Serie
1994
94-01 Zapatero, F.,
"Effects
of Financial Innovations on Market
Volatility when Beliefs are Heterogeneous"
We construct an intertemporal
equilibrium with two agents with
heterogeneous beliefs. Heterogeneity
of beliefs induces volatility
of the interest rate. We study
the effect of financial innovation
on interest rate volatility and
conclude that, in a setting of
asymmetric beliefs, introducing
the asset that completes markets
will (locally) increase the volatility
of the endogenous interest rate
process. We can design the "neutral"
security so as to minimize the
effects on volatility. Nevertheless,
our model suggests that, overtime,
introducing the new security will
have a smoothing effect since
beliefs will converge faster and
uncertainty will be resolved quicker.
94-02 Martínez-Legaz,
E. and Santos, M., "On
Expenditure Functions"
94-03 Ladrón
de Guevara, A., Ortigueira, S.
and Santos, M., "Equilibrium
Dynamics in Two-Sector Models
of Endogenous Growth"
Recent research has focused on
the dynamics of the Lucas-Uzawa
model of endogenous growth (e.g.,
Caballé-Santos (1993), Chamley
(1993) and Faig (1993)). This
model allows for permanent growth
of both consumption and investment,
propelled by a human capital technology.
In contrast to the standard neoclassical
growth model, the level of technological
progress or education is determined
by the decision process of economic
agents, and thus the dynamics
of growth is not driven by an
exogenous force external to the
economy. The model then yields
certain specific predictions on
the determinants of long-term
growth, and on the interaction
of physical and human capital
in the transition off steady states.
Also, this framework provides
a useful setting to assess the
effects of economic policies on
the process of physical and human
capital accumulation.
94-04 Goldstein,
R. and Zapatero, F., "General
Equilibrium with Constant Relative
Risk Aversion and Vasicek Interest
Rates"
We consider a pure exchange
economy consisting of a single
risky asset whose dividend drift
rate is modelled by an Ornstein-Uhlenbeck
process, and a representative
agent with power-utility who,
in equilibrium, consumes the
dividend paid by the risky asset.
Endogenously determined interest
rates are found to be of the
Vasicek (1977) type. The mean
and variance of the equilibrium
stock price are stochastic and
have mean-reverting components.
A closed form solution for a
standard call option is determined
for the case of log-utility.
94-05 Edlin, A.,
Epelbaum, M. and Heller, W.,
"Surplus
Maximization and Price Discrimination
in General Equilibrium: Part
I"
Regulators of natural monopolies
advocate inducing monopolies
to maximize the sum of consumer
and producer surplus to the
extent possible. Although such
maximization is efficient in
partial equilibrium, its general
equilibrium properties have
not yet been fully explored.
We study the welfare properties
of surplus maximization in a
general equilibrium model that
accounts for all interactions
with other markets. We do so
by embedding a single perfectly
discriminating monopolist in
an otherwise standard Arrow-Debreu
economy. We find that although
equilibria are efficient, not
all Pareto optima can be decentralized.
When the monopolist has increasing
returns to scale, a tension
arises between surplus maximization
in a single market and fulfilling
certain social objectives.
94-06 Edlin, A. and
Epelbaum, M., "Surplus
Maximization and Price Discrimination
in General Equilibrium: Part II"
Our companion paper introduced
a new general equilibrium concept,
called PDME, in which a natural
monopoly maximizes its industry's
surplus. While PDME's are always
efficient, decentralization and
existence sometimes fail under
increasing returns to scale. This
paper derives conditions under
which PDME's exist and under which
optima can be decentralized. We
also link PDME to other equilibrium
concepts with equilibrium conversion
theorems. This allows us to provide
new conditions when these earlier
euilibrium concepts are efficient,
and when the other equilibira
exist. It also allows us to rank
equilibrium concepts by the size
of the set of decentralizable
optimal allocations.
94-07 Hernández,
A. and Santos, M., "Competitive
Equilibria for Infinite-Horizon
Economies with Incomplete Markets"
In this paper we consider a sequential
trading economy with incomplete
financial markets and a finite
number of infinitely lived agents.
We propose a specification of
agents' budget sets and show that
such specification features several
desirable properties. We then
establish the existence of an
equilibrium for a regular class
of economies.
94-08 Cooley, T.,
Greenwood, J. and Yorukoglu,
M., "The
Replacement Problem"
We construct a vintage capital
model of economic growth in
which the decision to replace
old technologies with new ones
is modeled explicitly. Depreciation
in this environment is an economic,
not a physical concept. We describe
the balanced growth paths and
the transitional dynamics of
this economy. We illustrate
the importance of vintage capital
by analysing the response of
the economy to fiscal policies
designed to stimulate investment
in new technologies.
94-09 Ortigueira, S.
and Santos, M., "On
Convergence in Endogenous Growth
Models"
In this paper we analyze the rate
of convergence to a balanced path
in a class of endogenous growth
models with physical and human
capital. We show that such rate
depends locally on the technological
parameters of the model, but does
not depend on those parameters
related to preferences. These
results stand in sharp contrast
with those of the one-sector neoclassical
growth model where both preferences
and technologies determine the
speed of convergence toward a
steady state.
94-10 Bona, J. and
Santos, M., "On
the Role of Computation in Economic
Theory"
The principal aim of this article
is to provide commentary on
the use of high-performance
computers combined with numerical
algorithms in the investigation
of mathematical models of economic
activity. The use of computer
simulation to provide insight
into mathematical models is
distinguished from the better
developed use of computers in
recording and processing economic
data, and it is intended here
to concentrate only on the former.
94-11 Renero, J.M.,
"Gresham's
Law Type Equilibria in the Kiyotaki-Wright
Models"
I establish new existence and
welfare results for the Kiyotaki-Wright
model (JPE, 1989). I show that
good intrinsic properties are
not necessary for an object to
be universally accepted in equilibrium.
Furthermore, bad objects may be
socially desirable as media of
exchange. One result is that for
any number of goods larger than
two and an open set of parameters,
there exists a multiple equilibria
in which the most costly to-store
object is universally accepted.
I also prove that there exists
a contimuum of steady states of
this kind. Moreover, there exist
equilibria converging to each
steady state of that continuum.
For the case of three goods and
no fiat object another result
is that such equilibria may Pareto
dominate other equilibria in which
other less costly to-store objects
are universally accepted. Moreover,
steady states of this type may
not exist while there exists a
continuum of steady states in
which the most costly to-store
is universally accepted. In fact,
these steady states may be the
only ones which exist. |
