# generated by /homes/nber/adrepec/bin/nbrred running on mysql0
Template-Type: ReDIF-Paper 1.0
Title: Issues in Controllability and the Theory of Economic Policy
Author-Name: Willem H. Buiter
Author-Name: Mark Gersovitz
Note: ITI IFM
Number: 0002
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/t0002
File-URL: http://www.nber.org/papers/t0002.pdf
File-Format: application/pdf
Abstract: The paper demonstrates that the concepts of dynamic controllability are useful for the theory of economic policy by establishing four propositions. First dynamic controllability is a central concept in stabilization policy. Second, the ability to achieve a target state, even if it cannot be maintained. may be of economic interest. Third, dynamic controllability is of special interest for 'historical' models. Fourth, the conditions for any notion of dynamic controllability are distinct from and weaker than those for Tinbergen static controllability.
Handle: RePEc:nbr:nberte:0002
Template-Type: ReDIF-Paper 1.0
Title: The Superiority of Contingent Rules over Fixed Rules in Models with Rational Expectations
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0009
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/t0009
File-URL: http://www.nber.org/papers/t0009.pdf
File-Format: application/pdf
Abstract: The paper investigates the robustness of the proposition that in stochastic models contingent or feddback rules dominate fiped or openloop rules. Four arguments in favour of fixed rules are considere`. 1) The presence of an incompetent op malevolent policy maker. 2) A trade-off between flexibility and simplicity or credibility. 3) The New Classical proposition that only unanticipated (stabilization) policy has real effects. 4) The "time-inconsistency" of optimal plans in non-causal models, that is models in which the current state of the economy depends on expectations of future states. The main conclusion is that the "rational expectations revolution", represented by arguments (3) and (4) does not affect the potential superiority of (time-inconsistent) closed-loop policies over (time-inconsistent) open-loop policies. The case against conditionality in the design of policy must therefore rest on argument (1) or (2) which predate the New Classical Macroeconomics.
Handle: RePEc:nbr:nberte:0009
Template-Type: ReDIF-Paper 1.0
Title: Granger-Causality and Stabilization Policy
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0010
Creation-Date: 1981-03
Order-URL: http://www.nber.org/papers/t0010
File-URL: http://www.nber.org/papers/t0010.pdf
File-Format: application/pdf
Abstract: This paper aims to provide a stochastic, rational expectations extension of Tobin's "Money and Income; Post Hoc Ergo Proper Hoc?". It is well-known that money may Granger-cause real variables even though the joint density function of the real variables is invariant under changes in the deterministic components of the monetary feedback rule. The paper shows that failure of money to Granger-cause real variables does not preclude a stabilization role of money. In a number of examples the conditional second moment of real output is a function of the deterministic components of the monetary feedback rule. Yet money fails to Granger-cause output ("in mean" and "in variance"). In all these models money is a pure stabilization instrument: superneutrality is assumed. If the analysis is extended to "structural" or "al1ocative" instruments such as fiscal instruments, the conclusion is even stronger. Failure of these policy instruments to Granger-cause real variables is consistent with changes in the deterministic parts of the policy feedback rules being associated with changes in the conditional means of the real variables. Granger-causality tests are tests of "incremental predictive content". They convey no information about the invariance of the joint density function of real variables under changes in the deterministic components of policy feedback rules.
Handle: RePEc:nbr:nberte:0010
Template-Type: ReDIF-Paper 1.0
Title: A Note on the Solution of A Two-Point Boundary Value Problem Frequently Encountered in Rational Expectations Models
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0012
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/t0012
File-URL: http://www.nber.org/papers/t0012.pdf
File-Format: application/pdf
Abstract: The paper analyses a class of two-point boundary value problem for systems of linear differential equations with constant coefficients. The boundary conditions are expressed as linear restrictions on the state vector at an initial time and at a finite terminal time. This is applicable even if the terminal conditions involve the asymptotic convergence of the system to steady-state equilibrium. as is frequently the case in eC9nomic applications. It is also a suitable format for numerical applications using existing computer routines. The case in which there are more stable eigenvalues than predetermined state variables is also considered. An example involving a small open economy macroeconomic model is used to illustrate the analysis.
Handle: RePEc:nbr:nberte:0012
Template-Type: ReDIF-Paper 1.0
Title: Macroeconometric Modelling for Policy Evaluation and Design
Author-Name: Willem H. Buiter
Note: ITI IFM
Number: 0013
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/t0013
File-URL: http://www.nber.org/papers/t0013.pdf
File-Format: application/pdf
Abstract: The paper reviews recent developments in macroeconomic theory and their implications for econometric modelling and for policy design. The following issues are addressed. 1) The theoretical and practical problems of modelling sequence economies. 2) Problems of evaluating the role of money given the absence of reasonable microfoundations for monetary theory. 3) The implications of the view that macroeconomic models should be viewed as non-cooperative differential games. 4) Identification and estimation of the policy-invariant structure of rational expectations models. 5) Time inconsistency of optimal plans and 6) The welfare economics of stabilization policy and the need to pay much greater attention to market structure if a market failure-based justification for stabilization policy is to be developed.
Handle: RePEc:nbr:nberte:0013
Template-Type: ReDIF-Paper 1.0
Title: Asymptotic Properties of Quasi-Maximum Likelihood Estimators and Test Statistics
Author-Name: Thomas E. MaCurdy
Note: LS
Number: 0014
Creation-Date: 1981-06
Order-URL: http://www.nber.org/papers/t0014
File-URL: http://www.nber.org/papers/t0014.pdf
File-Format: application/pdf
Abstract: We examine the implications of arbitrage in a market with many assets. The absence of arbitrage opportunities implies that the linear functionals that give the mean and cost of a portfolio are continuous; hence there exist unique portfolios that represent these functionals. The mean variance efficient set is a cone generated by these portfolios. Ross [16, 18J showed that if there is a factor structure, then the distance between the vector or mean returns and the space spanned by the factor loadings is bounded as the number of assets increases. We show that if the covariance matrix of asset returns has only K unbounded eigenvalues, then the corresponding K eigenvectors converge and play the role of factor loadings in Ross' result. Hence only a principal components analysis is needed to test the arbitrage pricing theory. Our eigenvalue conditional can hold even though conventional measures of the approximation error in a K factor model are unbounded. We also resolve the question of when a market with many assets permits so much diversification that risk-free investment opportunities are available.
Handle: RePEc:nbr:nberte:0014
Template-Type: ReDIF-Paper 1.0
Title: Arbitrage and Mean-Variance Analysis on Large Asset Markets
Author-Name: Gary Chamberlain
Author-Name: Michael Rothschild
Author-Person: pro48
Note: ME
Number: 0015
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/t0015
File-URL: http://www.nber.org/papers/t0015.pdf
File-Format: application/pdf
Abstract: We examine the implications of arbitrage in a market with many assets. The absence of arbitrage opportunities implies that the linear functionals that give the mean and cost of a portfolio are continuous; hence there exist unique portfolios that represent these functionals. The mean variance efficient set is a cone generated by these portfolios. Ross [16, 18J showed that if there is a factor structure, then the distance between the vector or mean returns and the space spanned by the factor loadings is bounded as the number of assets increases. We show that if the covariance matrix of asset returns has only K unbounded eigenvalues, then the corresponding K eigenvectors converge and play the role of factor loadings in Ross' result. Hence only a principal components analysis is needed to test the arbitrage pricing theory. Our eigenvalue conditional can hold even though conventional measures of the approximation error in a K factor model are unbounded. We also resolve the question of when a market with many assets permits so much diversification that risk-free investment opportunities are available.
Handle: RePEc:nbr:nberte:0015
Template-Type: ReDIF-Paper 1.0
Title: Welfare Analysis of Tax Reforms Using Household Data
Author-Name: Mervyn A. King
Note: PE
Number: 0016
Creation-Date: 1981-07
Order-URL: http://www.nber.org/papers/t0016
File-URL: http://www.nber.org/papers/t0016.pdf
File-Format: application/pdf
Abstract: The paper discusses a methodology for calculating the distribution of gains and losses from a policy change using data for a large sample of households. Estimates are based on the equivalent income function, which is money metric utility defined over observable variables. This enables calculations to be standardised, and a computer program to compute the statistics presented in the paper is available for a general demand system. Equivalent income is related to measures of deadweight loss, and standard errors are computed for each of the welfare measures. An application to UK data for 5895 households is given which simulates a reform that involves eliminating housing subsidies.
Handle: RePEc:nbr:nberte:0016
Template-Type: ReDIF-Paper 1.0
Title: Bliss Points in Mean-Variance Portfolio Models
Author-Name: David S. Jones
Author-Name: V. Vance Roley
Note: ME
Number: 0019
Creation-Date: 1981-12
Order-URL: http://www.nber.org/papers/t0019
File-URL: http://www.nber.org/papers/t0019.pdf
File-Format: application/pdf
Abstract: When all financial assets have risky returns, the mean-variance portfolio model is potentially subject to two types of bliss points. One bliss point arises when a von Neumann-Morgenstern utility function displays negative marginal utility for sufficiently large end-of-period wealth, such as in quadratic utility. The second type of bliss point involves satiation in terms of beginning-of-period wealth and afflicts many commonly used mean-variance preference functions. This paper shows that the two types of bliss points are logically independent of one another and that the latter places the effective constraint on an investor's welfare. The paper also uses Samuelson's Fundamental Approximation Theorem to motivate a particular mean-variance portfolio choice model which is not affected by either type of bliss point.
Handle: RePEc:nbr:nberte:0019