In the classic Arrow-Debreu model, the existence of money is not accommodated. However, using trading post market segmentation and requiring budget balance in each pair-wise transaction the model can converge to monetary equilibrium. Uniqueness of the common medium of exchange (commodity money)...

Inflation forecasts of the Federal Reserve systematically under-predicted inflation before Volcker and systematically over-predicted it afterward. Furthermore, under quadratic loss, commercial forecasts have information not contained in those forecasts. To investigate the cause, this paper...

This paper proposes a structural non-equilibrium model of initial responses to incomplete-information games based on "level-k" thinking, which describes behavior in many experiments with complete-information games. We derive the model's implications in first- and second-price auctions with...

This paper examines a class of contractual relationships with specific investment, a non-durable trading opportunity, and renegotiation. FurtheringWatson’s (2007) line of analysis, trade actions are modeled as individual and trade-action-based option contracts are explored. Simple tools...

The quest for the ‘best’ heavy-tailed distribution for ARCH/GARCH residuals appears to still be ongoing. In this connection, we propose a new distribution that arises in a natural way as an outcome of an implicit model. The challenging application of prediction of squared returns is...

The bootstrap is an increasingly popular method for performing statistical inference. This paper provides the theoretical foundation for using the bootstrap as a valid tool of inference for quasi-maximum likelihood estimators (QMLE). We provide a unified framework for analyzing bootstrapped...

We review the notion of linearity of time series, and show that ARCH or stochastic volatility (SV) processes are not only non-linear: they are not even weakly linear, i.e., they do not even possess a martingale representation. Consequently, the use of Bartlett’s formula is unwarranted in...

Frequently, seasonal and non-seasonal data (especially macro time series) are observed with noise. For instance, the time series can have irregular abrupt changes and interruptions following as a result of additive or temporary change outliers caused by external circumstances which are...

The paper develops the Öxed-smoothing asymptotics in a two-step GMM framework. Under this type of asymptotics, the weighting matrix in the second-step GMM criterion function converges weakly to a random matrix and the two-step GMM estimator is asymptotically mixed normal. Nevertheless, the Wald...

The federal government offers an array of tax-based aid student aid programs designed to lower the cost of postsecondary attendance. Many taxpayers are eligible for more than one program, yet they are limited to one program per student per year. Analyzing a unique panel dataset of individual...