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1500 questions
7
votes
2 answers
Independence of latent price and market microstructure noise
When examining how Market Microstructure works and affects price formation, there is talked about the:
"Assumed independence of of latent price and microstructure noise"
From "On the Correlation Structure of Microstrucure Noise: A Financial…
Thorst
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Robust asymmetric information?
Bergeman and Morris (2014) explain how the concept of Bayesian Correlated equilibrium contains all the robust predictions in games of incomplete information. In particular, their question is what are the possible Bayesian Nash equilibria of a game…
Regio
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3 answers
Type - I Error & Type - II Error: Pregnancy test analogy - is it legit?
I found this picture in my stats book but I'm now confused to what 'positive' and 'negative' is referring to.
As seen in the table below, Type 1 error is the error that its H0 is actually true but FALSEly claims that it's false. Type 2 error, on…
user8491363
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How time zones affects causality?
Considering that markets open in different time zones, in general the opening and closing times are different.
I suppose that a stock market opening later (in the same day) receive information on the other markets opening earlier.
I think I should…
AbateFaria
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7
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2 answers
Deriving the translog production function
Ive been having difficulty deriving the translog production function defined as:
$$\ln y=\alpha_0+\sum_{i=1}^n\alpha_i \ln x_i+\frac{1}{2}\sum_{i=1}^n\sum_{j=1}^n\ \beta_{ij}\ln x_i\ln x_j $$
I know we start with a log-log production function.…
EconJohn
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7
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2 answers
Market for lemons derivation
Akerlof's 1970 paper models the utility of two trading groups as
$$
U_1 = M + \sum_{i=1}^n x_i \\
U_2 = M + \sum_{i=1}^n \frac{3}{2} x_i
$$
where $M$ is the consumption of good other than cars, $x_i$ is the quality of the $i$th car, and $n$ is the…
Victor Maxwell
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How likely are the Sonnenschein-Mantel-Debreu results?
I have been reading about the SMD results and it's "damning" nature for GET. My understanding of the result is as follows: price changes not only cause a substitution effect but also change the wealth distribution of a society. The latter could, in…
UtilityMaximiser
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7
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Lexicographic Preference Relation on the QxR
I would like to ask for your help. I recently learned that the Lexicographic Preference relation can be represented by a utility function $u:X\to\mathbb{R}$ on $\mathbb{Q}\times\mathbb{R}$ (but not $\mathbb{R}\times\mathbb{Q}$).
To recall, a…
Rororo
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votes
5 answers
Why do firms losing money almost always reduce labor costs via layoffs instead of pay cuts?
At least in the United States, firms seem to almost always reduce labor costs via layoffs rather than pay cuts. Pay cuts are so rare that they're literally headline news. From an economic standpoint, if workers are being paid more than their…
tparker
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Why is Algeria the #2 milk powder importer in the world?
Can anyone explain to me why Algeria, a country of 40 million people is importing almost half as much milk powder as China?
Turkey has 80 million people yet it apparently doesn't import milk powder, or very little. Likewise for Libya, which is…
Lassie Fair
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7
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2 answers
Do people really care about higher moments?
I have heard that people often handle uncertainty using point estimates not probability distributions. However, I have been unable to find any evidence for this in the heuristics and biases literature. I was wondering if anyone could point me to…
user17900
7
votes
2 answers
"If $\lambda$ is greater than than 1, the system explodes." Why does the system explode?
David Romer in his textbook Advanced Macroeconomics (Third Edition) writes regarding the speed of convergence of the Diamond model the following:
(Pg. 83)
Equation (2.60) [$k_{t+1}={1\over{(1+n)(1+g)}}{1\over{2+\rho}}(1-\alpha)k_t^\alpha$] gives…
Bensstats
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Are there any instances where short run demand/supply is more elastic than long run cases?
Conventionally both demand and supply for goods and services are both more elastic in the long run than in the short run.
My Question
Is there ever an instance where demand and/or supply for a given good be more elastic in the short run than in the…
Bensstats
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3 answers
Elasticity of Durable Goods vs Non-Durable Goods
Does anyone know any seminal reference (either a paper in a top economics journal or a book) that compares own-price elasticities of demand for durable vs non-durable goods?
My intuition tells me that durable goods should be more elastic ... but not…
phdstudent
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What exactly is certainty equivalence in the context of DSGE models?
I keep reading about certainty equivalence in the context of DSGE models.
I understand that it has something to do with "Getting rid of the expectation operator", but I'm not entirely sure? What exactly is "certainty equivalence" in the context of…
user56834
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