Animal Spirits: How Human Psychology Drives the Economy and Why It Matters for Global Capitalism
Abstract
The global financial crisis has made it painfully clear that powerful psychological forces are imperiling the wealth of nations today. From blind faith in ever-rising housing prices to plummeting confidence in capital markets, "animal spirits" are driving financial events worldwide. In this book, acclaimed economists George Akerlof and Robert Shiller challenge the economic wisdom that got us into this mess, and put forward a bold new vision that will transform economics and restore prosperity. Akerlof and Shiller reassert the necessity of an active government role in economic policymaking by recovering the idea of animal spirits, a term John Maynard Keynes used to describe the gloom and despondence that led to the Great Depression and the changing psychology that accompanied recovery. Like Keynes, Akerlof and Shiller know that managing these animal spirits requires the steady hand of government--simply allowing markets to work won't do it. In rebuilding the case for a more robust, behaviorally informed Keynesianism, they detail the most pervasive effects of animal spirits in contemporary economic life--such as confidence, fear, bad faith, corruption, a concern for fairness, and the stories we tell ourselves about our economic fortunes--and show how Reaganomics, Thatcherism, and the rational expectations revolution failed to account for them.
... However, currently, the scale of impact of such events is unevenly distributed over the whole planet (Akerlof, Shiller 2009), creating a situation where players in the market who are "too big to fail." This impedes opportunities to learn from failures. ...
... Even with the best intentions, innovations and profit-oriented activity may lead to unexpected effects in financial markets, which pose a low probability though serious threat to its sustainability. In the face of complexity of global financial market, the use of traditional economic models in risk assessment may easily lead to neglect the general rule that a financial product is based on the promise to be paid back on a certain moment in the future (Akerlof, Shiller 2009). ...
... As the financial crisis of 2008 shows, shockwaves can go through the global economy leading to negative economic growth, increased unemployment and growing government debts when tax money is used to bail out banks in order to prevent chain effects of bankruptcy (Admati, Hellwig 2013). Different authors have identified that financial markets have become more unstable during the last few decades (Akerlof, Shiller 2009;Admati, Hellwig 2013). Furthermore, since markets are increasingly interconnected and complex, instability is clearly reinforced. ...
Aim: In this paper, it is argued that in complex financial systems private goods, important for the creation of a market, have to be considered in a multiple of differing property rights structures necessary for the functioning of the system. This may lead to high transaction costs and adverse incentives for different players, threatening the sustainability of the system. The aim of the article is to create and explore a framework for assessing fragilities and threats to the sustainability of financial markets, using a property rights approach. This may be a useful background for development of policy to increase the sustainability of financial markets. Conclusions/findings: It is argued that while financial services have features of a private good for which markets exist, the infrastructure and organizational structures have features of a club good. These are characterized by problems of congestion and depreciation due to its overuse. The question is addressed to what extent the public good features are of the “weakest-link” kind, where fragilities may lead a potential collapse. Implications of the research: The complex financial system should be prevented from getting too many features of an open access regime, while making it a self-strengthening system where failures have learning effects. This may require the increase of different types of buffers and limits to the size of the players in the financial system. Otherwise, any action that is thought to lead to an improvement, is likely to lead to have the opposite effect. Keywords: financial markets, complexity, public goods, club goods, property rights, sustainability JEL: D23, E42, G1, G2
... In essence, they accept the enormous convictive power of simple narratives and argue for a political framework that is robust to exuberance instead of trying to curb the exuberant narrative itself. Akerlof and Shiller (2010) reinvigorate the Keynesian notion of animal spirits to explain not only the financial crisis and adverse financial events but economic behavior in general. They highlight the economic importance of concepts such as fear, confidence, a concern for fairness, and the spread of popular narratives. ...
... These concepts are difficult to formalize and, to varying degrees, contradict the assumption of rationality and have thus been largely neglected in economic theory. Akerlof and Shiller (2010) postulate that economic decisions often hinge on the belief or disbelief in certain stories because stories can influence expectations, inspire confidence or instill fear in economic agents. ...
... In the past decade, text mining techniques have increasingly been utilized to identify topics in an economic policy context, particularly in finance and the central bank communications literature. Not unlike the idea put forward by Akerlof and Shiller (2010), the simple premise of this research is the assumption that verbal or textual information provided by policymakers can influence expectations and, therefore, economic decision-making. At the same time, the structure of the information that is extracted from text sources and then used to explain variations in economic variables has not been informed by economic theory (or theory of any kind) but is largely a result of the available tools. ...
There is growing awareness within the economics profession of the important role narratives play in the economy. Even though empirical approaches that try to quantify economic narratives are getting increasingly popular, there is no theory or even a universally accepted definition of economic narratives underlying this research. First, we review and categorize the economic literature concerned with narratives and work out the different paradigms at play. Only a subset of the literature considers narratives to be active drivers of economic activity. To solidify the foundation of narrative economics, we propose a definition of collective economic narratives , isolating five important characteristics. We argue that, for a narrative to be economically relevant, it must be a sense‐making story that emerges in a social context and suggests action to a social group. We also systematize how a collective economic narrative differs from a topic and from other kinds of narratives that are likely to have less impact on the economy. With regard to the popular use of topic modeling, we suggest that the complementary use of other methods from the natural language processing (NLP) toolkit and the development of new methods is inevitable to go beyond identifying topics and move towards true empirical narrative economics .
... Limited cognitive capabilities result in individuals resorting to heuristics or simple rules of thumb, rather than employing more complex decision-making processes (Akerlof & Shiller, 2009). The findings from both behavioral finance and financial education literature converge on this aspect, highlighting the human tendency to utilize shortcuts in the face of overwhelming information (Garcia, 2013). ...
... The insights from these studies do not invalidate the internal rigor of traditional financial theories; rather, they call for a generalization or expansion of existing frameworks to encompass the observed aspects of human behavior concerning information processing and overconfidence (Akerlof & Shiller, 2009). By incorporating these factors, it is possible to create more comprehensive models of financial decision-making, better suited to explain individual and collective financial behaviors in various economic contexts (Garcia, 2013). ...
Decentralized finance (DeFi) is a form of finance without central financial intermediaries. This handbook explores the interplay of behavioral finance and public policy in the emerging field of decentralized finance. The work explaines the underlying mechanisms in a nutshell from a social science, economics and legal perspective investigates DeFi's potential impact on financial systems and the risks involved, including smart contract vulnerabilities and trust mechanisms. provides insights into financial decision-making processes in DeFi offers suggestions to enhance regulatory frameworks.
... Thus, instead of optimising their utility function in infinite horizon, agents use simple rules/heuristics to forecast desirable variables. The agents are thus 'rational' in the sense that they learn from their mistakes and switch between the rules according to measures of performance (see the seminal work of Brock & Hommes (1997, 1998 Keynes (1936) and Akerlof & Shiller (2010) because it is these waves of optimism and pessimism that create the business cycle. According to Keynes (1936), these 'animal spirits' represent uncertainty with respect to investment behaviour that is not always purely rational and predetermined. ...
... 7 See for instance Akerlof & Shiller (2010) following this Keynesian intuition. ...
We develop a behavioural macroeconomic model to investigate the question of fiscal policy credibility and how agents' expectations about the output gap, public debt, expenditure and taxation affect the fiscal multiplier and debt stability. To do this, we model heterogeneous expectation-formation processes in a market populated by fundamentalists and chartists, agents being able to switch from one rule to another depending on the effective outcome in each period. This model produces waves of optimism and pessimism along the business cycle. We show in this article that when agents are optimistic about the future output gap and public debt, the fiscal multiplier tends to be larger whatever the nature of the fiscal shock. It also appears that fiscal expansion has less of a negative effect on public debt. Furthermore, agents' expectations about public debt and the fiscal credibility of the government affect indicators of government performance (the fiscal multiplier and public debt stability).
... In Keynes's view, general shifts in investor sentiment may have profound macroeconomic repercussions. See Minsky (1975) , Flaschel et al. (1997 , Akerlof and Shiller (2009) and Franke and Westerhoff (2017) for a more detailed discussion of Keynes's famous notion of animal spirits. In the following, we briefly comment on four tightly interwoven strands of research that are related to our study, namely (i) investor sentiment, animal spirits and macroeconomic dynamics, (ii) traditional Keynesian-type business cycle models, (iii) piecewise-linear maps and (iv) econometric regime switching models. ...
... Empirical evidence by Carroll et al. (1994) , Souleles (2004) , Akerlof and Shiller (2009) and Arif and Lee (2014) supports the view that consumers' and firms' sentiment significantly influences aggregate demand. Based on such observations, Westerhoff and Hohnisch (2007) and Franke (2012) demonstrate that macroeconomic models, buffeted with an endogenous interactive sentiment formation process, may give rise to cyclical fluctuations in economic activity. ...
... Several authors have pointed out the relevance of managerial sentiments in shaping banking behavior. Keynes (1936), and more recently Akerlof and Shiller (2009), have stressed the role of "animal spirits" in managerial behavior; and Minsky (1982) has explained how during normal times success spurs confidence that can set the stage for a subsequent The views expressed in this paper are those of the author and not necessarily of the organization with which Sviatlana Hlebik is affiliated. during the 2007-2008 financial crisis the forecasting errors of future loan losses spiked that indicated the financial crisis came as a surprise to bank managers. ...
... Our results support Keynes (1936) and Akerlof and Shiller's (2009) arguments about the instability of animal spirits. In addition, we find that managerial beliefs play an important role in lending, leverage, and risk-taking. ...
We use a large sample of US banks to construct a new indicator of managerial beliefs based on bank provisioning. This indicator does not only anticipate a future charge-off but also explains future loan growth and other variables. In particular, the indicator shows that an increase in managerial optimism (pessimism) leads to expanded (tight) lending, leverage, and a riskier (less risky) portfolio. Our findings confirm that widespread managerial optimism (pessimism) prevailed before (during) the 2007-2008 financial crisis and that changes in managerial beliefs played an important role in the lending and leverage cycles.
... Consequently, because of the almost unlimited (or much rather guaranteed) opportunity to have one's own debts removed, enterprise managers did not regard debt accumulation as any kind of danger for their existence. Such a mechanism of off-writing of debts represented a firmly established routine, which, however unfortunate it may have been, reappears over and over in the countries of postcommunist capitalism and within various forms such as The key to understanding a zombie economy's routine may be found in the theories of public choice by James Buchanan, in which politics is interpreted as a special variety of a market (Buchanan 1997), and of "animal spirits" (Akerlof, Shiller 2009). During a financial crisis, a type of economic policy develops, which proposes the government's interference in the economy with its uppermost goal of rescuing it from a critical state, on the one hand, and encourages the addressing of the private interests of those economic agents who have found themselves on the verge of bankruptcy as a result of the said crisis. ...
The book is a collection of essays on issues that are beyond those discussed in the generally accepted schemes of economics. The main feature of the book is that it addresses non-trivial and debatable issues in economics. Justifying the crisis that has engulfed the economics, the book gives some recommendations as to how to overcome it.
It is substantiated that the economic ability of the government is an independent factor of production. A theoretical concept of so-called market equality is proposed.
Particular attention is paid to issues of economic development and economic growth. The reasons for the existence of the technological backwardness of the economy, as well as the functioning of varieties of the so-called “dead” economy on an artificial basis, both in post-communist countries and on the scale of the world economy, are studied. The weaknesses of inflation targeting are considered, and a possible solution is proposed. The peculiarities of manifestation of the Laffer effect in the economies of post-Communist countries are revealed.
The book examines pressing issues of our time. In particular, the features of the economic crisis caused by the COVID–19 pandemic are studied, and the externalities of economic sanctions imposed by the West on Russia due to the latter’s war in Ukraine are identified. The process of transformation of globalization from hyper-globalization to confrontational globalization is shown, while the possible future of that globalization is discussed.
The book further contains numerous views and statements on contemporary problems of economic science that will doubtless incite debate.
... Some scholars (Harrison and Weder 2006) argue that confidence can have a profound impact on macroeconomic operations and that there may be multiple equilibria in the economic system, which shift with the confidence of economic agents. According to Akerlof and Shiller (2010), changes in the confidence of economic agents can multiply macroeconomic fluctuations through the corresponding confidence multipliers. The second aspect is the impact of entrepreneurial confidence on micro-decision-making. ...
... Deux paradigmes cherchent à expliquer le fonctionnement des marchés financiers et les anomalies qui en découlent. Les auteurs du paradigme de la finance comportementale s'attachent à réfuter la rationalité parfaite des agents et l'EMH en se basant sur l'effet de la psychologie (Akerlof et Shiller, 2009;Shiller, 2000;Thaler, 1999;De Bondt et Thaler, 1985;Shiller, 1981). Cette dernière est supposée expliquer, en majeure partie, les anomalies constatées sur le marché financier. ...
Cet article examine la littérature sur la capacité de l'hypothèse des marchés adaptatifs (AMH) à expliquer le comportement du marché financier. Il propose tout d'abord le cadre conceptuel de l'AMH ; ensuite, il discute les résultats des travaux empiriques réalisés dans ce cadre tout en mettant en évidence leur diversité méthodologique. La conclusion que l'on peut faire à travers une analyse approfondie de cette littérature est que l'AMH fournit une meilleure explication du comportement du marché que l'hypothèse d'efficience des marchés. L'article se termine par une proposition des pistes de recherches futures pour combler les insuffisances de la littérature. Abstract: This article examines the literature on the ability of the Adaptive Market Hypothesis (AMH) to explain the financial market behavior. It first proposes the conceptual framework of the AMH; then, it discusses the findings of empirical studies carried out in this framework, highlighting their methodological diversity. The conclusion drawn from a thorough analysis of this literature is that the AMH provides a better explanation for the market behavior than the Efficiency Markets Hypothesis. Finally, the paper proposes avenues for future research to fill in the gaps in the literature.
... In recent years, it has also gained increasing popularity in the Digital Humanities, particularly in the field of Computational Literary Studies [14]. Another [15]. Sentiment analysis in financial texts has first been approached by dictionary-based methods [16,17], which are still used today in some cases [18]. ...
... В этой связи отметим важность работ Дж. Акерлофа, П. Коллиера, Д. Сноуера и Р. Шиллера (Akerlof, Shiller, 2010;Akerlof, Snower, 2016;Collier, 2016;Shiller, 2017), в которых на теоретическом и эмпирическом уровнях в качестве источников данных для экономического анализа было использовано то, что исследователи назвали нарративами, -различные вербальные тексты, которыми обмениваются люди, в том числе в социальных сетях. ...
The purpose of the article is to provide theoretical and empirical evidence that narrative analysis in economics is not an integral part of qualitative research and is quite compatible with the methodology of quantitative research. The development of methods for collecting and processing data is one of the significant directions in the development of both empirical and theoretical research in economics. Of particular importance to this direction is the consistent expansion of the consideration of social factors in the study of decision-making processes, both at the micro and macro levels. Narrative economics, which has emerged and developed in the last decade, is an integral part of this trend. The article proposes and substantiates a methodology for empirical analysis of narratives considered as sources of quantitative information used in decision making. This distinguishes it from the methods of narrative analysis used in qualitative research in the social sciences, although they are not always distinguished in the literature. The technique combines the search for the frequency of occurrence of various phrases on the Internet with interview analysis, which significantly reduces the time and effort required to search and analyze the necessary information about social factors. The effectiveness of the proposed methodology is tested on the example of the analysis of narratives that characterize personal entrepreneurial networks, no statistical information about which is collected, although the networks themselves play an important role in the formation of new small businesses. The presented results of the analysis show that the technique makes it possible to obtain useful quantitative data on such objects of economic research.
... Second, they think they control environmental events, leading to mistakes in judgments or decision-making, overestimating one's abilities and undervaluing an opponent, the challenge of a task, or eventual risks (Dominic and Fowler, 2011). Hence, several academics (Akerlof and Shiller, 2010;D. Johnson and Asher Levin, 2009;Dominic and Tierney, 2011;Dominic, 2004;Tuchman, 2014) provide evidence that overconfidence is historically blamed for high-profile disasters, namely, World War I, the Vietnam War, Iraq War, the 2008 financial crisis, and poor preparation for environmental phenomena, such as Hurricane Katrina and climate change. ...
... However, Alston et al. (2009) argued that the private sector tends to focus on short-term gains from R&D, which implies that its R&D capital expenditure might be lower than it ought to be. Short-termism and animal spirits in the private sector tend to make R&D capital expenditure unstable and procyclical (Akerlof & Shiller, 2010;Barlevy, 2007;Cozzi, 2005;Francois & Lloyd Ellis, 2003). As Barlevy (2007) argued, the short-term focus ends up manifesting as market failure when the level of private R&D capital spending falls short of the socially optimal. ...
This paper examines the relationship between the structure of R&D fixed capital spending, measured as the ratio of the private sector to public sector R&D capital expenditure, and national total factor productivity. It employs South African data for the period 1965 to 2019. This study employs the non-linear distributed lag modelling framework to cater for non-linearities in the relationship. The findings, first, suggest that the ratio of private sector to public sector R&D capital spending has a positive effect on total factor productivity. Second, the structure of R&D capital spending has large asymmetric effects on national total factor productivity, with negative changes dominating positive changes. Negative changes in the structure of R&D capital spending negatively influence total factor productivity, but positive changes have positive effects. Both in the short run and the long run, cumulative multipliers indicate that negative changes in the structure of R&D capital spending dominate positive changes by a very large margin. The findings imply that the private sector must become more dominant than the public sector in R&D capital spending in the national system of innovation.
... There is also the "animal spirits" view that measures of sentiment capture non-fundamental factors [e.g. Chauvet and Guo (2003), Akerlof andShiller (2009), Farmer (2012), Benhabib et al. (2015)]. This line of research argues that psychological waves of optimism and pessimism cause macroeconomic fluctuations, implying that expansions eventually lead to busts as fundamentals are unaffected. ...
Economists have long been interested in the effect of business sentiment on economic activity. Using text analysis, I construct a new company-level indicator of sentiment based on the net balance of positive and negative words in Australian company disclosures. Company-level investment is very sensitive to changes in this corporate sentiment indicator, even controlling for fundamentals, such as Tobin’s Q, as well as controlling for measures of company-level uncertainty.
The high sensitivity of investment to sentiment could be due to several mechanisms. It could be because of animal spirits among managers or because of sentiment proxies for private information held by managers about company prospects. Overall, I find mixed evidence of the underlying causal mechanism. The effect of sentiment on investment is relatively persistent, which is consistent with managers having private information about company fundamentals. But the sensitivity of investment to sentiment is not any stronger at opaque companies in which managers are likely to be better informed than investors. Further, investment is sensitive to sentiment even when investors have an information advantage over managers by lagging the sentiment indicator by a year. Overall, the sensitivity of investment to sentiment appears to reflect both animal spirits and fundamentals.
Corporate investment has been weak since the global financial crisis (GFC) and demand-side factors, such as lower sales growth, explain more than half of this weakness. Low sentiment and heightened uncertainty weighed on investment during the GFC but have been less important factors since then.
... Poor decisions also matter at the systemic level: optimistic house prices expectations boosted the lending that preceded the Great Recession (Akerlof and Shiller 2010;Foote et al. 2021;Jordà et al. 2016). Likewise, during the low interest rate, high fiscal stimulus, work-from-home period of the COVID-19 pandemic, house prices and mortgage debt escalated in many economies. ...
The family home is the most important asset on household balance sheets, aside from human capital. Choosing a suitable mortgage is therefore critical to financial well-being but households often make costly mistakes. We collect data in an online survey to test borrowers’ comfort with, and understanding of, mortgage debt. We analyze the impact of financial literacy, mortgage broker advice and whether the loan is framed as a lump sum debt or an equivalent stream of repayments. We conjecture that participants’ comfort with loans and their ability to match lump sum debt to equivalent repayment streams will help them to choose a suitable mortgage. Results show that participants with high financial literacy are less comfortable with mortgage debt in general and also less sensitive to framing than those with low financial literacy. Literate participants are better able to match repayment streams with the equivalent lump sums. Endogeneity-controlled regression analysis shows that consulting brokers leads to higher comfort with debt and lower sensitivity to framing. Survey responses also indicate more uncertainty about future house prices among borrowers who intend to consult brokers than among those who do not.
... Motivated by such ideas, and building on the well-established work in psychology on how narratives shape human perceptions and constructions of social reality (Armstrong 2020;Bruner 1991;Polkinghorne 1988;White 1980), an expanding social-science literature has begun to attend to how narratives drive political, social, and economic outcomes (Bénabou, Falk, and Tirole 2018;Branch, McGough, and Zhu 2022;Eliaz and Spiegler 2020;Kuhle 2020). Across disciplines, there is a growing recognition that narratives play a fundamental role in both individual and collective decision-making (Akerlof and Shiller 2010;Shiller 2019). Hence, both science and policy would benefit from a better understanding of how narratives form, spread, and influence behavior. ...
Social scientists have become increasingly interested in how narratives —the stories in fiction, politics, and life—shape beliefs, behavior, and government policies. This paper provides an unsupervised method to quantify latent narrative structures in text documents. Our new software package relatio identifies coherent entity groups and maps explicit relations between them in the text. We provide an application to the U.S. Congressional Record to analyze political and economic narratives in recent decades. Our analysis highlights the dynamics, sentiment, polarization, and interconnectedness of narratives in political discourse.
... Keynes (1936) said that financial decisions may be taken as the result of "animal spirits-a spontaneous urge to action rather than inaction, and not as the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities." Akerlof and Shiller (2009) echo Keynes (1936): "To understand how economies work and how we can manage them and prosper, we must pay attention to the thought patterns that animate people's ideas and feelings, their animal spirits." Promptly after the 1987 crash, Shiller (1987) surveyed traders and found that "most investors interpreted the crash as due to the psychology of other investors." ...
Some market crashes occur because of significant imbalances in demand and supply. Conventional models fail to explain the large magnitudes of price declines. We propose a unified structural framework for explaining crashes, based on the insights of market microstructure invariance. A proper adjustment for differences in business time across markets leads to predictions which are different from conventional wisdom and consistent with observed price changes during the 1987 market crash and the 2008 sales by Société Générale. Somewhat larger-than-predicted price drops during 1987 and 2010 flash crashes may have been exacerbated by too rapid selling. Somewhat smaller-than-predicted price decline during the 1929 crash may be due to slower selling and perhaps better resiliency of less integrated markets.
... Therefore, if the Becker School's contention is that humans are setting up and solving such optimization problems, it is prima facia untenable, and is rejected by many economists, including Akerlof & Shiller (2010), and of course by Keynes (1936), who famously wrote: ...
The agent-based model is the principal scientific instrument of generative social science. Typically, we design completed agents-fully endowed with rules and parameters-to grow macroscopic target patterns from the bottom up. Inverse generative science (iGSS) stands this approach on its head: Rather than handcrafting completed agents to grow a target-the forward problem-we start with the macro-target and evolve micro-agents that generate it, stipulating only primitive agent-rule constituents and permissible combinators. Rather than specific agents as designed inputs, we are interested in agents-indeed, families of agents-as evolved outputs. This is the backward problem and tools from Evolutionary Computing can help us solve it. In this overarching essay of the current JASSS Special Section, Part 1 discusses the motivation for iGSS. Part 2 discusses its goals, as distinct from other approaches. Part 3 discusses how to do it concretely, previewing the five iGSS applications that follow. Part 4 discusses several foundational issues for agent-based modeling and economics. Part 5 proposes a central future application of iGSS: to evolve explicit formal alternatives to the Rational Actor, with Agent_Zero as one possible point of evolutionary departure. Conclusions and future research directions are offered in Part 6. Looking 'backward to the future,' I also include, as Appendices, a pair of 1992 memoranda to the then President of the Santa Fe Institute on the forward (growing artificial societies from the bottom up) and backward (iGSS) problems.
Art and finance have a symbiotic relationship traditionally. Artists benefit from finance market opportunities to thrive their endeavors, while dealings in the arts enable finance institutions to signal cultural status (Booth, 2017). The idea of money to gravitate around aesthetic value is as old as the Renaissance as the beginning of arts consumption and consumer culture (Guerzoni in De Marchi & Goodwin, 1999; Goldthwaite, 1993; Schmelzing, 2020). Taxation of conspicuous luxury expenses after the Great Plague of the 14th century coupled with finance entertaining a vivid social and cultural life enabled to invest in culture as never before (Piper, 2020; Schmelzing, 2020). Today, Renaissance masterpieces count among the most expensive art assets in the world that – to this day – attract masses from all over the world to experience them. The discounted value of cultural capital expressed in the art is one of the most significant long-term multipliers of nations (Keynes, 1936/1979).
Art and governance have been connected ever since as well. During the Renaissance, wealth control by powerful banking families that were also influential in democratic governance trickled down in cultural heritage creation that generates value in tourism until today (Goldthwaite, 1993). But the relation of regulation and art is a more complicated one. Governmental support of cultural value production is a driver of art.
Law protects art production. For instance, legal certainty based on ownership rights to creative output incentivizes arts production through art product marketability at fair conditions. At the same time, regulating artistic endeavors has been found to crowd out creativity, progressiveness and cultural experience.
In the last decades, a trend of art being used as a security in finance has emerged.
Art as a collateral has unnoticingly widened into a systemic market foundation in the United States (US). Enormous potentials for other continents, like Europe, can be envisioned when imagining that – under the current art loan conditions – art could be kept in place with the loan beneficiary while being materialized for gaining access to finance that could be used strategically for long-term investments in a low-interest rate climate.
Novel finance streams promise to directly invigorate and enable fresh contemporary arts markets. Art as a finance instrument also holds precious opportunities to help artists make a decent living and gain independence from suboptimal art management principal-agent constellations. At the same time, widespread market penetration by the countercyclical, unpredictable and opaque market good ‘art’ that is not analyzed in the economic finance literature appears risky. Arts unnoticingly encroaching the world of finance in serving as widespread securities in the influential US finance market heralds systemic risks that may bring down connected world economies during liquidity crises – a prospect which is not captured in the contemporary economic or finance literature.
This thesis introduces the rising use of art as a collateral as an emerging trend. As this day, we lack a Law & Economics analysis of art regulation with particular attention to art as a security, the presented work investigates the advantages and disadvantages of art as a collateral and regulating such use of the arts as a security in finance. The thesis also envisions policy recommendations aimed at improving the rising market use of art as a collateral.
This chapter identifies adaptation as the last major complexity concept. Unlike complex systems in physics and chemistry, the economy is a complex adaptive system, meaning that its parts—the economic agents—change their characteristics and behavior over time. Because of this property, complex adaptive systems are more difficult to analyze than complex systems. To understand adaptation, it is necessary to discuss the behavior and learning of agents, i.e. to adopt a microeconomic perspective. Based on insights from computational theory, the chapter argues that maximization is possible only for simple economic problems, which are rare. Most economic problems that are interesting are NP-hard and therefore intractable. Complexity economics rejects the standard rational choice approach of neoclassical economics in favor of the theoretically and empirically more plausible bounded rationality approach. In this respect, complexity economics overlaps with some branches of behavioral economics. An agent-based model of collective problem-solving and social learning is presented to emphasize that behavior has not only an individual but also a social aspect. Moreover, the chapter briefly discusses the link between complexity economics and the recently emerged narrative economics, which highlights the importance of sense-making for economic agents.
New ventures and small and medium-sized enterprises (SMEs) are the engines that drive the development of the economy, productivity, and business. However, they differ with respect to their natures, and that may affect their choices and success. This paper investigates the determinants of failure for SMEs and new ventures in Portugal by employing a logistic regression technique to develop the one-year prediction models individually over the period from 2010 to 2018. The results show that age and size always play significant roles in discriminating the failure risk of both types of firm, but the financial predictors selected in the final default prediction models for SMEs and new ventures vary. Moreover, based on financial, age, and size predictors, the SME model performs much better than that of the new venture in the classification accuracy reported. This indicates that separate treatment should be carried out while predicting the failure likelihood of SMEs and new ventures.
Economists have long labored under a misleading dichotomy between rationality and spiritedness where a market economy reflects the cool sobriety of rational calculation that sometimes is thought to be impaired by irrational animal spirits. Within this scheme of thought, those individuals who constitute society are effectively reduced to a societal average or representative agent, where aggregation is reflective of choice, rather than interaction. In contrast, we theorize by distinguishing market and state enterprises as creating an observed disordering due to the institutions that govern them. Within this alternative scheme of thought, reason and spirit are both features of the human organism, with individuals varying in the degrees to which their actions entail these features. What results is recognition that orderliness and volatility are both ineradicable features of human population systems, and, moreover, that polity and economy inject non-congruent modes of action into entangled systems of political economy.
Studies that quantify the price impact of the information in corporate press releases and news articles mainly focus on quantitative news, such as earnings announcements, dividends, and financial performance-related events, but leave out other corporate news events. Those that do so generally focus on one source of information and do not compare the price impacts from different information sources. Our study aimed to extend previous studies by quantifying and comparing market reactions to corporate press releases and news articles across different news categories. We classified and categorized 100,960 news items, encompassing 26,546 corporate press releases and 74,414 news articles, of 615 firms in the Stock Exchange of Thailand between 1 January 2017 and 31 December 2019. These news items were classified into categories based on the information contained in corporate press releases and news articles. We then studied the market reactions to these news categories. We found that the price impact from corporate releases is sustained for both positive and negative news categories. Our results also show that the positive price impact for news reported by the media tends to reverse, consistent with prior studies. In contrast, the negative price impact from news articles holds; this result differs from previous studies. Our data also show that managers tend to leak and recycle good news while the release of bad news is delayed.
This chapter aims to analyse the causes, buffers and consequences of the great depressions experienced by Catalonia in the 100-year period between the outbreak of the Great War and the crisis of the euro. The interval can be considered as that of the emergence and decline of the second industrial revolution.
Using multinomial logit methodology for financing application decisions for bank loans, credit lines and trade credits, we show that firms’ financial behavior is driven by their lagged experience. Moreover, the optimism and pessimism of firms (animal spirit) is another important determinant. Our results stress the importance of the behavioral perspective to corporate finance. The policy of quantitative easing of the ECB had only weak effects on the access to banking loans, while it was significantly correlated with lower internal funding. Our results have possible implications to understand the behavioral dynamics of corporate financing structure the in the post pandemic period.
Enflasyon bekleyişleri gerçek enflasyonun önemli bir belirleyicisi olduğundan para politikasının yürütülmesinde önemli bir rol oynamaktadır. Merkez bankaları, iktisadi birimlerin enflasyon bekleyişlerini kontrol ederek enflasyon hedefiyle uyumlu olması için çabalamaktadır. Bu uyumun gerçekleşmesi durumunda merkez bankaları enflasyondaki dalgalanmaları daha rahat yönetebilme olanağına sahip olmakta ve enflasyonu kontrol etmede daha başarılı sonuçlar elde etmektedirler. Enflasyon bekleyişleriyle ilgili olarak ana akım iktisatta temel paradigma rasyonel bekleyişler hipotezidir. Bu hipoteze göre iktisadi birimler var olan tüm bilgiden yararlanarak bekleyişlerini oluşturmakta ve enflasyon konusunda optimal tahminlerde bulunmaktadırlar. Rasyonel bekleyişlere dayalı olarak enflasyon tahminleri yapılırken üstelik bilginin homojen dağıldığı ve bu bilgiyi sınırlayan psikolojik faktörlerin de aynı olduğu kabul edilmektedir. Fakat davranışsal iktisat alanında yapılan çalışmalar, enflasyon tahminlerini çevreleyen eksik bilginin ve belirsizliğin önemini ve enflasyon konusunda tutulan inançların zamanla değişebilmesini, dolayısıyla heterojenliği, temel alarak rasyonel bekleyişler hipotezine eleştiriler getirmişlerdir. Bu eleştirilerin sonucunda enflasyon bekleyişlerinin oluşumunu açıklamada alternatif davranışsal yaklaşımlar geliştirilmiştir. Bu yaklaşımların en önemlileri yapışkan bilgi modeli, rasyonel dikkatsizlik yaklaşımı, epidemiyolojik bekleyişler modeli ve Bayesyen öğrenme modelidir. Bu kapsamda çalışmanın temel amacı teorik ve ampirik literatür temelinde enflasyon bekleyişlerinin gerçek yaşamda, rasyonel bekleyişlerden farklı olarak, nasıl oluştuğunu davranışsal iktisat bağlamında ortaya koymaktır. Çalışmada enflasyon bekleyişlerinin, bireysel davranışlardaki heterojenliğin sonucu olarak, rasyonel bekleyişler hipotezine aykırı biçimde oluştuğu, davranışsal iktisadın enflasyon bekleyişlerinin oluşumunu farklı psikolojik yaklaşımlar ile açıklayarak merkez bankalarına hem fiyat istikrarını sağlamada hem de etkin bir para politikası izlemede önemli bir katkı sağladığı sonucuna ulaşılmıştır. Çalışma enflasyon bekleyişlerini rasyonel bekleyişler yaklaşımına göre açıklayan modellerdeki eksikliği ortaya koyarak bu eksikliği gidermede davranışsal yaklaşımların önemini ortaya koymuştur.
In mediatized societies, media coverage not only mirrors what is happening in the economy, it also influences economic decisions taken by households, companies and policy makers. The media contribute to shaping expectations and collective perceptions of economic developments. Therefore, economists have turned their attention to the analysis of media content. Helped by advancements in computing power and text mining techniques, they strive to get a grip on the drivers of economic sentiment. However, at times, they go about it with little appreciation for the nature of news, after all the data source they are dealing with. As this chapter argues, media-based economic analysis requires human researchers’ interpretations at various stages of the process to prevent arbitrary, and hence misleading, data from being used. Furthermore, an approach to isolate media narratives from large corpora of news items is presented.KeywordsTopic modellingLatent Dirichlet AllocationText miningInflationUncertaintyCentral banksMonetary policyNowcastingThird person effectnarrativesEconomic indicators
Narratives are a way of deciphering the meaning contained in texts. More generally, they are a mode in which humans make sense of the world, particularly in uncertain circumstances. In recent years, economists have shown considerable interest in the concept, while psychologists have stressed the role of narratives in decision making. This chapter sets out to clarify the properties of narratives, their benefits in a social context, as well as the restrictions they impose on human cognition. Connections to two established concepts in economics and communication science are built: economic expectations and media frames. Since storytelling is a central part of journalism practise, the media influence, shape, amplify, and challenge shared narratives. Journalists need to be aware of these effects.KeywordsEconomic narrativesNarrative economicsMedia frameUncertaintyExpectationsIdeology
Subject. This article examines the obstacles to new industrialization in Russia aimed to achieve sustainable growth of gross domestic product. Objectives. The article aims to prove the systemic nature of the obstacles to the implementation of new industrialization in Russia, which prevents a fundamental increase in the percentage of long-term high-tech projects in the economy, despite the declared goals. Methods. For the study, we used systems and functional-structural analyses, observation, classification, mathematical methods, comparison, and generalization. Results. The article reveals the essential components of the social and economic development of the country in the context of information asymmetry. Conclusions and Relevance. To introduce a new value approach in the economy, it is necessary to develop an evidence base based on financial calculations and strategic development plans that are accessible to every citizen. The system of financial literacy of the population seems to be a tool for such implementation.
There is a growing body of research that shows the impact of culture on individual’s financial decisions. We aim to investigate how the strength of social norms and the tolerance for deviant behavior influence stock liquidity. Using a panel of 26 developed and 19 emerging countries we show that there is an inverted U-shaped relationship between the measure of cultural tightness-looseness, developed by Gelfand et al. (2011) and stock liquidity. Additionally, our results suggest that financial literacy has a moderating effect on the relationship between social norms and liquidity.
En este artículo se examina la relevancia de las expectativas empresariales como determinante de la inversión privada en la economía peruana mediante el uso de un enfoque econométrico dinámico, flexible y que controla por eventuales no linealidades (modelo TVP-VAR-SV). Se encuentra que el choque de expectativas es persistente y genera efectos estadísticamente significativos sobre la dinámica de la inversión privada, inclusive hasta el trimestre 8 después de registrado el choque. Asimismo, se observa que la naturaleza de este impacto no ha sido estable en el tiempo: en periodos recientes un choque de expectativas afectaría a la inversión privada entre 30% y 40% más que hace dos décadas. Finalmente, se encuentra que los choques de expectativas constituyen la principal fuente de incertidumbre de la inversión privada: representa el 65% de su variabilidad en promedio, mientras que los factores externos 20%.
A road less traveled by, my concern is to make the common negative view of contradictions stand on its head and to suggest that contradictions breed creativity—rescinding what we had been taught in our greenness years. What is a contradiction, anyway? I explore contradictions in a smattering of novels and Power Elites speeches—2012 to 2021—to make them visible. Aiming for contradictions, I found them as I came on a trailblazing vision of one of their offshoots, the liminal chameleon contronym—a compact of a single word admitting of two senses that contradict each other. The latter being the epitome of contradiction, what’s better than a contradiction that doesn’t look like one? I crafted a lexicon of 340 English contronyms culled from dedicated sites. Then ran the lexicon on stories to ensure the lexicon did what I made it to do. Contronyms being no ends in themselves, rather means to an end, I probed Power Elites speeches through the lexicon filter. Contradictions call to mind a future result gained by a serious try—we speak with a purpose. So, I completed the contronym index with McClelland’s 1987 need for achievement (nAch) index and Roget’s Future Time index. Then set the contronym lexicon in a text analysis package to tag these innocuous contradictions woven through texts. That texts could be meetings of opposites is not unusual. The stroke of luck that whetted my curiosity was to reveal that, more often than not, the rates of these opposites were not stationary, depending on what the records were about or who spoke. That changed everything. Speeches were by Xi Jinping, V. Putin, J. Powell, M. Draghi, C. Lagarde, among others. All in all, blurring our certainties, contronyms expand the limits of what language may seize.
This paper focuses on the importance of strategic complementarities in agents' payoff functions as a basis for macroeconomic coordination failures. Strategic complementarities arise when the optimal strategy of an agent depends positively upon the strategies of the other agents. The authors first analyze an abst ract game and find that multiple equilibria and a multiplier process may arise when strategic complementarities are present. Often these e quilibria can be Pareto ranked. The authors then place additional eco nomic content on the analysis of this game by considering strategic c omplementaries arising from production functions, matching technologi es, and commodity demand functions in a multisector, imperfectly comp etitive economy. Copyright 1988, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.
This paper examines downward nominal wage rigidity in Japan at the individual level using Japanese longitudinal data. By observing the nominal wage change distributions and applying several statistical tests for asymmetry to them, we obtain the following findings. First, using 1993-98 data, the nominal wage change distributions are statistically skewed to the right with large spikes near the zero points, which indicates that downward nominal wage rigidity does exist in Japan. Second, the extent of the downward nominal wage rigidity is sensitive to the choice of nominal wage measures. While the extent of the downward rigidity for the hourly wages of part-time female employees is substantial, those for the regular monthly salaries and annual earnings of full-time male and female employees are limited in the sense that approximately one-fourth of the full-time employee samples experience nominal cuts. Third, for the regular monthly salaries of male employees only, the observed right-skewness of the nominal wage distributions tends to decrease as the inflation rate rises, although the analysis is limited to a period with an extremely low inflation rate.
The consumption based asset pricing model predicts that excess yields are determined in a fairly simple way by the market's degree of relative risk aversion and by the pattern of covariances between percapita consumption growth and asset returns. Estimation and testingis complicated by the fact that the model's predictions relate to the instantaneous flow of consumption and point-in-time asset values, but only data on the integral or unit average of the consumption flow is available. In our paper, we show how to estimate the parameters of interest consistently from the available data by maximum likelihood. We estimate the market's degree of relative risk aversion and the instantaneous covariances of asset yields and consumption using six different data sets. We also test the model's overidentifying restrictions.
This chapter discusses the major conceptual developments in the literature of targets and instruments of money policy, with particular emphasis on the broader strategic issues defining the overall framework within which policy operates. The instrument problem of the selection of specific price or quantity that the central bank directly and immediately controls is examined in the chapter. It is a fact that what most people mean by money in discussions of monetary policy is not a plausible policy instrument at all, because it is endogenous in the kind of fractional reserve banking system common to most modern market economies. Hence, money is at best an intermediate target of monetary policy. The chapter discusses the implications of alternative monetary policy frameworks for the information available to the economy's private sector, the positive empirical question of when and whether any given central bank has actually based its operations on one kind of targeting strategy or another, and the empirical basis for making the normative selections of monetary policy targets and instruments.
The global financial crisis raises questions about the proper objectives of financial regulation and how best to meet them. Traditionally, capital requirements have been the cornerstone of bank regulation. However, the run on the investment bank Bear Stearns in March 2008 led to its demise even though Bear Stearns met the letter of its regulatory capital requirements. The risk-based capital requirements that underpin the Basel approach to bank regulation fail to distinguish between the inherent riskiness of an asset and its systemic importance. Liquidity requirements that constrain the composition of assets may be a necessary complement. A maximum leverage ratio—an idea that has gained favor in the United States and more recently in Switzerland—may also prove beneficial, deriving its rationale not from the traditional view that capital is a buffer against losses on assets, but rather from the importance of stabilizing liabilities in an interrelated financial system.
This exploratory study presents and discusses differences found in the Myers-Briggs Type Indicator (MBTI) types (personality preferences) of undergraduate and graduate accounting students, as well as accounting faculty members as they apply to two concerns. The first is the ability of today's accounting education programs to attract the types of students demanded by the profession. The second is the propensity of accounting faculty to expand traditional teaching modalities beyond those aimed at disseminating technical accounting knowledge. The results (using chi square tests) indicate significant differences in certain MBTI types among the groups, which have implications for accounting programs as they attempt to implement fundamental changes advocated by the profession and the Accounting Education Change Commission. The implications are discussed as they relate to accounting students who are predominantly extraverts, sensors, thinkers, and judgers, as well as to attracting and retaining a more diverse group of students. The implications of expected changes in teaching modalities are also discussed as they relate to accounting faculty who are predominantly introverts, sensors, thinkers, and judgers.
This paper shows that the stabilization of the unemployment rate between the pre-1930 and post-1948 eras is an artifact of improvements in data collection procedures. Prewar methods are used to construct postwar unemployment data that are consistent with the historical data. The constructed postwar series is nearly as volatile as the pre-1930 unemployment data. The constructed postwar data are systematically more volatile than the actual postwar data because the cyclical behavior of the labor force and productivity are misspecified in the construction procedures. The relationship between the actual and constructed postwar unemployment series is used to construct new historical data.
Milton Friedman's contention that the crucial theoretical difference between Keynesians and monetarists is that Keynesians assume rigid prices is shown to be factually and logically wrong. Distinctively monetarist propositions and prescriptions depend not on price flexibility but on the assumed insensitivity of monetary velocity to interest rates. To avoid this assumption, Friedman's second "monetary theory of nominal income" takes interest rates as exogenous in the short run; but the model has strange inconsistencies and implications. Finally, Friedman's longrun quantity theory propositions are shown to apply only to economies where money is the sole exogenous nominal magnitude. Milton Friedman has earned our gratitude by the two articles setting forth his theoretical framework (Friedman 1970, 1971). He has certainly facilitated communication by his willingness to express his argument in a language widely used in macroeconomics, the Hicksian IS-LM apparatus. He undoubtedly hoped that use of a common theoretical apparatus would
This article offers new evidence on the determinants of U.S. consumer bankruptcy filing rates, which tripled from 1984 to 1991. The run-up in filing rates does not appear to be a consequence of legal changes since the increase coincided with Bankruptcy Code amendments designed to reduce filing rates by rejecting opportunistic petitions. The run-up also coincided with a major economic boom and crested with the 1991 recession. However, much of the variation in district filing rates is attributable to differences in social variables, and we suggest that changes in social norms might account for the increased bankruptcy filings. This article is therefore a contribution to social capital explanations of behavior. Copyright 1998 by the University of Chicago.
Neoclassical wage theory is based on the premise that a worker's utility is based on his own wage and his own hours of work, without reference to the wages and hours of others. This article reviews anecdotal evidence that the wages of others are a powerful force in determining worker satisfaction, such that utility goes down when the wages of others go up. The resulting comparisons are a powerful force in determining wage structures but do not exclude ultimate effect of neoclassical wage determinants. Copyright 1993 by University of Chicago Press.
The relationship between age-earnings profiles and worker incentives is examined by contrasting wage and salary workers with
the self-employed. It is argued that the steepness of wage and salary workers' age-earnings profiles reflects the desire to
provide work incentives to those workers. Since self-employed workers do not face this agency problem, they are used as a
benchmark to gauge productivity. Empirical support of the proposition is provided, and the effects of human capital accumulation
are separated empirically from incentive effects. The most important conclusion is that under some strong assumptions, most
of the slope in age-earnings profiles is accounted for by the desire to provide incentives, rather than by on-the-job training.
Nominal wages in manufacturing were left unchanged by the large decline in nominal demand that marked the first two years
of the Great Depression. This rigidity in nominal wages is explained using the tools of the behavioral theory of the firm.
The emphasis is on the reasons firms changed their decision rules linking fluctuations in final sales to changes in nominal
wages.
This paper empirically analyses whether consumer confidence has an effect on the real economy in Japan. This paper uses vector autoregressions including variables which represent consumer confidence. It is shown that in the cases of quarterly and monthly data, consumer confidence has a significant effect on GDP fluctuations, whereas in the case of semiannual data, it has no effect. In other words, consumer confidence has an effect on only short-term economic fluctuations.
Experiments in which animals strategically interact with one another or search over some controlled domain are becoming common. While these experiments often promise to illuminate sophisticated animal behavior, the analyses brought to bear on these data are often quite coarse. For example, many papers simply tally the number of observations consistent with a behavioral theory. This analysis is simple, but ignores a potentially rich source of information by failing to take into account patterns and systematic variation among observations inconsistent with the theory. Using a new data set generated by cotton-top tamarin monkeys playing a repeated food-exchange game, we apply a maximum-likelihood estimation technique (more commonly used to study human economic behavior) which utilizes much more of the information in these data, and which uncovers unexpectedly sophisticated cooperative behavior from our subjects. Tamarin cooperation remains stable as long as both actors consistently cooperate, but requires at least two consecutive unexpected acts of cooperation to restart cooperation after it has collapsed, a strategy that resembles two-tits for a tat. We conclude by enumerating the benefits of a maximum-likelihood approach in experimental settings such as ours, and suggest other areas in which these techniques may be fruitful.
Samuelson has offered the dictum that the stock market is "micro efficient" but "macro inefficient." That is, the efficient markets hypothesis works much better for individual stocks than it does for the aggregate stock market. In this article, we review a strand of evidence in recent literature that supports Samuelson's dictum and present one simple test, based on a regression and a simple scatter diagram, that vividly illustrates the truth in Samuelson's dictum for the U.S. stock market data since 1926.(JEL G14) Copyright 2005, Oxford University Press.
This note conducts a simple test for myopia and liquidity constraints in aggregate U.S. consumption. The test exploits the fact that, under myopia, consumption should be equally sensitive to predictable income declines and increases, while under liquidity constraints consumption should be more sensitive to predictable income increases than to declines. Using quarterly postwar data, the author shows that aggregate consumption is in fact more sensitive to predictable income declines than increases. This 'perverse asymmetry' is inconsistent with both myopia and liquidity constraints but is qualitatively consistent with recent theoretical work incorporating loss aversion into intertemporal preferences. Copyright 1995 by Ohio State University Press.
This paper seeks to address the policy issue of the usefulness of financial spreads as indicators of future inflation and output growth in the countries of the European Union, placing a particular focus on out-of-sample forecasting performance. Such analysis is of considerable relevance to monetary authorities, given the breakdown of the money/income relation in a number of countries and following increased emphasis of domestic monetary policy on control of inflation following the broadening of the ERM bands. The results confirm that for some countries, financial spread variables do contain some information about future output growth and inflation, with the yield curve and the reverse yield gap performing best. However, the relatively poor out-of-sample forecasting performance and/or parameter instability suggests that the need for caution in using spread variables for forecasting in EU countries. Only a small number of spreads contain information, and improve forecasting in a manner which is stable over time.
We introduce a new hybrid approach to joint estimation of Value at Risk (VaR) and Expected Shortfall (ES) for high quantiles of return distributions. We investigate the relative performance of VaR and ES models using daily returns for sixteen stock market indices (eight from developed and eight from emerging markets) prior to and during the 2008 financial crisis. In addition to widely used VaR and ES models, we also study the behavior of conditional and unconditional extreme value (EV) models to generate 99 percent confidence level estimates as well as developing a new loss function that relates tail losses to ES forecasts. Backtesting results show that only our proposed new hybrid and Extreme Value (EV)-based VaR models provide adequate protection in both developed and emerging markets, but that the hybrid approach does this at a significantly lower cost in capital reserves. In ES estimation the hybrid model yields the smallest error statistics surpassing even the EV models, especially in the developed markets.
Corruption in the public sector erodes tax compliance and leads to higher tax evasion. Moreover, corrupt public officials abuse their public power to extort bribes from the private agents. In both types of interaction with the public sector, the private agents are bound to face uncertainty with respect to their disposable incomes. To analyse effects of this uncertainty, a stochastic dynamic growth model with the public sector is examined. It is shown that deterministic excessive red tape and corruption deteriorate the growth potential through income redistribution and public sector inefficiencies. Most importantly, it is demonstrated that the increase in corruption via higher uncertainty exerts adverse effects on capital accumulation, thus leading to lower growth rates.
Many recent attempts to find evidence on downward nominal wage rigidity in micro data have suffered from problems such as composition bias and the effects of measurement error. In this paper, a model of proportional downward nominal wage rigidity is developed which avoids these problems by taking into account the determinants of wage changes and the measurement process that leads to observable earnings changes. We find a high degree of downward nominal wage rigidity in German micro data. Its real implications for individual expected wage growth, the aggregate wage level and equilibrium unemployment have marked effects for rates of inflation lower than 3 percent. Copyright The editors of the "Scandinavian Journal of Economics", 2003 .
The purpose of this article is to record the history of the national income and product accounts of the United States, concentrating on the period 1932–47. During that period the single national income aggregate evolved into a set of accounts and the estimates emerged as an important analytical tool. Interviews with participants in these developments were extensively utilized to trace the events, people, ideas, and other factors which shaped the history of the accounts.
The generally recognized need for economic information during the Great Depression stimulated the request that the Department of Commerce undertake what became the first official continuing series on national income in the United States. These estimates were prepared with the cooperation of the National Bureau of Economic Research and were published in 1934. By the late 1930's, estimates were extended to include income by state and a monthly series. World War II was the impetus for the development of product, or expenditure, estimates. By the mid‐1940's, the estimates had evolved into a set of income and product accounts–a consolidated production account, sector income and outlay accounts, and a consolidated saving‐investment account–designed to provide a bird's‐eye‐view of the economy. During this period uses of the accounts widened; analysis of wartime production goals and anti‐inflation policy are noteworthy examples. The National Income , 1947 Edition was the culmination of a period of intensive conceptual discussion, extension of data sources, and improvement of estimating techniques. Thereafter the mainlines of development are more familiar, encompassing refinement and elaboration of the estimates and proliferation of uses.
A questionnaire survey looked at home buyers in May 1988 in two "boom" cities currently experiencing rapid price increases (Anaheim and San Francisco), a "post-boom" city whose home prices are stable or falling a couple years after rapid price increase (Boston) and a "control" city where home prices had been very stable (Milwaukee). Home buyers in the boom cities had much higher expectations for future price increases, and were more influenced by investment motives. The interpretations that people place on the boom are not usually related to any concrete news event; there are instead oft-repeated cliches about home prices. This suggests that sudden real estate booms have, at least in part, a social, rather than rational or economic, basis. There is evidence for excess demand in boom markets and excess supply in the post-boom market; there appear to be various reasons for this: notions of fairness, intrinsic worth, popular theories about prices, coordination problems, and simple mistakes.