Results for “model this” 3165 found
Josh Marshall on the Coasian model of politics
Here is one bit, there is more analytical political science at the link:
5. Trump’s foreign policy advisor on Russia and Europe is Carter Page, a man whose entire professional career has revolved around investments in Russia and who has deep and continuing financial and employment ties to Gazprom. If you’re not familiar with Gazprom, imagine if most or all of the US energy industry were rolled up into a single company and it were personally controlled by the President who used it as a source of revenue and patronage. That is Gazprom’s role in the Russia political and economic system. It is no exaggeration to say that you cannot be involved with Gazprom at the very high level which Page has been without being wholly in alignment with Putin’s policies. Those ties also allow Putin to put Page out of business at any time.
Recommended reading for your final exams in public choice. Do read it all.
A simple and plausible model of some of the major stock market anomalies
The paper is entitled Sticky Expectations and Stock Market Anomalies, and it is by Jean-Philippe Bouchaud, Philipp Krueger, Augustin Landier, and David Thesmar, here is the abstract:
We propose a simple model in which investors price a stock using a persistent signal and sticky belief dynamics à la Coibion and Gorodnichenko (2012). In this model, returns can be forecasted using (1) past profits, (2) past change in profits, and (3) past returns. The model thus provides a joint theory of two of the most economically significant anomalies, i.e. quality and momentum. According to the model, these anomalies should be correlated, and be stronger when signal persistence is higher, or when earnings expectations are stickier. Using I/B/E/S data, we measure expectation stickiness at the analyst level. We find that analysts are on average sticky and, consistent with a limited attention hypothesis, more so when they cover more industries. We then find strong support for the model’s prediction in the data: both the momentum and the quality anomaly are stronger for stocks with more persistent profits, and for stocks which are followed by stickier analysts. Consistently with the model, both strategies also comove significantly.
For the pointer I thank the excellent Samir Varma.
The Solow Model and Ideas
The fifth video in the Solow series from our Principles of Macroeconomics course is really the capstone. It explains how ideas drive growth on the cutting edge. A key insight of the model, however–one which many people still don’t really get–is that ideas increase output and by doing so they also drive capital accumulation so both forces are always at play.
The Solow Model Animated!
Modern Principles of Economics was the first principles textbook to make the Solow model of economic growth easily accessible to undergraduates. By focusing on simple mathematics that the students already know, like the square root function, we made the Solow model easy to understand without losing the power of the model to explain the world.
Modern Principles is the only textbook with the Super Simple Solow model! And now we’ve brought the model to life with a series of fun videos in our Principles of Macroeconomics class at MRUniversity. You’ve never seen the Solow model taught like this!
Introduction to the Solow Model introduces the questions and the “characters” that drive the story. Physical capital and diminishing returns explains the idea of a production function and diminishing returns. We then introduce capital depreciation and focus in on the most important idea for understanding the Solow model, the steady state:
I’ll cover some more videos in the Solow series later this week.
Working as a model for stock photography — what’s it like?
I very much liked this Jonathan Kay piece, which has so many good, interesting, and separate points, here is one of them:
“One of the most important elements of the Shutterstock quality-control process is to ensure there are no logos or other brand identifiers,” she told me. “Nor can the photos contain identifiable people or locations which haven’t released their legal rights.” The blackouts here can be extremely broad, and include some of the most famous landmarks on the planet. You can’t include the Eiffel Tower in most forms of stock photography, for instance. Nor can you include anyone wearing the iconic beige-and-blue Burberry pattern. Even a tiny patch of it in the background renders an image completely unusable.
And this:
Click through the Shutterstock database, and you find that professionally shot and curated stock photos invariably exhibit what might be called calculated soullessness. The subjects project human emotions—happy, sad, confused, angry—but in a simple, one-dimensional way. There should be nothing bespeaking a complex inner life. Real human interest always will distract the audience from the intended product or idea.
In closing:
How does a photographer achieve authenticity in an age where authentic culture increasingly is built around irony? More broadly: Is the project of organizing human experience into databases of generic happy faces and sad faces still relevant to us in 2016?
Alas, I can no longer remember to whom I owe the pointer, my apologies.
File under Those New Service Sector Jobs. And if that doesn’t suit you, here is “Calling all ‘bulky’ Alec Baldwin lookalikes”.
Modeling North Korean negotiators
Joel S. Wit, who has negotiated with North Koreans for over twenty years, has a very interesting NYT piece on that topic, here is one excerpt:
The North Koreans may know a lot about the outside world, but they don’t know everything, even about the United States, their main adversary. In one meeting, an official asked, “Why do the president and secretary of state keep saying that the United States will not allow North Korea to have nuclear weapons when in fact you are not doing much to stop us?” He deduced that there must be a hidden agenda. “It’s because you want us to have nuclear weapons as an excuse to tighten your grip on South Korea and Japan, your two allies.” We responded that there was no hidden agenda and that the United States really did not want the North to have those weapons. I’m not sure we convinced him.
The piece is interesting throughout, most of all Wit stresses their realism and sophistication as negotiators, and urges us not to think of them as lunatics.
The Tiebout model taken to an extreme
What if the entire town moves?:
When independent traders in a small Welsh town discovered the loopholes used by multinational giants to avoid paying UK tax, they didn’t just get mad.
Now local businesses in Crickhowell are turning the tables on the likes of Google and Starbucks by employing the same accountancy practices used by the world’s biggest companies, to move their entire town “offshore”.
Advised by experts and followed by a BBC crew, family-run shops in the Brecon Beacons town have submitted their own DIY tax plan to HMRC, copying the offshore arrangements used by global brands which pay little or no corporation tax.
The Powys tax rebellion, led by traders including the town’s salmon smokery, local coffee shop, book shop, optician and bakery, could spread nationwide.
The article is here, via John Chilton. Georgists of the world unite!
Another risk-based model of business cycles
I say if you don’t understand risk-based models, it is difficult to grasp why recovery has been so slow, or why the cycle was so tough to begin with. Here is Mete Kilic, Jessica A. Wachter:
What is the driving force behind the cyclical behavior of unemployment and vacancies? What is the relation between job creation incentives of firms and stock market valuations? This paper proposes an explanation of labor market volatility based on time-varying risk, modeled as a small and variable probability of an economic disaster. A high probability of a disaster implies greater risk and lower future growth, which lowers the incentives of firms to invest in hiring. During periods of high disaster risk, stock market valuations are low and unemployment rises. The risk of a disaster generates a realistic equity premium, while time- variation in the disaster probability generates the correct magnitude for volatility in vacancies and unemployment. The model can thus explain the comovement of unemployment and stock market valuations present in the data.
That is a new NBER working paper.
A crack in the higher education model? (hi future…!)
One of the UK’s biggest graduate recruiters is to remove degree classification from the entry criteria for its hiring programmes, having found “no evidence” that success at university was correlated with achievement in professional qualifications.
Accountancy firm Ernst and Young, known as EY, will no longer require students to have a 2:1 degree and the equivalent of three B grades at A level to be considered for its graduate programmes.
Instead, the company will use numerical tests and online “strength” assessments to assess the potential of applicants.
There is more here, via the excellent Jake Seliger.
Daniel A. Bell on the China model and political meritocracy
Stein Ringen reviews The China Model, here is Gideon Rachmann. He writes:
Daniel Bell, a Canadian political philosopher who has taught at Tsinghua University in Beijing for many years, is deeply influenced by this Chinese tradition. In his new book, he has set himself the ambitious task of making the case that Chinese-style meritocracy is, in important respects, a better system of governance than western liberal democracy.
I’ve been seeing a lot of emotional reactions to this book, here are a few points:
1. The United States probably should have less democracy along some margins, if only fewer referenda in California and no state and local elections of judges, dog catchers, and the like. If a writer cites “democracy” as obviously and always good for all choices, that writer isn’t thinking clearly.
2. More generally, the Western nations are relying on democracy less, as evidenced by the growing roles for central banks and also the European Union. That may or may not be desirable, but it’s worth considering our own trends before putting the high hat on.
2. The key to long-term living standards is stability of growth, just look at Denmark. There was never a heralded “Danish economic miracle,” but the country still has finished close to the top in terms of human welfare. Whether ostensibly meritocratic non-democratic systems can deliver such outcomes remains very much up for grabs, and Bell’s book hasn’t convinced me any that they can.
3. Arguably a country’s best chance of achieving meritocracy is to have many smart individuals who are culturally central. No system of government is going to overcome the lack of that.
4. Most humans in history seem to have favored meritocratic rule over democracy, and before the 19th century democracy was rare, even in the limited form of male-dominated or property owner-dominated republics. It is possible that the current advantage of democracy is rooted in technology, or some other time-specific factor, which ultimately may prove temporary. That said, I still observe plenty of democracies producing relatively well-run countries, so I don’t see significant evidence that a turning point against democracy has been reached.
5. To consider comparisons which hold a greater number of factors constant, I haven’t seen many (any?) serious people argue that Taiwan or South Korea would have done better to resist their processes of democratization.
Here you can buy The China Model: Political Meritocracy and the Limits of Democracy.
An economic model of the mystery novel, and are sports suspense-optimal?
Those questions are considered by Jeffrey Ely, Alexander Frankel, and Emir Kamenica in their new JPE paper “Suspense and Surprise.” Here is one to the point excerpt:
In the context of a mystery novel, these dynamics imply the following familiar plot structure. At each point in the book, the readers thinks that the weight of evidence suggests that the protagonist accused of murder is either guilty or innocent. But in any given chapter, there is a chance of a plot twist that reverses the reader’s beliefs. As the book continues along, plot twists become less likely but more dramatic.
In the context of sports, our results imply that most existing rules cannot be suspense-optimal. In soccer, for example, the probability that the leading team will win depends not only on the period of the game but also on whether it is a tight game or a blowout…
Optimal dynamics could be induced by the following set of rules. We declare the winner to be the last team to score. Moreover, scoring becomes more difficult as the game progresses (e.g., the goal shrinks over time). The former ensures that uncertainty declines over time while the latter generates a decreasing arrival rate of plot twists. (In this context, plot twists are lead changes.)
There are ungated versions of the paper here. Note that at the very end of the paper…well, I’ll just let you read it for yourselves.
Does the Egertsson and Mehrotra model of secular stagnation work?
Their new paper is here, ungated here (pdf), here is the key passage:
We have shown that in the model with capital, the presence of productive assets carrying a positive marginal product does not eliminate the possibility of a secular stagnation. The key assumption is that capital has a strictly positive rate of depreciation. In the absence of depreciation, capital can serve as a perfect storage technology which places a zero bound on the real interest rate. It is straightforward to introduce other type of assets, such as land used for production, and maintain a secular stagnation equilibrium. For these extensions, however, it is important to ensure that the asset cannot operate as a perfect storage technology as this may put a zero bound on the real interest rate.
Let me recapitulate the basic problem. Secular stagnation models are supposed to exhibit persistent negative real rates of return, but how is this compatible with economic growth and positive investment? Just hold onto stuff if need be and of course the goverment can help you do this with safe assets, if need be. The earlier models had no capital, which ruled out this possibility. The new model assumes storage costs for capital are fairly high, or alternatively the depreciation rate for capital is high. Since you can’t sit on your wealth, you might as well invest it at negative real rates of return.
But at the margin, storage costs for goods (and some capital) are not that high. My cupboard is full of beans and cumin seed, but I eat the stuff only slowly. In the meantime it is hardly a burden, nor is it risky since I know it will be tasty once I make the right brew. Art has negative storage costs (for the marginal buyer it is fun to look at), although its risk admittedly makes this a more complicated example. Advances in logistics, and the success of Amazon, show that storage costs are getting lower all the time.
Secular stagnation might be a good model for Liberia and Venezuela and Mad Max, but not for the United States today or other growing economies with forward momentum. But a credible stagnation model for America needs to recognize that rates of return will be lower than usual but not negative in real terms. And there won’t be a long-run shortfall of demand because eventually market prices will adjust so that demand meets the supply we have. That is a supply-side stagnation model of the sort promoted by myself, Robert Gordon, Peter Thiel, Michael Mandel, and others. In the secular stagnation model as it is now being discussed by Keynesian macroeconomists, you end up twisting yourself in knots to force that real rate of return into permanently negative territory. Of course if you allow the real rate of return to be positive albeit low, the economy is not stuck in a perpetual liquidity trap as people move out of cash into investment assets. The demand-side stagnation mechanisms fade away into irrelevance once prices have some time to adjust.
Izabella Kaminska comments here. Josh Hendrickson has a very good blog post on the model here. I’ve already cited Stephen Williamson here, he notes the model is really about a credit friction and would be remedied with a greater supply of safe assets for savings, an easy enough problem to solve, for instance try the Bush tax cuts. Here is Ryan Decker on the model, and here is Ryan arguing that investment is aggregate demand also and many of us seem to have forgotten that, a very good post.
This is an important and interesting paper, but only because it shows the model doesn’t really hold and requires such contortions. The discussion of policy results is premature and way off the mark. The authors should have included sentences like “storage costs aren’t very high, and the economy as a whole does not exhibit negative real rates of return, so these policy conclusions are not actual recommendations.”
Score one for the signaling model of education
In the new AER there is a paper by Melvin Stephens Jr. and Dou-Yan Yang, the abstract is this:
Causal estimates of the benefits of increased schooling using US state schooling laws as instruments typically rely on specifications which assume common trends across states in the factors affecting different birth cohorts. Differential changes across states during this period, such as relative school quality improvements, suggest that this assumption may fail to hold. Across a number of outcomes including wages, unemployment, and divorce, we find that statistically significant causal estimates become insignificant and, in many instances, wrong-signed when allowing year of birth effects to vary across regions.
In other words, those semi-natural experiments for the return to education, when some regions move with extra doses of compulsory schooling before others and we estimate differential wage effects, maybe don’t show as much as we used to think. As I’ve remarked to Bryan Caplan, if there is a criticism of a famous or politically correct result (or better yet both) getting published in the AER, you can up your Bayesian priors on that criticism being on the mark.
There are ungated copies of the paper here.
*The Supermodel and the Brillo Box*
The author is Don Thompson and the subtitle is Back Stories and Peculiar Economics from the World of Contemporary Art. It is a very enjoyable book on the economics of the contemporary art world, here is one bit:
The size of his art empire allows Gagosian to take full advantage of the economic oddity that when an artist is hot, the relationship of supply and demand reverses. If an artist creates enough work to show simultaneously in several galleries and at several art fairs, greater buzz produces higher prices. Each show, each fair, each art magazine mention produces more critical appraisal, more buzz, and more collectors on the waiting list. The reassurance of the dealer is reinforced by the behavior of the crowd. Greater supply produces greater demand.
Andy Warhol was one of the artists who understood this best.
La Ciccia (and some thoughts on role models in universities)
That is a Sardinian restaurant in San Francisco, and it was my pick from the San Francsico dining bleg from last week. I recommend it highly, focus on the appetizers and the pastas (uni!), as the meat dishes are less interesting.
Much of the table talk was on whether the true function of universities is to expose us to a wide array of vivid role models, so we could reject most of them and accept a few, thereby giving us a motivated path forward in life. One implication of this is that (lower-level) university athletics might be undervalued, because coaches and even fellow athletes can serve as useful role models in a way that most professors cannot. The question also arises whether we might have more efficient ways of exposing people to vivid role models than through college or university attendance. The “so many professors” approach of the university seems stifling and inefficient, not to mention lacking in diversity, once you view the question in these terms.
Is there such a thing as a “professional role model”? That would mean a person who hasn’t done very much but somehow reflects a lot of positive qualities and can inspire others. Or is that a contradiction in terms? Must the role model have actually done something significant? I believe that professional role models are possible and indeed they exist right now, even if they are not labeled as such.
Is the main function of role models to be accepted and emulated, or to be rejected? Do not underrate the latter possibility.