Monetary Policy and Heterogeneous Expectations

This paper studies the implications for monetary policy of heterogeneous expectations in a New Keynesian model. The assumption of rational expectations is replaced with parsimonious forecasting models where agents select between predictors that are underparameterized. In a Misspecification Equilibrium agents only select the best-performing statistical models. We demonstrate that, even when monetary policy rules satisfy the Taylor principle by adjusting nominal interest rates more than one for one with inflation, there may exist equilibria with Intrinsic Heterogeneity. Under certain conditions, there may exist multiple misspecification equilibria. We show that these findings have important implications for business cycle dynamics and for the design of monetary policy.

Stability and cycles in a cobweb model with heterogeneous expectations

We investigate the dynamics of a cobweb model with heterogeneous beliefs, generalizing the example of Brock and Hommes (1997). We examine situations where the agents form expectations by using either rational expectations, or a type of adaptive expectations with limited memory defined from the last two prices. We specify conditions that generate cycles. These conditions depend on a set of factors that includes the intensity of switching between beliefs and the adaption parameter. We show that both Flip bifurcation and Neimark-Sacker bifurcation can occur as primary bifurcation when the steady state is unstable.

Speculation, risk premia and expectations in the yield curve

An affine asset pricing model in which traders have rational but heterogeneous expectations aboutfuture asset prices is developed. We use the framework to analyze the term structure of interestrates and to perform a novel three-way decomposition of bond yields into (i) average expectationsabout short rates (ii) common risk premia and (iii) a speculative component due to heterogeneousexpectations about the resale value of a bond. The speculative term is orthogonal to public informationin real time and therefore statistically distinct from common risk premia. Empirically wefind that the speculative component is quantitatively important accounting for up to a percentagepoint of yields, even in the low yield environment of the last decade. Furthermore, allowing for aspeculative component in bond yields results in estimates of historical risk premia that are morevolatile than suggested by standard Affine Gaussian term structure models which our frameworknests.

Essays in general equilibrium asset pricing

ABSTRACT : Research in empirical asset pricing has pointed out several anomalies both in the cross section and time series of asset prices, as well as in investors' portfolio choice. This dissertation aims to discover the forces driving some of these "puzzling" asset pricing dynamics and portfolio decisions observed in the financial market. Through the dissertation I construct and study dynamic general equilibrium models of heterogeneous investors in the presence of frictions and evaluate quantitatively their implications for financial-market asset prices and portfolio choice. I also explore the potential roots of puzzles in international finance. Chapter 1 shows that, by introducing jointly endogenous no-default type of borrowing constraints and heterogeneous beliefs in a dynamic general-equilibrium economy, many empirical features of stock return volatility can be reproduced. While most of the research on stock return volatility is empirical, this paper provides a theoretical framework that is able to reproduce simultaneously the cross section and time series stylized facts concerning stock returns and their volatility. In contrast to the existing theoretical literature related to stock return volatility, I don't impose persistence or regimes in any of the exogenous state variables or in preferences. Volatility clustering, asymmetry in the stock return-volatility relationship, and pricing of multi-factor volatility components in the cross section all arise endogenously as a consequence of the feedback between the binding of no-default constraints and heterogeneous beliefs. Chapters 2 and 3 explore the implications of differences of opinion across investors in different countries for international asset pricing anomalies. Chapter 2 demonstrates that several international finance "puzzles" can be reproduced by a single risk factor which captures heterogeneous beliefs across international investors. These puzzles include: (i) home equity preference; (ii) the dependence of firm returns on local and foreign factors; (iii) the co-movement of returns and international capital flows; and (iv) abnormal returns around foreign firm cross-listing events in the local market. These are reproduced in a setup with symmetric information and in a perfectly integrated world with multiple countries and independent processes producing the same good. Chapter 3 shows that by extending this framework to multiple goods and correlated production processes; the "forward premium puzzle" arises naturally as a compensation for the heterogeneous expectations about the depreciation of the exchange rate held by international investors. Chapters 2 and 3 propose differences of opinion across international investors as the potential resolution of several international finance `puzzles'. In a globalized world where both capital and information flow freely across countries, this explanation seems more appealing than existing asymmetric information or segmented markets theories aiming to explain international finance puzzles.

US inflation expectations and heterogeneous loss functions, 1968-2010

Recent literature has suggested that macroeconomic forecasters may have asymmetric loss functions, and that there may be heterogeneity across forecasters in the degree to which they weigh under- and over-predictions. Using an individual-level analysis that exploits the Survey of Professional Forecasters respondents’ histogram forecasts, we find little evidence of asymmetric loss for the inflation forecasters

Managing Quality under Heterogeneous Consumer Demand and Product Quality, October 2005

Based on accepted advances in the marketing, economics, consumer behavior, and satisfaction literatures, we develop a micro-foundations model of a firm that needs to manage the quality of a product that is inherently heterogeneous in the presence of varying customer tastes or expectations for quality. Our model blends elements of the returns to quality, customer lifetime value, and service profit chain approaches to marketing. The model is then used to explain several empirical results pertaining to the marketing literature by explicitly articulating the trade-offs between customer satisfaction and costs (including opportunity costs) of quality. In this environment firms will find it optimal to allow some customers to go unsatisfied. We show that the relationship between the expected number of repeated purchases by an individual customer is endogenous to the choice of quality by the firm, indicating that the number of purchases cannot be chosen freely to estimate a customer’s lifetime value.

Overconfidence and market efficiency with heterogeneous agents

We study financial markets in which both rational and overconfident agents coexist and make endogenous information acquisition decisions. We demonstrate the following irrelevance result: when a positive fraction of rational agents (endogeneously) decides to become informed in equilibrium, prices are set as if all investors were rational, and as a consequence the overconfidence bias does not aect informational efficiency, price volatility, rational traders expected profits or their welfare. Intuitively, as overconfidence goes up, so does price infornativeness, which makes rational agents cut their information acquisition activities, effectively undoing the standard effect of more aggressive trading by the overconfident.

Exogenous expectations on endogenous uncertainty: recursive equilibrium and survival

This paper analyses general equilibrium models with finite heterogeneous agents having exogenous expectations on endogenous uncertainty. It is shown that there exists a recursive equilibrium with the state space consisting of the past aggregate portfolio distribution and the current state of the nature and that it implements the sequential equilibrium. We establish conditions under which the recursive equilibrium is continuous. Moreover, we use the continuous recursive relation of the aggregate variables to prove that if the economy has two types of agents, the one who commits persistent mistakes on the expectation rules of the future endogenous variables is driven out of the market by the others with correct anticipations of the variables, that is, the rational expectations agents.

Evidence of the heterogeneous market hypothesis using wavelet multi -resolution analysis

In finance literature many economic theories and models have been proposed to explain and estimate the relationship between risk and return. Assuming risk averseness and rational behavior on part of the investor, the models are developed which are supposed to help in forming efficient portfolios that either maximize (minimize) the expected rate of return (risk) for a given level of risk (rates of return). One of the most used models to form these efficient portfolios is the Sharpe's Capital Asset Pricing Model (CAPM). In the development of this model it is assumed that the investors have homogeneous expectations about the future probability distribution of the rates of return. That is, every investor assumes the same values of the parameters of the probability distribution. Likewise financial volatility homogeneity is commonly assumed, where volatility is taken as investment risk which is usually measured by the variance of the rates of return. Typically the square root of the variance is used to define financial volatility, furthermore it is also often assumed that the data generating process is made of independent and identically distributed random variables. This again implies that financial volatility is measured from homogeneous time series with stationary parameters. In this dissertation, we investigate the assumptions of homogeneity of market agents and provide evidence for the case of heterogeneity in market participants' information, objectives, and expectations about the parameters of the probability distribution of prices as given by the differences in the empirical distributions corresponding to different time scales, which in this study are associated with different classes of investors, as well as demonstrate that statistical properties of the underlying data generating processes including the volatility in the rates of return are quite heterogeneous. In other words, we provide empirical evidence against the traditional views about homogeneity using non-parametric wavelet analysis on trading data, The results show heterogeneity of financial volatility at different time scales, and time-scale is one of the most important aspects in which trading behavior differs. In fact we conclude that heterogeneity as posited by the Heterogeneous Markets Hypothesis is the norm and not the exception.

Esporte e qualidade de vida : reflexão sociologica

Universidade Estadual de Campinas . Faculdade de Educação Física

PARTITIONED ANALYSIS FOR DIMENSIONALLY-HETEROGENEOUS HYDRAULIC NETWORKS

In this work an iterative strategy is developed to tackle the problem of coupling dimensionally-heterogeneous models in the context of fluid mechanics. The procedure proposed here makes use of a reinterpretation of the original problem as a nonlinear interface problem for which classical nonlinear solvers can be applied. Strong coupling of the partitions is achieved while dealing with different codes for each partition, each code in black-box mode. The main application for which this procedure is envisaged arises when modeling hydraulic networks in which complex and simple subsystems are treated using detailed and simplified models, correspondingly. The potentialities and the performance of the strategy are assessed through several examples involving transient flows and complex network configurations.

Sisal cellulose acetates obtained from heterogeneous reactions

In the present work, cellulose obtained from sisal, which is a source of rapid growth, was used. Cellulose acetates were produced in heterogeneous medium, using acetic anhydride as esterifying agent and iodine as catalyst, to check if the procedure described in the literature for commercial cellulose also is adequate to sisal cellulose. The results indicated that iodine is an excellent catalyst to obtain sisal cellulose acetates, but the reaction is so fast as described in the literature when, instead of sisal, lower average molar weight cellulose (microcrystalline) is used. The crystallinity index (I(c)) of sisal cellulose acetates diminished compared to sisal cellulose, but there was no direct correlation between their degree of substitution (DS) and I(c). Probably acetyl groups were introduced more homogeneously along the short chains of microcrystalline cellulose, when compared to sisal cellulose, and then for microcrystalline cellulose acetates the Ic decreases as DS increases. Using the linear correlation that was found between degree of substitution (DS) and time reaction is possible to control the DS of sisal cellulose acetates, considering a large interval of degrees of substitution (0.3-2.8).

The accuracy of the Clock Drawing Test compared to that of standard screening tests for Alzheimer`s disease: results from a study of Brazilian elderly with heterogeneous educational backgrounds

Background: Although the Clock Drawing Test (CDT) is the second most used test in the world for the screening of dementia, there is still debate over its sensitivity specificity, application and interpretation in dementia diagnosis. This study has three main aims: to evaluate the sensitivity and specificity of the CDT in a sample composed of older adults with Alzheimer`s disease (AD) and normal controls; to compare CDT accuracy to the that of the Mini-mental State Examination (MMSE) and the Cambridge Cognitive Examination (CAMCOG), and to test whether the association of the MMSE with the CDT leads to higher or comparable accuracy as that reported for the CAMCOG. Methods: Cross-sectional assessment was carried out for 121 AD and 99 elderly controls with heterogeneous educational levels from a geriatric outpatient clinic who completed the Cambridge Examination for Mental Disorder of the Elderly (CAMDEX). The CDT was evaluated according to the Shulman, Mendez and Sunderland scales. Results: The CDT showed high sensitivity and specificity. There were significant correlations between the CDT and the MMSE (0.700-0.730; p < 0.001) and between the CDT and the CAMCOG (0.753-0.779; p < 0.001). The combination of the CDT with the MMSE improved sensitivity and specificity (SE = 89.2-90%; SP = 71.7-79.8%). Subgroup analysis indicated that for elderly people with lower education, sensitivity and specificity were both adequate and high. Conclusions: The CDT is a robust screening test when compared with the MMSE or the CAMCOG, independent of the scale used for its interpretation. The combination with the MMSE improves its performance significantly, becoming equivalent to the CAMCOG.

Heterogeneous modeling of an anaerobic sequencing batch biofilm reactor (ASBBR)

The objective of this study was to estimate the first-order intrinsic kinetic constant (k(1)) and the liquid-phase mass transfer coefficient (k(c)) in a bench-scale anaerobic sequencing batch biofilm reactor (ASBBR) fed with glucose. A dynamic heterogeneous mathematical model, considering two phases (liquid and solid), was developed through mass balances in the liquid and solid phases. The model was adjusted to experimental data obtained from the ASBBR applied for the treatment of glucose-based synthetic wastewater with approximately 500 mg L-1 of glucose, operating in 8 h batch cycles, at 30 degrees C and 300 rpm. The values of the parameters obtained were 0.8911 min(-1) for k(1) and 0.7644 cm min(-1) for kc. The model was validated utilizing the estimated parameters with data obtained from the ASBBR operating in 3 h batch cycles, with a good representation of the experimental behavior. The solid-phase mass transfer flux was found to be the limiting step of the overall glucose conversion rate.

Solution of a heterogeneous modeling of a horizontal-flow anaerobic immobilized biomass (HAIB) reactor by the sequencing method

A modeling study was completed to develop a methodology that combines the sequencing and finite difference methods for the simulation of a heterogeneous model of a tubular reactor applied in the treatment of wastewater. The system included a liquid phase (convection diffusion transport) and a solid phase (diffusion reaction) that was obtained by completing a mass balance in the reactor and in the particle, respectively. The model was solved using a pilot-scale horizontal-flow anaerobic immobilized biomass (HAIB) reactor to treat domestic sewage, with the concentration results compared with the experimental data. A comparison of the behavior of the liquid phase concentration profile and the experimental results indicated that both the numerical methods offer a good description of the behavior of the concentration along the reactor. The advantage of the sequencing method over the finite difference method is that it is easier to apply and requires less computational time to model the dynamic simulation of outlet response of HAIB.