Pub Date : 2017-01-01DOI: 10.22812/JETEM.2017.28.4.004
AhnIllTae
We consider a vertical relationship between a single upstream firm and a single downstream firm and examine the economic effects of the profit transfer program, where the downstream firm transfers a predetermined share of its profit to the upstream firm. We analyze the effects under two scenarios, according as how the price is determined in the upstream market. One is where the upstream firm sets the price of the intermediate good and the downstream firm takes the price as given. The other is where the downstream firm acts as a monopsonist and sets the price of the intermediate good. In the former scenario, the profit transfer alleviates the problem of ‘double marginalization’ and enhances economic efficiency. The downstream firm will hire more intermediate good and will produce more output. And the upstream firm will increase the effort level to reduce the production cost. The consumer surplus and the social welfare will rise. On the other hand, in the latter scenario, the profit transfer has opposite effects. It induces the downstream firm to hire less intermediate good. The upstream firm’s effort level to reduce the production cost decreases. As a result, the output of the final good, the consumer surplus, and the social welfare decrease. We will also examine how the profit transfer affects the individual firms’ profits.
{"title":"PROFIT TRANSFER WITHIN A VERTICAL RELATIONSHIP","authors":"AhnIllTae","doi":"10.22812/JETEM.2017.28.4.004","DOIUrl":"https://doi.org/10.22812/JETEM.2017.28.4.004","url":null,"abstract":"We consider a vertical relationship between a single upstream firm and a single downstream firm and examine the economic effects of the profit transfer program, where the downstream firm transfers a predetermined share of its profit to the upstream firm. We analyze the effects under two scenarios, according as how the price is determined in the upstream market. One is where the upstream firm sets the price of the intermediate good and the downstream firm takes the price as given. The other is where the downstream firm acts as a monopsonist and sets the price of the intermediate good. In the former scenario, the profit transfer alleviates the problem of ‘double marginalization’ and enhances economic efficiency. The downstream firm will hire more intermediate good and will produce more output. And the upstream firm will increase the effort level to reduce the production cost. The consumer surplus and the social welfare will rise. On the other hand, in the latter scenario, the profit transfer has opposite effects. It induces the downstream firm to hire less intermediate good. The upstream firm’s effort level to reduce the production cost decreases. As a result, the output of the final good, the consumer surplus, and the social welfare decrease. We will also examine how the profit transfer affects the individual firms’ profits.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"28 1","pages":"61-99"},"PeriodicalIF":0.0,"publicationDate":"2017-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342207","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-09-30DOI: 10.22812/JETEM.2016.27.3.003
K. Kim, Chang-kee Lee
Variable capital utilization is an important element in recent DSGE models. To allow capital utilization to respond to shocks, the cost of varying utilization is modelled in terms of either accelerated depreciation of capital (Greenwood et al., 1988) or foregone consumption (Christiano et al., 2005). We perform a Bayesian estimation of the standard medium-scale DSGE model augmented with news shocks to examine which specification is supported by the data. The former exhibits a superior fit with the data relative to the latter. We show that it is attributable to the fact that the former explains better the properties of nominal variables, such as inflation and nominal interest rates.
{"title":"How the capital utilization adjustment cost should be implemented in DSGE model","authors":"K. Kim, Chang-kee Lee","doi":"10.22812/JETEM.2016.27.3.003","DOIUrl":"https://doi.org/10.22812/JETEM.2016.27.3.003","url":null,"abstract":"Variable capital utilization is an important element in recent DSGE models. To allow capital utilization to respond to shocks, the cost of varying utilization is modelled in terms of either accelerated depreciation of capital (Greenwood et al., 1988) or foregone consumption (Christiano et al., 2005). We perform a Bayesian estimation of the standard medium-scale DSGE model augmented with news shocks to examine which specification is supported by the data. The former exhibits a superior fit with the data relative to the latter. We show that it is attributable to the fact that the former explains better the properties of nominal variables, such as inflation and nominal interest rates.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"27 1","pages":""},"PeriodicalIF":0.0,"publicationDate":"2016-09-30","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342617","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-09-01DOI: 10.22812/JETEM.2016.27.3.004
Jaeho Yun, Hoon-Tae Ryoo, Jin Mo Chung
In this paper, we estimate a dynamic factor model for Korean macro economy and banking sector's business conditions by using the FAVAR (Factor augmented vector autoregressive) model, and analyze impulse responses of various variables such as macro aggregates and banks' financial ratios.Our empirical analysis shows that the macro economy tends to affect the banking sector unilaterally over time. Next, in our counter-factual analysis where we artificially remove the effect of banking sector on the macro economy in the FAVAR model, we find that there is no substantial effect of banking sector's business conditions on the transmission mechanism of monetary policy.
{"title":"The Effect of Banking Sector’s Business Conditions on the Transmission Mechanism of Monetary Policy","authors":"Jaeho Yun, Hoon-Tae Ryoo, Jin Mo Chung","doi":"10.22812/JETEM.2016.27.3.004","DOIUrl":"https://doi.org/10.22812/JETEM.2016.27.3.004","url":null,"abstract":"In this paper, we estimate a dynamic factor model for Korean macro economy and banking sector's business conditions by using the FAVAR (Factor augmented vector autoregressive) model, and analyze impulse responses of various variables such as macro aggregates and banks' financial ratios.Our empirical analysis shows that the macro economy tends to affect the banking sector unilaterally over time. Next, in our counter-factual analysis where we artificially remove the effect of banking sector on the macro economy in the FAVAR model, we find that there is no substantial effect of banking sector's business conditions on the transmission mechanism of monetary policy.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"27 1","pages":"112-141"},"PeriodicalIF":0.0,"publicationDate":"2016-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342169","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-06-01DOI: 10.22812/JETEM.2016.27.2.001
Jang-Ok Cho, S. Kim
It is shown that an economy can grow endogenously in early stage of development. However, the growth is not due to the factors emphasized in the literature but due to abundant labor. If labor is abundant enough to render real wage rate fixed as Lewis (1954) postulated, the marginal product of capital does not decrease with capital and hence endogenous growth emerges. However, the endogenous growth is temporary in the sense that once labor has been fully utilized, the growth enters neoclassical phase in which the economy converges along saddle path to its steady state of low growth. The model is proposed to explain the difference between West German and Japanese growth pattern after World War II. It is argued that West Germany was a highly industrialized Solow (1956) economy far below her steady state due to wartime destruction. As was predicted by Solow, West German growth rate was extremely high initially. However, her growth pace slowed down gradually from the beginning to a low growth steady state. By contrast, Japanese economy after the war was a largely agrarian and labor abundant Lewis economy. Japan's rapid economic growth which had been sustained temporarily for about twenty years before she took the path converging to the present steady state of low growth was endogenous. Almost all of the growth miracles since the latter half of the twentieth century have been of Japanese pattern.
{"title":"The Rise and Fall of Miracles","authors":"Jang-Ok Cho, S. Kim","doi":"10.22812/JETEM.2016.27.2.001","DOIUrl":"https://doi.org/10.22812/JETEM.2016.27.2.001","url":null,"abstract":"It is shown that an economy can grow endogenously in early stage of development. However, the growth is not due to the factors emphasized in the literature but due to abundant labor. If labor is abundant enough to render real wage rate fixed as Lewis (1954) postulated, the marginal product of capital does not decrease with capital and hence endogenous growth emerges. However, the endogenous growth is temporary in the sense that once labor has been fully utilized, the growth enters neoclassical phase in which the economy converges along saddle path to its steady state of low growth. The model is proposed to explain the difference between West German and Japanese growth pattern after World War II. It is argued that West Germany was a highly industrialized Solow (1956) economy far below her steady state due to wartime destruction. As was predicted by Solow, West German growth rate was extremely high initially. However, her growth pace slowed down gradually from the beginning to a low growth steady state. By contrast, Japanese economy after the war was a largely agrarian and labor abundant Lewis economy. Japan's rapid economic growth which had been sustained temporarily for about twenty years before she took the path converging to the present steady state of low growth was endogenous. Almost all of the growth miracles since the latter half of the twentieth century have been of Japanese pattern.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"4 1","pages":"1-38"},"PeriodicalIF":0.0,"publicationDate":"2016-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342553","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2016-01-01DOI: 10.22812/JETEM.2016.27.1.001
Jinwoo Kim
This paper establishes the equilibrium existence in the first-price auction in the setup where bidders are partitioned into ``knowledge groups'' so that each bidder observes the types of rival bidders in the same group but not the others' types.
{"title":"Asymmetric Information about Rivals' Types: Existence of Equilibrium in First-Price Auction","authors":"Jinwoo Kim","doi":"10.22812/JETEM.2016.27.1.001","DOIUrl":"https://doi.org/10.22812/JETEM.2016.27.1.001","url":null,"abstract":"This paper establishes the equilibrium existence in the first-price auction in the setup where bidders are partitioned into ``knowledge groups'' so that each bidder observes the types of rival bidders in the same group but not the others' types.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"27 1","pages":"1-15"},"PeriodicalIF":0.0,"publicationDate":"2016-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342542","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-09-01DOI: 10.22812/JETEM.2015.26.3.004
Mihye Lee
This paper examines whether idiosyncratic firm-level shocks can explain an important part of aggregate movements as in Gabaix (2011). Its findings show that, different from the case in the United States, the idiosyncratic movements of the largest 20 firms in Korea appear to explain up to 18% of the variations in output growth between 1981 and 2011. In addition, they are also useful in explaining the cyclical component of GDP. It is found that the top three firms’ movements account for 58% of the cyclical component of GDP during the period from 2001q1 to 2012q3. This empirical evidence suggests that the granular hypothesis also holds in Korea.
{"title":"Can Idiosyncratic Shocks to Firms Explain Macroeconomic Growth and Fluctuations in Korea","authors":"Mihye Lee","doi":"10.22812/JETEM.2015.26.3.004","DOIUrl":"https://doi.org/10.22812/JETEM.2015.26.3.004","url":null,"abstract":"This paper examines whether idiosyncratic firm-level shocks can explain an important part of aggregate movements as in Gabaix (2011). Its findings show that, different from the case in the United States, the idiosyncratic movements of the largest 20 firms in Korea appear to explain up to 18% of the variations in output growth between 1981 and 2011. In addition, they are also useful in explaining the cyclical component of GDP. It is found that the top three firms’ movements account for 58% of the cyclical component of GDP during the period from 2001q1 to 2012q3. This empirical evidence suggests that the granular hypothesis also holds in Korea.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"26 1","pages":"63-78"},"PeriodicalIF":0.0,"publicationDate":"2015-09-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342531","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2015-01-01DOI: 10.22812/JETEM.2015.26.1.003
Taehyung Kim, Jeong-gun Park
By building on the work of Conley et al. (1997), we investigate the stationarity of riskless short-term interest rate processes, analyzing generalized stochastic volatility models with level effects and examine the compatibility of stationarity of short-term interest rates with the popular dynamic term structure of models of interest rates, such as ATSM and QTSM. We extend extant stochastic volatility models with level effects crucial in characterizing the stationarity of a continuous time stochastic process, estimate the extended models using an efficient simulation-based MCML(Monte Carlo Maximum Likelihood) estimation method using importance sampling and implement model diagnostics using the inverse of standard normal distribution of the dynamic probability integral transform obtained via an auxiliary particle filter. Empirical estimation results indicate that TB3M and Call1d exhibit drift-induced stationarity compatible with both ATSM and QTSM, and that ED1M, KTB3M, MMF7d, CD91d and CP91d are of volatility-induced stationarity. Consequently, the results imply that, without careful consideration for the nature of stationarity of a short-term interest rate, indiscriminate application of theoretical models assuming the drift-induced stationarity of short-term interest rates may cause serious failure in derivative pricing and risk management.
{"title":"Investigation into the compatibility of stationarity of short-term interest rate proxies with the dynamic term structure models of interest rates","authors":"Taehyung Kim, Jeong-gun Park","doi":"10.22812/JETEM.2015.26.1.003","DOIUrl":"https://doi.org/10.22812/JETEM.2015.26.1.003","url":null,"abstract":"By building on the work of Conley et al. (1997), we investigate the stationarity of riskless short-term interest rate processes, analyzing generalized stochastic volatility models with level effects and examine the compatibility of stationarity of short-term interest rates with the popular dynamic term structure of models of interest rates, such as ATSM and QTSM. We extend extant stochastic volatility models with level effects crucial in characterizing the stationarity of a continuous time stochastic process, estimate the extended models using an efficient simulation-based MCML(Monte Carlo Maximum Likelihood) estimation method using importance sampling and implement model diagnostics using the inverse of standard normal distribution of the dynamic probability integral transform obtained via an auxiliary particle filter. Empirical estimation results indicate that TB3M and Call1d exhibit drift-induced stationarity compatible with both ATSM and QTSM, and that ED1M, KTB3M, MMF7d, CD91d and CP91d are of volatility-induced stationarity. Consequently, the results imply that, without careful consideration for the nature of stationarity of a short-term interest rate, indiscriminate application of theoretical models assuming the drift-induced stationarity of short-term interest rates may cause serious failure in derivative pricing and risk management.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"26 1","pages":"70-126"},"PeriodicalIF":0.0,"publicationDate":"2015-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342141","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-01-01DOI: 10.22812/JETEM.2014.25.3.002
Frederick Dongchuhl Oh, Hyunjoon Lim
This paper discusses theoretical explanations of currency crises and the contagion from them. We provide a basic introduction to the frameworks of three classical currency crisis models and assess each model’s implications. We then introduce a global game approach in these crisis models, which helps to overcome the limits found in them. Based on our global game analysis, we explain contagion between two economies.
{"title":"Understanding Currency Crises and Their Contagion","authors":"Frederick Dongchuhl Oh, Hyunjoon Lim","doi":"10.22812/JETEM.2014.25.3.002","DOIUrl":"https://doi.org/10.22812/JETEM.2014.25.3.002","url":null,"abstract":"This paper discusses theoretical explanations of currency crises and the contagion from them. We provide a basic introduction to the frameworks of three classical currency crisis models and assess each model’s implications. We then introduce a global game approach in these crisis models, which helps to overcome the limits found in them. Based on our global game analysis, we explain contagion between two economies.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"25 1","pages":"30-62"},"PeriodicalIF":0.0,"publicationDate":"2014-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68342125","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2014-01-01DOI: 10.22812/JETEM.2014.25.1.003
Yi, Chaedeug
{"title":"Nonparametric Estimation of Periodicity of Power Volatility and Discontinuous Daily Jump and Intraday Jump","authors":"Yi, Chaedeug","doi":"10.22812/JETEM.2014.25.1.003","DOIUrl":"https://doi.org/10.22812/JETEM.2014.25.1.003","url":null,"abstract":"","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"25 1","pages":"27-57"},"PeriodicalIF":0.0,"publicationDate":"2014-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68341903","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2013-06-01DOI: 10.22812/JETEM.2013.24.2.004
Kwanho Shin, Donggyun Shin
This paper investigates determinants of income inequality. To refect that income distribution underwent structural changes recently, we analyze various inequality measures: the Gini coefficient, the Estimated Household Income Inequality (EHII) index, and the income share of the top 1 percent. Analysis of country-level panel data suggests that, contrary to the Kuznetz hypothesis, income inequality has worsened recently among developed countries, which is more evident in the income share of the top 1%. The apparent negative effects of trade openness on income inequality are explained by other control variables, and the negative impact of financial openness is observed when the top 1 percent is analyzed. Technological progress is positively associated with income inequality, as measured by the Gini or the top 1 percent, but not the EHII. It is also found that, while income inequality worsens in the degree to which individuals can participate in the political process of their country, it is reduced by expanded government expenditures.
{"title":"New evidence on determinants of income inequality","authors":"Kwanho Shin, Donggyun Shin","doi":"10.22812/JETEM.2013.24.2.004","DOIUrl":"https://doi.org/10.22812/JETEM.2013.24.2.004","url":null,"abstract":"This paper investigates determinants of income inequality. To refect that income distribution underwent structural changes recently, we analyze various inequality measures: the Gini coefficient, the Estimated Household Income Inequality (EHII) index, and the income share of the top 1 percent. Analysis of country-level panel data suggests that, contrary to the Kuznetz hypothesis, income inequality has worsened recently among developed countries, which is more evident in the income share of the top 1%. The apparent negative effects of trade openness on income inequality are explained by other control variables, and the negative impact of financial openness is observed when the top 1 percent is analyzed. Technological progress is positively associated with income inequality, as measured by the Gini or the top 1 percent, but not the EHII. It is also found that, while income inequality worsens in the degree to which individuals can participate in the political process of their country, it is reduced by expanded government expenditures.","PeriodicalId":39995,"journal":{"name":"Journal of Economic Theory and Econometrics","volume":"24 1","pages":"125-162"},"PeriodicalIF":0.0,"publicationDate":"2013-06-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"68341760","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}