feasible assets trading and obtain a new equilibrium that utility improve alI those households. There is however an upper bound on the number of households to be improved related to the number of states of nature and the number of commodities. In particular, if the number of households ia smaller than the number of states of nature it is possible to Pareto improve any equilibrium by reducing the feasible choice set for each household.

Valuation equilibrium with crubs

This paper considers model worlds in which there are a continuum of individuaIs who form finite sized associations to undertake joint activities. We show that if there are a finite set of types and the commodity space contains lotteries, then the c1assicaI equilibrium results on convex economies can be reinterpreted to apply. Furthermore, in this lottery economy deterministic aIlocations (that is, degenerate lotteries) are generally not Pareto optimal, nor are they equilibria. In the interests of making the model seem more "natural," we show that the set of equilibria in a decentraIization in which individuaIs first gamble over vaIue transfers and then trade commodities in a deterministic competitive market economy are equivalent to those of our competi tive economy with a lottery commodity space.

Stabilization, volatility and the equilibrium real exchange rate

In a general equilibrium model. we show that the value of the equilibrium real exchange rate is affected by its own volatility. Risk averse exporters. that make their exporting decision before observing the realization of the real exchange rate. choose to export less the more volatile is the real exchange rate. Therefore the trude balance and the variance of the real exchange rate are negatively related. An increase in the volatility of the real exchange rate for instance deteriorates the trade balance and to restore equilibrium a real exchange rate depreciation has to take place. In the empirical part of the paper we use the traditional (unconditional) standard deviation of RER changes as our measure of RER volatility.We describe the behavior of the RER volatility for Brazil,Argentina and Mexico.Monthly data for the three countries are used. and also daily data for Bruzil. Interesting patterns of volatility could be associated to the nature of the several stabilization plans adopted in those countries and to changes in the exchange rate regimes .