Applied cointegration analysis has much to gain from strong links with economic theory. For example, the current generation of equilibrium macroeconomic models have simple predictions for cointegrating vectors. These models also suggest that important information about the economic structure can...

The objective of this Paper is to propose a number of alternative decentralized interpretations of representative agent style stochastic growth economies and to explore their implications for the generality of this model construct. Under our first interpretation, firms exist forever and...

The standard regression approach to modeling return predictability seems too restrictive in one way but too lax in another. A predictive regression models expected returns as an exact linear function of a given set of predictors but does not exploit the likely economic property that innovations...

In this article we propose a two stage procedure to model demand decisions by customers who are balancing several dimensions of a product. We then test our procedure by analyzing the behavior of buyers from an Austrian price comparison site. Although in such a market a consumer will typically...

Prior research suggests that those who rely on intuition rather than effortful reasoning when making decisions are less averse to risk and ambiguity. The evidence is largely correlational, however, leaving open the question of the direction of causality. In this paper, we present experimental...

This paper presents an overview of the application of the mathematical theory of 'high-low' search to firms' pricing and production decisions. We show how this methodology can be used to determine an optimal sequence of price-quantity decisions by a firm through time. We suppose that the firm...

Using a large sample of retail investors as well as experimental data we find that risk and ambiguity aversion are positively correlated. We show the common link is decision style: intuitive thinkers tolerate more risk and ambiguity than effortful reasoners. One interpretation is that intuitive...

This Paper takes a broader look at how vertical linkages can trigger the spatial agglomeration of economic activity in a ‘new economic geography’ (NEG) set-up. First, it formally establishes the key positive features of a wide class of vertical-linkage models without resorting to numerical...

We review a recent body of theoretical work that aims to put numbers on the consequences of globalization. A unifying theme of our survey is methodological. We rely on gravity models and demonstrate how they can be used for counterfactual analysis. We highlight how various economic...

In this paper, we show that strategic complementarities--such as firm-specific factors or quasi-kinked demand--have crucial implications for the design of monetary policy and for the welfare costs of output and inflation variability. Recent research has mainly used log-linear approximations to...