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1500 questions
8
votes
3 answers
Why hasn't massive derivatives exposures at banks already led to disaster?
I recently heard that Deutsche Bank had
$72trillion of "derivatives exposure", which
is many times greater then the entire German GDP.
Now as I understand it, derivatives are essentially
just bets on the movement of assorted prices...
so I am…
Mick
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8
votes
3 answers
Why should I get a bond with negative interest instead of having a bank deposit account either zero interest or positive interest
I don't get why central banks apply negative interest rates. They say that buy our bond and at the maturity, it will worth less than today. What is the policy outcome of such decision?
Why an investor still accepts this or is it just a mechanism to…
user9386
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8
votes
1 answer
Economic impacts of a declining population
In the article “Japan’s population problem” in The Japan Time, Hugh Cortazzi write:
Japanese leaders and Japanese people generally are well aware of their
nation’s demographic challenges. The population has begun to decline
[…] The…
Martin Van der Linden
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8
votes
1 answer
Does a strong US Dollar hurt American Manufacturing?
I am reading this article about the strengthening of the US Dollar when I came across this paragraph:
"But there are reasons to be cautious. A strong dollar will squeeze American manufacturers, which have otherwise benefited from falling energy…
josh
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8
votes
5 answers
Why don't Burgers cost 5 cents?
In this blog post, economist Bob Murphy raises a puzzle involving the principle that in a competitive market, the price equals the marginal cost:
There’s a general principle from intro to microeconomics that says in
a competitive industry, in…
Keshav Srinivasan
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8
votes
1 answer
In simple terms: what are the implications of homothetic and nonhomothetic consumer preferences?
I am looking for a simple explanation of the implication of having homothetic/nonhomethetic preferences in relation to consumers' preferences when consuming goods.
StatsScared
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8
votes
6 answers
Why do falling oil prices take stocks with it?
The price of oil fell again today and is now below $30/barrel for the first time in 12 years. Along with the fall came most of the US stock markets. If I didn't know any other information except for "the price of oil fell today", my gut reaction…
TTT
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8
votes
2 answers
Moral Hazard with risk neutral agent
We have a principal-agent model with hidden actions in which the principal is risk averse and the agent is risk neutral; Assume also there are two levels of output, $x$ and $x'$ (with $x'>x$) and two actions $a,a'$. Define $p(a),p(a')$ the…
night_owl89
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8
votes
2 answers
Why do banks and stock exchanges close/have fixed hours?
Banks and stock exchanges all around the world seem to adhere to quite a strict regime of 9-5, Monday - Friday, in the countries local time.
This can have the effect of where an event that happens overnight, causes the market to open at an…
dwjohnston
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7
votes
4 answers
Is market failure constant? What properly defines it?
My textbook defines market failure as when "the production or consumption of a good or service causes additional positive or negative externalities on a third party not involved in the economic activity". That being said, I'd like to ask, Don't all…
Airdish
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7
votes
1 answer
What was happening in Madagascar during 1971-1996?
In the course of my research I have been examining these days macroeconomic time series for per capital household consumption, using the databank of the WorldBank. The unit of measure was constant 2005 USD.
I got all shorts: smooth upward trends…
Alecos Papadopoulos
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7
votes
2 answers
Why aren't perpetual bonds more common?
Most government bonds and corporate bonds have a maturity date when the principal must be repaid.
While the few percents of interest every year is generally not a big problem to pay out, when a bond matures the issuer must pay back all the…
Calmarius
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7
votes
2 answers
When can economists claim to "understand" an event or phenomenon?
It's a common refrain that economists still don't have a solid grasp of the causes of business cycles (in particular, the Great Depression), despite decades of serious study. What would it take to say that this (or another event/phenomenon --…
sirallen
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7
votes
1 answer
Pricing a European call option while absence of arbitrage is violated
Assume that we have a general one-period market model consisting of d+1 assets and N states.
Using a replicating portfolio $\phi$, determine $\Pi(0;X)$, the price of a European call option, with payoff $X$, on the asset $S_1^2$ with strike price $K…
BCLC
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7
votes
4 answers
Simulating a Hamilton-Jacobi-Bellman
Say I have solved an HJB of the form:
$\rho V(k) = \max_c g(c) + V'(k)(z - c)$
I have calibrated $\rho$ to monthly parameters. I would like to simulate the development of $k$. I start with $k(0)$. However, unlike in discrete-time, I'm not sure what…
FooBar
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