Economic Theory - Study results from C.K. Nielsen et al provide new insights into economic theory
2009 DEC 25 - (VerticalNews.com) -- "We study the optimal choice of exchange rate regime when agents have beliefs that are mutually inconsistent. A general framework for identifying optimal policies in such situations is proposed and then used to compare fixed and floating exchange rate regimes," scientists writing in the International Journal of Economic Theory report.
"Agents are assumed to have diverse rational beliefs (rather than rational expectations), implying the prevalence of (rational) overconfidence. We argue that in such a situation, in comparing economic institutions, one should employ the concept of ex-post optimality rather than that of Pareto optimality," wrote C.K. Nielsen and colleagues ...read more
Economic Theory - Reports outline economic theory research from Technical University
2009 DEC 25 - (VerticalNews.com) -- "In this paper we consider the entry and exit of firms in a dynamic general equilibrium model with capital. At the firm level, there is a fixed cost combined with increasing marginal cost, which gives a standard U-shaped cost curve with optimal firm size," scientists writing in the International Journal of Economic Theory report.
"Entry is determined by a free entry condition such that the cost of entry is equal to the present value of incumbent firms. The cost of entry (exit) depends on the flow of entry (exit). Equilibrium is saddle-point stable and the stable manifold is two-dimensional," wrote P. Brito and colleagues, Technical University ...read more
Economic Theory - Studies from J.P. Benassy et al have provided new data on economic theory
2009 DEC 25 - (VerticalNews.com) -- According to a study from Paris, France, "A well-known determinacy condition on interest rate rules is the ''Taylor principle,'' which states that nominal interest rates should respond more than 100 percent to inflation."
"Unfortunately, notably because interest rates must be positive, the Taylor principle cannot be satisfied for all interest rates, and as a consequence global determinacy may not prevail even though there exists a locally determinate equilibrium. We propose here a simple alternative to the Taylor principle, which takes the form of a new condition on interest rate rules that ensures global determinacy," wrote J.P. Benassy and colleagues ...read more
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