On learnability of E–stable equilibria

While under recursive least squares learning the dynamics of the economy converges to rational expectations equilibria (REE) which are E–stable, some recent examples propose that E–stability is not a sufficient condition for learnability. In this paper, we provide some further evidence on the conditions under which E–stability of a particular equilibrium might fail to imply its stochastic gradient (SG) or generalized SG learnability. We also claim that the requirement on the speed of convergence of the learning process imposed by [4] also implies that E–stable equilibria are likely to be GSG learnable. We show this in a simple â€New Keneysian†model of optimal monetary policy design in which the stability of REE under SG learning. In this case, the paper gives the conditions which are necessary for reversal of learnabilityAdaptive learning, E–stability, stochastic gradient, learnability

A note on Allen-Uzawa partial elasticities of substitution: the case of the translog cost function

This note provides a useful property of the Allen-Uzawa partials for the translog cost function. It also suggests how the main results extend to any functional form with certain properties. The curvature of the Allen-Uzawa matrix is the same as the curvature of the Hessian matrix. Intuitively and empirically, the Allen-Uzawa partials allow for the verification of curvature properties

Trade liberalization and employment effects in Ukraine

This paper addresses the important issue of the effects of trade liberalization on labor market job flows. It studies the case of Ukraine where we view the sudden openness of the economy to trade as a quasi-natural experiment. We use disaggregated data on manufacturing industries and customs data on trade flows taking account of shifting trade patterns after the disintegration of CMEA trade regime. We provide some first evidence that 3-digit NACE sector job flows are predominantly driven by idiosyncratic factors within industries. Other things equal, there is increased labor shedding as larger non-state share in industry relates to less job creation and more job destruction. Trade openness does affect job flows in Ukrainian manufacturing disproportionately according to trade orientation. We find that while trade with CIS decreases job destruction, trade with the EU increases excess reallocation mainly through job creation

Learning Hyperinflations

Emprical studies of hyperinflations reveal that the rational expectations hypothesis fails to hold. To address this issue, we study a model of hyperinflation and learning in an attempt to better understand the volatility in movements of expectations, money, and prices. The findings surprisingly imply that the dynamics under neural network learning appear to support the outcome achieved under least squares learning reported in the earlier literature. Relaxing the assumption that inflationary expectations are rational, however, is essential since it improves the fit of the model to actual data from episodes of severe hyperinflation. Simulations provide ample evidence that if equilibrium in the model exists, then the inflation rate converges to the low inflation rational expectations equilibrium. This suggests a classical result: a permanent increase in the government deficit raises the stationary inflation rate (Marcet and Sargent, 1989)Hyperinflation, Learning, Rational Expectations Equlibria, Neural Networks

Learning Hyperinflations

Emprical studies of hyperinflations reveal that the rational expectations hypothesis fails to hold. To address this issue, we study a model of hyperinflation and learning in an attempt to better understand the volatility in movements of expectations, money, and prices. The findings surprisingly imply that the dynamics under neural network learning appear to support the outcome achieved under least squares learning reported in the earlier literature. Relaxing the assumption that inflationary expectations are rational, however, is essential since it improves the fit of the model to actual data from episodes of severe hyperinflation. Simulations provide ample evidence that if equilibrium in the model exists, then the inflation rate converges to the low inflation rational expectations equilibrium. This suggests a classical result: a permanent increase in the government deficit raises the stationary inflation rate (Marcet and Sargent, 1989)

The Hyperinflation Model of Money Demand (or Cagan Revisited): Some New Empirical Evidence from the 1990s

This paper employs cointegration techniques to examine three recent hyperinflationary episodes in transition economies, which, with the exception of Russia (1992-1994), have been largely overlooked in the literature. More specifically, these episodes include Bulgaria during 1995-1997 and Ukraine during 1993-1995. We use the well-known maximum likelihood estimator due to Johansen (1988, 1991) and Stock and Watson's (1993) dynamic ordinary least squares (DOLS) estimator to complement each other and obtain consistent estimates of the semi-elasticity of real money demand with respect to inflation. The empirical results obtained in this study support the Cagan model of money demand in the East European hyperinflation experiences of the 1990s. However, our results do not indicate that the rational expectations hypothesis holds during these episodes. In addition, we also test the hypothesis that monetary policy in these three hyperinflations was conducted with the sole intent of maximizing the inflation tax revenue for the government.Cagan, cointegration, inflation tax, transition economies, stabilizations

EMU, EU, capital market integration and consumption smoothing

This empirical study of the impact of EMU on capital market integration and consumption smoothing comes to three conclusions: first, EMU promotes members’ holdings of foreign assets and foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership, not a single money, nevertheless increases consumption smoothing. The source of this last influence on consumption smoothing is an important issue. Theoretically it could come from more tradable capital through greater price competition, more contestable home markets and the greater harmonization of regulations. There is also a seeming conflict between our results and those of one strand of the literature. However, the relevant writings concentrate on the effects of asymmetric output shocks while we study the unconditional impact of international portfolio di-versification in the presence of all shocks. This can explain the difference.capital market integration; consumption smoothing; currency union; European Monetary Union; European Union

EMU, EU, Capital Market Integration and Consumption Smoothing

This empirical study of the impact of EMU on capital market integration and consumptionsmoothing comes to three conclusions: first, EMU promotes members’ holdings of foreign assetsand foreign liabilities; second, no benefits of consumption smoothing result; third, EU membership,not a single money, nevertheless increases consumption smoothing. The source of this lastinfluence on consumption smoothing is an important issue. Theoretically it could come frommore tradable capital through greater price competition, more contestable home markets and thegreater harmonization of regulations. There is also a seeming conflict between our results andthose of one strand of the literature. However, the relevant writings concentrate on the effects ofasymmetric output shocks while we study the unconditional impact of international portfolio diversificationin the presence of all shocks. This can explain the difference.

Issues and Problems Related to Eurozone Entry of the New Accession Countries: An Analytical Review:Discussion

This chapter focuses on issues related to the entry to the eurozone of eight new EU member states from Central and Eastern Europe (the Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia). It does not deal with the two new member states that have not undergone the transition from a centrally planned economy to a market-based one (Cyprus and Malta)