In this paper we propose a new way to formulate optimal policy based on a quadratic intertemporal welfare function where the dynamic constraint is based on a VAR model of the economy which we call the PVAR method. We argue that the VAR under control should not be derived simply by replacing the...

We study 30 vintages of FRB/US, the principal macro model used by the Federal Reserve Board staff for forecasting and policy analysis. To do this, we exploit archives of the model code, coefficients, baseline databases and stochastic shock sets stored after each FOMC meeting from the model’s...

An economy consists of many duopolistic markets. Firms must earn normal profits in the long run if they are to survive. Normal profits are interpreted as the long-run limit of average profits in the whole economy. We adopt the aspiration based model of firm behaviour, and link it to the economy...

When Argentine sovereign default in December 2001 led to a collapse of the peso, the burden of dollar debt became demonstrably unsustainable. But it was not clear what restructuring was feasible, nor when. Eventually, in 2005 after a delay of more than three years, a supermajority of creditors...

We report on several experiments on the optimal allocation of ownership rights. The experiments confirm the property rights approach by showing that the ownership structure affects relationship-specific investments and that subjects attain the most efficient ownership allocation despite starting...

This study explores the effect of several personal religion-related variables on social behaviour, using three paradigmatic economic games: the dictator (DG), ultimatum (UG), and trust (TG) games. A large carefully designed sample of a Spanish urban adult population (N=766) is employed. From...

What are the equilibrium features of a dynamic financial market where traders care about their reputation for ability? We modify a standard sequential trading model to study a financial market with career concerns. We show that this market cannot be informationally efficient: there is no...

International agreements to protect the global environment are typically difficult to reach. In principle they should be profitable for all players involved in the negotiation. Even when they are profitable, however, they are often unstable due to the incentive to free-ride (enjoying the clean...

In this paper we develop a simple theoretical model to analyze the impact of institutional herding on asset prices. A growing empirical literature has come to the intriguing conclusion that institutional herding positively predicts short-term returns but negatively predicts long-term returns. We...

We show experimentally that a principal's distrust in the voluntary performance of an agent has a negative impact on the agent's motivation to perform well. Before the agent chooses his performance, the principal in our experiment decides whether he wants to restrict the agents' choice set by...