S., and Chattopadhyay, S.
"Functional Sunspot Equilibria"
Abstract: Consider a one step forward
looking self-referential model with a one
dimensional state variable where the information
set available to agents when they make their
forecast for the next period includes the
current realization of an extrinsic random
process but does not include the current value
of the state variable. Agents thus iterate
twice on their beliefs about the law of motion
of the system to generate their forecasts;
this is as in models of learning and in contrast
to the specification considered in the literature
on sunspot equilibria where the extrinsic
random process is the state variable. This
paper demonstrates (and characterizes the
conditions for) the existence of self-fulfilling
stochastic equilibria with bounded fluctuations
driven purely by extrinsic beliefs for the
model described above; furthermore, the existence
of these equilibria is shown to be independent
of the determinacy properties of the perfect
foresight dynamics of the model. (Traditional
sunspot equilibria appear as a special case
of the formulation of the paper). The paper
indicates that the problem of multiplicity
of rational expectations equilibria in these
models is more severe than believed erstwhile.
S., and Quintin, E.
"Are Labor Markets Segmented in Argentina?
A Semiparametric Approach"
We use data from Argentina's household survey
to evaluate the hypothesis that informal
workers would expect higher wages in the
formal sector. Using various definitions
of informal employment we find that, on
average, formal wages are higher than informal
wages. Parametric tests suggest that a formal
premium remains after controlling for individual
and establishment characteristics. However,
this approach suffers from several econometric
problems, which we address with semiparametric
methods. The resulting formal premium estimates
prove either small and insignificant, or
negative. In other words, we find no evidence
that Argentina's labor markets are segmented
along formal/informal lines.
A. "Using Signal
Processing Tools for Regulation Analysis
often face the challenge of designing and
implementing rules that both, respond to
the policy objectives and that can be clearly
referred to the day-to-day operations and
practices in the marketplace. In many cases,
the actual codes end up being a cumbersome
collection of conditions that are very difficult
to evaluate and re-design. This paper suggests
that some of the most commonly used tools
in Signal Processing could offer a convenient
vehicle for tackling these difficulties.
By starting from a SIMULINK(R) model of
the regulation of Banco de Mexico on the
foreign exchange transactions of commercial
banks, this paper offers an example of how
those tools could be used in this context.
A. "On the Effects
of Regulation-Induced Forex Market Segmentation
in Small Open Economies"
The central banks of small open economies
have to procure the proper operation of
the payments system for transactions with
the rest of the world. They do so facing
the constraint of a limited stock of international
reserves. To make ends meet, they usually
rely on three instruments: the choice of
an exchange rate regime, the regulation
of the foreign exchange transactions of
commercial banks and general exchange controls.
Based on some stylized facts of the Mexican
experience of the past three decades, this
paper uses a SIMULINK(R) model to show the
effects of different institutional constructs
on some key nominal variables. For a reasonable
set of simulation parameters, it shows that
either the complete segmentation of the
peso-dollar market or a full integration
of both markets are preferable to intermediate
arrangements that contemplate some form
of partial financial liberalization.
A. "Can subsidiaries
of foreign banks contribute to the stability
of the Forex market in Emerging Economies?
the last decade, the ownership of the banking
sector in Latin America has changed hands
from local shareholders to large foreign
banks from Spain and the United States.
It is also a fact that the foreign exchange
market in these countries has been segmented
through various kinds of restrictions, because
the central bank is unable to function as
a lender of last resort in a currency other
than its own. The standing issue is whether
in practice, a parent bank effectively takes
the role of such lender of last resort in
supporting its subsidiaries overseas. If
that were to be the case, the question is
if having a significant participation of
foreign subsidiaries is a necessary condition
for lifting such restrictions. The data
on the compliance of domestic and foreign
banks with the dollar reserve requirements
in Mexico is used to try to address this
question. The answer is a qualified yes.
When there are weak domestic banks, it seems
that subsidiaries fo foreign banks have
a better access to funding in foreign exchange,
specially in times of stress. However, when
compared with strong domestic banks, the
evidence suggests that these local entities
can do as well or even better than the foreign
J., and Herrera, H.
"Market Participation, Information and Volatility"
We analyze how the entry of less informed
participants in a market for a risky asset
affects the volatility of the price of the
asset. In an endogenous participation model,
we show that in equilibrium the new market
entrants are less informed than the rest
of the participants. We study how volatility
depends on market participation and on the
level of information of the participants.
The condition that guarantees that new market
participation leads to increased asset price
volatility, is that all investors are sufficiently
risk-averse. In the increasing volatility
case, a higher volatility is associated
with a higher welfare for the new entrants.
S., and Govindan, S.
"Message Spaces for Perfect Correlated Equilibria"
We show that a perfect correlated equilibrium
distribution of an N-person game, as defined
by Dhillon and Mertens (1996) can be achieved
using a finite number of copies of the strategy
space as the message space.
F. "Trade Effects
on the Personal Distribution of Wealth"
paper develops a dynamic Heckscher-Ohlin
model and studies the interaction between
international trade and wealth distribution
dynamics. I also study how differences in
the cost of financial intermediation among
countries may affect the pattern of trade
and wealth dynamics. Relative to the inequality
it would have prevailed under autarky, I
find that trade promotes a decline (an increase)
in inequality when the economy converges
to the steady state form below (above).
However, with trade inequality increases
(declines) during the transition from below
(above). I also find that trade may alleviate
frictions in the financial intermediation
sector in economies where these frictions
are larger. In those economies, trade may
in fact promote a higher income than under
D., and Urrutia, C. "Intergenerational
Persistence of Earnings: The Role of Early
and College Education"
Recent empirical studies show that the intergenerational
persistence of economic status in the U.S.
is much higher than previously thought.
We develop a quantitative theory of inequality
and intergenerational transmission of human
capital where parents invest in early and
college education of their children subject
to borrowing constraints. Children differ
exogenously in innate abilities, which can
be correlated with their parent's innate
ability. An important feature of the environment
is that the quality of early education determines
the probability of college completion. We
calibrate a stationary equilibrium of this
economy to relevant statistics in aggregate
U.S. data, and use it to investigate the
sources of inequality and persistence in
earnings. In our benchmark model, about
half of the intergenerational persistence
and one fourth of the inequality in earnings
are accounted for by endogenous investments
in education. We find that early investments
in education account for most of the endogenous
persistence in earnings, while college education
generates most of the endogenous inequality
in earnings. Our theory is suited to study
the effect of educational policies on the
persistence of inequality. We show that
public resources devoted to early education
have the largest impact on earnings mobility.
Moreover, non-progressive college subsidies
generate more intergenerational persistence
C. "Would Rational
Voters Acquire Costly Information?"
We analyze an election in which voters are
uncertain about which of two alternatives
is better for them. Voters can, however,
acquire some costly information about the
alternatives. As the number of voters increases,
individual investment in political information
declines to zero. However, the election
outcome is likely to correspond to the interest
of the majority if the marginal cost of
information acquisition approaches zero
as the information acquired becomes nearly
irrelevant. Under certain conditions, the
election outcome corresponds to the interests
of the majority with probability approaching
one. Thus, "rationally ignorant" voters
are consistent with a well-informed electorate.
JEL D72, D82. Keywords: voting, information
acquisition, information aggregation.
A., Martinelli, C., and Torres, R. "Anonymity
in Large Societies "
a social choice model with an infinite number
of agents, there may occur "equal size"
coalitions that a preference aggregation
rule should treat in the same manner. We
introduce an axiom of equal treatment with
respect to a measure of coalition size and
explore its interaction with common axioms
of social choice. We show that, provided
the measure space is sufficiently rich in
coalitions of the same measure, the new
axiom is the natural extension of the concept
of anonymity, and in particular plays a
similar role in the characterization of
preference aggregation rules. JEL D71, C69
F., and Urrutia, C.
"Evolution of the Distribution of Assets
in the Neoclassical Growth Model"
study the evolution of the distribution
of assets in a deterministic version of
the Neoclassical Growth Model with log-utility,
a minimum consumption requirement, and Cobb-Douglas
technology. Agents are heterogeneous in
their initial endowment of assets only.
The dynamics of the aggregate variables
behaves as in a standard representative
agent model. We prove that the disparity
in assets decreases monotonically in a transition
to the steady state from below, as long
as (i) the minimum consumption requirement
is zero or negative, or (ii) the consumption
requirement is positive but not too large
and the initial capital stock is large enough.
This result is not based on a local approximation
of the model around the steady state, nor
on numerical computations, as it has been
the case in previous literature. We also
show how a positive minimum consumption
requirement or a small elasticity of substitution
between capital and labor can generate non-monotonic
paths for the disparity in assets along
a transition. Our work extends the result
in Chatterjee (1994) on the evolution of
the distribution of lifetime wealth (or
consumption) to the evolution of the distribution
of assets (or capital).
R. "Smallness of
Fishburn (1970) showed that in an infinite
society Arrow's axioms for a
preference aggregation rule do not necessarily
imply a dictator. Kirman and
Sondermann (1972) showed that, in this case,
nondictatorial rules imply an
invisible dictator that, whenever the agent
set is an atomless finite measure
space, can be viewed as the limit of coalitions
of arbitrarily small size. We
show first that, when admissible coalitions
are restricted to an algebra,
there are two sorts of invisible dictators.
We next show that, in most cases
of interest, we do not need to resort to
measures on the agent space to give a
precise meaning to the statement that invisible
dictators are the limit of
arbitrarily small decisive coalitions. JEL: