# 2001

1. Antinolfi, G., Huybens, E., y Keister, **T.,****"**Monetary Stability and Liquidity Crises: The Role of the Lender of Last Resort,"* Journal of Economic Theory ***99** (2001): 187-219.

**Resumen:**

We evaluate the desirability of having an elastic currency generated by a lender of last resort that prints money and lends it to banks in distress. When banks cannot borrow, the economy has a unique equilibrium that is not Pareto optimal. The introduction of unlimited borrowing at a zero nominal interest rate generates a steady state equilibrium that is Pareto optimal. However, this policy is destabilizing in the sense that it also introduces a continuum of non-optimal inflationary equilibria. We explore two alternate policies aimed at eliminating such monetary instability while preserving the steady-state benefits of an elastic currency. If the lender of last resort imposes an upper bound on borrowing that is low enough, no inflationary equilibria can arise. For some (but not all) economies, the unique equilibrium under this policy is Pareto optimal. If the lender of last resort instead charges a zero real interest rate, no inflationary equilibria can arise. The unique equilibrium in this case is always Pareto optimal.

2. Antinolfi, G., Keister, T., y Shell, K.,*"Growth Dynamics and Returns to Scale: Bifurcation Analysis,"** Journal of Economic Theory ***96** (2001): 70-96.

**Resumen:**

We analyze how the dynamic behavior of an endogenous growth model depends on the degree of returns to scale in production. We study a simple model of inventive activity and demonstrate that the case of constant returns to the set of reproducible factors of production (the most commonly studied case in the literature on endogenous growth) is a bifurcation point in parameter space. This bifurcation occurs on the boundary of the state space, making it difficult to analyze formally. For a special case of the model, we provide a transformation that allows us to classify the bifurcation as transcritical using standard methods. We discuss the types of new methods that will be needed to formally classify this bifurcation in a broader class of models.

3. Cason, T. y Sharma, T., ** "Durable Goods, Coasian Dynamic and Uncertainty: Theory and Experiments,"**

*Journal of Political Economy*

**109**(2001): 1311-1354.

**Resumen:**

This paper presents a model in which a durable goods monopolist sells a product to two buyers. Each buyer is privately informed about his own valuation. Thus all players are imperfectly informed about market demand. We study the monopolist's pricing behavior as players' uncertainty regarding demand vanishes in the limit. In the limit, players are perfectly informed about the downward sloping demand. We show that in all games belonging to a fixed and open neighborhood of the limit game there exists a generically unique equilibrium outcome which exhibits Coasian dynamics and where play lasts for at most two periods. A laboratory experiment shows that, consistent with out theory, outcomes in the Certain and Uncertain Demand treatments are the same. Median opening prices in both treatments are roughly at the level predicted and considerably below the monopoly price. Consistent with Coasian dynamics, these prices are lower for higher discount factors. Demand withholding, however, leads to more trading periods than predicted.

4. Del Negro, M., Hernández, A., Humpage, D., O., y Huybens, E.,*"Introduction: Context, Issues, and Contributions,"**Journal of Money Credit and Banking***33** (2001): 303-311.

5. Del Negro, M., y Obiols, F.,** "Has Monetary Policy Been So Bad That It Is Better to Get Rid of It?,"**

*Journal of Money Credit and Banking*

**33**(2001):404-433.

6. Duggan, J., y Martinelli, C.,*"A Bayesian Model of Voting in Juries,"** Games and Economic Behavior ***37** (2001): 259-294.

**Resumen:**

We take a game-theoretic approach to the analysis of juries by modelling voting as a game of incomplete information. Rather than the usual assumption of two possible signals (one indicating guilt, the other innocence), we allow jurors to perceive a full spectrum of signals. We characterize the unique symmetric equilibrium of the game, and we give a condition under which no asymmetric equilibria exist under unanimity rule. We offer a condition under which unanimity rule exhibits a bias toward convicting the innocent, regardless of the size of the jury, and we exhibit an example showing that this bias can be reversed. We prove a "jury theorem" for our general model: as the size of the jury increases, the probability of a mistaken judgment goes to zero for every voting rule, except unanimity rule; for unanimity rule, the probability of making a mistake is bounded strictly above zero if and only if there do not exist arbitrarily strong signals of innocence. This explains the asymptotic inefficiency of unanimity rule in finite models and establishes the possibility of asymptotic efficiency, a property that could emerge only in a continuous model.

7. Johnson, P., D. Levine., y W. Pesendorfer, *"Evolution and Information in a Gift-Given Game,"** Journal of Economic Theory ***100** (2001): 1-21.

**Resumen:**

We examine the stochastic stability of a process of learning and evolution in a gift-giving game. Overlapping generations of players are randomly matched to play the game. They may consult information systems to learn about the past behavior of their opponents. If the value of the gift is more than four times the cost, then gifts are exchanged. Moreover, in the stochastically stable equilibrium, a unique information system is selected to support cooperation.

8. Keister, T., *"Money Taxes, Market Segmentation, and Sunspot Equilibria,"** Macroeconomic Dynamics* **5** (2001): 1-26.

**Resumen:**

This paper investigates how volatile the general price level can be in an equilibrium where all uncertainty is extrinsic. The government operates a lump-sum redistribution policy using fiat money. An approach to modelling asset market segmentation is introduced in which this tax policy determines how volatile the price level can be, which in turn determines the volatility of consumption. The paper characterizes (i) the set of general price levels consistent with the existence of competitive equilibrium and (ii) the resulting set of equilibrium allocations. The results demonstrate that redistribution policies that are fixed in nominal terms can have a destabilizing effect on an economy, and show how to evaluate the amount of volatility that a particular policy may induce.

9. Lobato, I., *"Testing that a dependent process is uncorrelated,"** Journal of the American Statistical Association* **96** (2001): 1066-1076.

**Resumen:**

An analysis is presented of a new testing procedure for the null hypothesis that a stochastic process is uncorrelated when the process is possibly dependent. Unlike with existing procedures, the user does not need to choose any arbitrary number to implement the proposed test. The asymptotic null distribution of the proposed test statistic is not standard, but it is tabulated by means of simulations. The test is compared with two alternative test procedures that require the selection of user-chosen numbers on the basis of their asymptotic local power and their finite sample behavior. Although the asymptotic local power of the proposed test is lower than those corresponding to the alternative tests, in a Monte Carlo study I show that in small samples the test typically controls better the type I error and that the loss of power is not substantial.

10.Lobato, I., Nankervis, J., y Savin, N.E., *"Testing for Autocorrelation Using a Modified Box-Pierce Q Test,"** International Economic Review ***42 **(2001): 187-205.

**Resumen:**

This paper investigates the finite sample performance of a modified Box-Pierce Q statistic (Q*) for testing that financial time series are uncorrelated without assuming statistical independence. The finite sample rejection probabilities of the Q* test under the null and its power are examined in experiments using time series generated by an MA (1) process where the errors are generated by a GARCH (1,1) model and by a Long Memory Stochastic Volatility model. The tests are applied to daily currency returns.

11. Martinelli, C.,** "Elections with privately informed parties and voters,"**

*Public Choice*

**108**(2001): 147-167.

**Resumen:**

This paper studies a situation in which parties are better informed than voters about the optimal policies for voters. We show that voters are able to infer the parties' information by observing their electoral positions, even if parties have policy preferences which differ substantially from the median voter's. Unlike previous work that reach opposite conclusions, we assume that voters have some private information of their own. If the information available to voters is biased, parties' attempts to influence voters' beliefs will result in less than full convergence even if parties know with certainty the optimal policy for the median voter.

12. Maurer, N., y Sharma, T., *"**Enforcing Property Rights Through Reputation: Mexico's Early Industrialization, 1878- 1913,"** Journal of Economic History***61** (2001): 950-973.

**Resumen:**

Mexico's initial industrialization was based on firms that were "grouped": that is, linked to other firms through close affiliations with a common bank. Most explanations for the prevalence of groups are based on increasing returns or missing formal capital markets. We propose a simpler explanation that better fits the facts of Mexican history. In the absence of secure property rights, tangible collateral could not credibly be offered to creditors; but there remained the possibility of using reputation as a form of intangible collateral. In such circumstances, firms had incentives to group together for purposes of mutual monitoring and insurance.