proof on utility function

the second apple always tastes worse than the first one. conclusion: the utility function is concave over gains! q.e.d.

p.s. studying behavioural economics is like finally looking at reality! it took some economic studies to finally accept that we are not rational consumers!

macroeconomics state

Here's a comprehensive list of articles on macroeconomics' actual state. And also a list of apparently promising young macroeconomists with some reasonable arguments regarding the profession.

back to work

Back to work to HEC Lausanne. Nice elective courses, a lot of international and macro and behavioural econ. New room and nice landscape. New duties and challenges. I have always enjoyed beginnings and rather disliked routine. I think beginnings imply taking responsabilites and establishing priorities and this may make light. Or at least this is how it works for me.

I have started thinking about the upcoming research topic. Before, I was thinking about monetary economics, now I have rather doubts about it as things are continuously changing in this area. As if they are not changing in every area.

On one hand I would like to do some empirical research mainly business cycles related. On the other hand, I would like to discover more in detail the modern macro and financial theories that consider the behavior of individuals. Here, I do not refer to the simple RE models, but rather the more incipient ones that try to explain the crisis. Anyway, I am more and more aware of the tradeoff data availability/ interesting models.

In the meantime, I made a new acquisition: Animal Spirits by Akerlof and Schiller! At first site, a "new"-new-keynesianist approach, I'll see if it still surprises me in any way. And I am challenged by some work with time series in Stata.

Bonne rentree!

august post

still out of the econ blogs' world, still trying to get as far as possible from the computer, thus from the internet and therefore from information. even if i have very little idea about how the crisis goes on, i can feel it or rather try to feel it in romania. in the meantime, i read a lot of non-econ books and take a brain pause for the next year which, starting from september, sounds like very appealing.

here the crisis is a big paradox. the gdp was announced to have fallen with about 9% in the second quarter of the year in comparison with last year's second quarter. can we feel it? not really, people are spending maybe as much as before, there is no (at least) public bankruptcy and people are not that desperate. the government is doing a "great" job to keep everything under control: they tried to cut down some expenses and remove some not useful jobs in the public sector but the budget still proves to be blocked.

thus, publicly, everything is under control, but inside everybody is on fire. and all this seems to be reasoned by the electoral year. i cannot stand this economies that lie on troubled political will.

anyway, naively(!!!), i still hope for this crisis to renew what is to be renewed and create structures that will make the economy stronger and healthier for the future. and this to be on real grounds.

i'll be back in september!

what i like/dislike about romania

what i like:
- old folks with whom i share the same beliefs, needs and fears
- the old/new Romanian books that inspire me
- churches that remind me of Someone
- certain people who surprise me with their kindness
- my bed and pillows
- the sea and the old parts of my home town
- the sky is different
- reading "old dilemma" on the street
- remembering good old times
- it gives incentives
- i can still enjoy it with goods or bads


what i dislike:
- i cannot push the button that makes the green light appear and me cross the street
- streets, infrastructure
- the old part of my home town is falling down
- it gets dark too soon
- politicians and the kind of stupid discussions around/about them
- that every question has the answer: the budget is blocked, no project is working anymore (and this is not necessarily due to the crisis but to the politician will - electoral year!)
- everything is too expensive with respect to earnings
- that everybody says it is a mess & nobody can or wishes to improve things

to consider

http://www.edge.org/3rd_culture/brown08/brown08_index.html

two interesting news/approaches

The first comes with the new award of John Bates Clark Medal that goes to Emmanuel Saez for an interesting field of macro research - the increase in income inequality - see here and here for details.

The second is another(?!) way to approach the causes and consequences of the actual crisis that is related more or less to the behavioral approach. More exactly, the comparison of how people react to the risk of flu this days and how they reacted to the panic created by the 2007/2008/2009 crisis. See here for details and speeches of the initiator of this approach, Andrew Haldane of the Bank of England. Thus, once again we have an argument that economics is such an interdisciplinary science.

(to be continued)

The economy's on prozac

For an Econosofia trademark project, for an inspiring professor, Lajos Bokros, and for a bunch of intelligent people to share your knowledge and beliefs with.

For details: Economics through a Macrofying Glass 2009

notes on bailout by nationalization

Extremely speaking, nationalization implies the government taking over every bank permanently and turning banking into a government service. There are also less extreme cases of temporary or partial nationalization.

How does nationalization really work?




Pros on nationalization (The Economist: “better a temporary ward of the state than a permanent zombie”):

- explicit government ownership is better than ad-hoc “deals” (injection of liquidities – welfare transfers from the taxpayers)
- raise capital rapidly for the insolvent institutions
- taxpayers will earn when the shares’ market value of the nationalized bank will appreciate
- debt holders are bailed out, except from the unsecured ones who will lose and, in this way, the market discipline will be recovered (and the problem of the moral hazard solved)
- solves the toxic asset problem (one possibility: through bad banks under conservatorship)


Limits on nationalization (Bernanke: [nationalization] “is when the government seizes the bank and zeroes out the shareholders… we don’t plan anything like that”):

- from necessity to obligation (contagion risk): if a bad bank is seized, other weak banks’ liabilities will start running
- uncertainty (whether nationalization or not) is costly: debtholders fears lead to increasing volatility; taxpayers will receive a share of the upside but also inherit the risks
- difficult to design incentive contracts for managers hired in nationalized banks
- the government might get attached to banks they control
- nationalized banks would have a competitive advantage over solvent, less supported banks


Cons on nationalization (Myron Scholes is in favor of nationalization "as long at it lasts just 10 minutes"):

- change of managers - maybe less competent ones, political interests & bureaucratic management
- at the expense of owners that lose everything
- banks’ unreliable assets are hard to value – impossible to know how much capital they need and expensive to provide it
- all over the world examples prove that nationalized institutions are less efficient than private ones
- any nationalized bank would be forced to reduce its activity because not that many risks will be taken and this could make the actual downturn even worse

(part of a group presentation on the propagation of the crisis and its management, march 2009)

a good remark from dani rodrik

"The economics profession doesn't take an argument seriously until the argument can be laid out with a well-specified model that respects accepted standards of modeling.[...] Maybe the problem is with those standards of modeling, but other fields within economics have been much more willing to adapt themselves to behavioral thinking, or the fact of missing markets, or the role of market failures. So what is wrong with macroeconomists?"

I would say this is a good remark from Dani Rodrick. I really admire theoreticians that are consistent with their beliefs whatever happens. If not they may lose credibility (like politicians migrating from a party to another). But, I suppose in crisis times, being flexible and balanced is an attitude to appreciate, even if this in-between approach may lead sometimes to rather not concrete solutions. And this openness does not mean moving from a fervent free-markets fan to an almighty-government believer approach. But rather admit flaws and look for alternatives to fix them. All this, in my humble opinion, just to cite Denis.