Fed Auctions

I think we all can accept why this happened: the Fed wanted to provide an opportunity for banks to get money at a rate lower than the 4.75 discount rate, possibly staving off worries on banks runs and generally providing some economic credit grease, if you will. What I think is interesting is to consider, is what information may be gained from the results. That is, assuming coalitions are not formed, what does it mean if the auctions result with the Fed lending out the first $20B at 4.25 or something drastically lower than 4.75 (and that is a big what if considering the banks may be able to turn around and sell the debt at least at 4.75)? What does it mean to place so much monetary policy power at the hands of the market? Could this result in a signal of how the market views the large scale growth of the global economy? I am not a macro-economist and am far from able to yet form a coherent post-worthy thought on this but hope these brief questions spur further discussions. Swing at will and lets get som discussion going as this is an opportune learning situation on many fronts.

Info from Fed: http://www.federalreserve.gov/monetarypolicy/files/TAFfaqs.pdf

For an old example of the Treasury's take on uniform price auctions, see: http://treas.gov/offices/domestic-finance/debt-management/auctions-study/upas2.pdf

Using Macros in STATA

If you are programming in Stata, or using macros for any reason, be careful when squaring.
Try the following if interested (commands in italics), though you can see the result:

gl check = -.01
di $check-.01
di $check^2
-.0001
di ($check)^2
.0001

This was done on Stata 8.2 but I also found this to issue on Stata 9.

Remembering a Legend

Today, even Chuck Norris sheds a tear.

Explaining Quants' August Meltdown

This essay does a nice job of explaining what happened to quant funds in August and why some were crushed while others managed to survive.

Schumpeter on Academics

"The layman thinks he knows what a professor is. However, this term denotes a group of people who differ widely in type, function, and mentality. There is the academic administrator; the university politician; the teacher in the sense of a man who imparts current knowledge; the teacher in the sense of a man who imparts distinctive doctrines or methods; the scholar in the sense implied by 'learnedness'; the organizer of research; the research worker whose strong point is ideas; the research worker whose strong point is skillful technique, experimentation and its counterparts in the social sciences. And all of those--and others--are very different chaps and hardly ever fully understand and appreciate one another. Yet it takes all of them to make a modern university and it takes recognition of all these types and the way they cooperate or fail to cooperate in order to understand what a university is and how it works. And he who insists on merging them into a unitary professorial type and leaves it at that will obliterate not only secondary details but essentials."

Possible Classic Papers

Alchian, A. 1950. Uncertainty, Evolution and Economic Theory. JPE 58: 211-221.

Friedman, M., and Savage, L. J. The Utility Analysis of Choices Involving Risk. JPE 56(4): 279-304.

Ig-Nobel

Would a physicist or chemist with work that spawned persistent criticisms about mishandling data win the Nobel Prize? For that matter, would one with even a glimmer of empirical doubt even make the short list? The obvious answer is no. The Peace Prize is a political prize just as global warming is a religious debate. The sold-out bluehairs in Oslo are clearly more interested in gestures and PR on this issue than they are in concrete, irrefutable advance. Just like the Academy in Los Angeles.

The question is not whether the Earth is getting warmer. It is, with little doubt. How much warmer, the extent and reversibility of humans' contribution, and the dynamics of change are all far murkier questions. Roughshod empirical work and calls for immediate action before such work can be performed are neither laudable nor excusable in fields other than "Peace."

Given that the Nobel Prize is considered the acme of the economics profession, the award of the Peace Prize to Albert should raise doubts about the objectivity of the selection process and the value of assiduous empirical detail to the committee. Presumably (hopefully) a different batch of bluehairs are responsible for evaluating work in other fields.

Picking Winners

My cerebral disdain for predictions does not diminish my personal fascination with them. In light of the impending big announcement, "the short list" has been hypothesized. It looks pretty safe to me--I would think all are locks for eventual recognition. However, others certainly are in the same category, and how they have been winnowed out in 2007 is unclear, even after taking the micro/macro pattern into account.

Polarizing Tails

Two popular books recently released to capture the minds of the next generation on the global warming issue have engendered a preposterously polarized debate, as the surprisingly similar amazon reviews here and here show. With entrenched convictions approaching religious ideologies, do any economists honestly believe that their study will make a difference?

Behavioral Economics

Some of you may already be aware of this, but I hadn't heard the quote until I read an article in this month's JEP:

"I should have computed the historic covariances of the asset classes and drawn an efficient frontier. Instead...I split my contributions fifty-fifty between bonds and equities" -- Harry Markowitz. Yes, the one who won a Nobel for MPT. How cool is that? Makes me feel less bad about my own ad-hoc investment strategies.

I actually couldn't find that quote in the source given in this month's JEP, but typing "I split my contributions fifty-fifty" in google brings up a bunch of sources with different extended versions of the quotation.

Sex and Externalities, Redux

Dave sent me an email yesterday, alerting me to the fact that Nerlove had added this article to his regular bulletin board. The link is to a short review on a book by Steven Landsburg. Notice that there is a link to the entire first chapter in the left-hand margin.

The first chapter weighs in (sort of) on a debate that sprung up long ago in the old Tim/Mike/Chad/Beat office on externalities. I argued that the government should subsidize consumer purchases of condoms since there was a consumer-to-consumer externality (I didn't call it that at the time; I lifted the "consumer-to-consumer" part from Just, Hueth, and Schmitz) that accrued to all sexually active people every time a single party used a condom.

An interesting counter argument was forwarded by Dave (others maybe, but I don't remember well) that because each participant in the sex market participated despite known risks and could effect their own risk through partner selection and use of a condom themselves, that there was no externality present. The idea here was that so long as participation was voluntary (the costs of participation and thus the external benefits from decreased disease-spreading were avoidable) an externality was not quite the right tag to place on the disease suppressing effects of condom usage.

At the time I didn't find this to be a compelling argument, but I turned to a few sources that gave weak support to Dave's claims. No source confronted the voluntary/unvoluntary nature of the external effects, but all of the examples I could root out of a good text seemed to implicitly support Dave's categorization.

The Landsburg argument does not resolve anything, per se. But he does use an externality argument to arrive at the conclusion that disease-free people should all have more sex. So that's pretty cool.

Dave and I have exchanged several emails filling out our positions. Let's continue this discussion using the comment section of this post.

Feel free to include your own definition of an externality. Here is the Just, Hueth, and Schmitz definition, for good measure:
"An externality is defined as the case where an action of one economic agent affects the utility or production possibilities of another in a way that is not reflected in the market-place. External effects are often classified into the effects of consumers on consumers, producers on producers, producers on consumers, and consumers on producers..."

Weak Property Rights = Pollution?

I generally put about zero credence in "Top Ten" lists, but this one makes me think that property rights really do matter and that there might well be an EKC. More info on the "Dirty Thirty" is here.

Essential Reading for Financial Modelers

I recommend the three following volumes to anyone who religiously ascribes to the "modern financial models" (MPT, CAP-M, Black-Scholes, to hit the high points). All three demonstrate the weakness of the inherent fundamental assumptions, particularly normality. Any hopes that geeks armed with these models can "make money" or "beat the market" should be put directly out of mind. The models the geeks use are far more complicated, attempting in various idiosyncratic ways to compensate for the broad generalizations implicit in the textbook models.

Taleb. 2007. The Black Swan. Random House.

Mandelbrot & Hudson. 2004. The (Mis)Behavior of Markets. Basic.

Lowenstein. 2000. When Genius Failed. Random House.

Ethanol good for poor?

From the "there's two sides to every story" desk:

Slate has a piece on ethanol's potential upside for developing nations. Very much in the spirit of Kirwan's work on subsidies for US exports...every nation has both consumers and producers. If the consumers are hurt (prices are high), chances are the producers are happy. If the producers are hurt (prices are driven down), chances are the consumers like the low prices. Anyway.
http://www.slate.com/id/2169867/nav/tap1/

Open Research Questions in Environmental Economics

ROBERT T. DEACON, DAVID S. BROOKSHIRE, ANTHONY C. FISHER,
ALLEN V. KNEESE, CHARLES D. KOLSTAD, DAVID SCROGIN,
V. KERRY SMITH, MICHAELWARD and JAMES WILEN. 1998. Research Trends and Opportunities in Environmental and Natural Resource Economics. Environmental and Resource Economics 11(3–4): 383–397.

This article appears to be the basis for a lively discussion.

The ETF Advantage

The Economist has a short piece on the ETF movement leading this week's Finance and Economics section. Proponents (Lee Kranefuss at Barclay's Global, e.g. http://www.indexfunds.com/articles/20000925_kranefuss_iss_int_LK.htm) tell us that ETFs essentially offer the same advantages that a mutual fund tracking a particular commodity, market, industry, etc., would. The difference highlighted in the Economist article is that ETFs offer prices that fluctuate throughout the day and are as such rebalanced more aggressively throughout the day than mutual funds. It is suggested that even though this rebalancing calls for more active management, the management that is called for is less expensive than that of mutual funds (beta is cheaper than alpha). So the advantages seem clear. The Economist article lists the notable drawbacks as well. Lack of liquidity due to an ETF following a niche market seems to be an important one. The other drawback that is featured in the article is the tendency for ETF share prices to diverge from their target due to purchase of too concentrated a portfolio. For instance, an oil industry ETF might diverge from its target if it invested too heavily in a particular company, e.g. Shell, which then experienced an event very specific to Shell that caused its share price to move against the rest of the industry.

Update on NASA Climate Scientist

The NASA scientist who was featured a while back (I think of CBS's "60 Minutes") spoke in a Congressional hearing yesterday. The news story is covered in the Washington Times on the front page -- not sure where it is in the Post. The gist: Hansen gave a whole bunch of interviews (article says 1,400) so some Republicans are skeptical of Hanses's claims that he was silenced or censored by the administration.

Update on student webpages

Jeff has got some early examples of student webpages up and running. The eventual pages will look at least something like these. Only current job market candidates have pages right now -- they needed them as of the 19th in order to apply for JOE-posted jobs. The addresses follow this format:
www.arec.umd.edu/people/gradstudents/

then first initial and last name, e.g. "ctra".

Future Classic Papers

The Classic Paper Club has yet to gain momentum this semester. I'm throwing out a couple nominations for further review and future discussion. Other nominations are of course welcome.


Klein, B., Leffler, K. B. (1981) The Role of Market Forces in Assuring Contractual Performance
Journal of Political Economy 89 (4), 615-641


Stigler, G. J., Becker, G. S. (1977) De Gustibus Non Est Disputandum
American Economic Review 67 (2), 76-90

Thoughts on Student Webpages

Since it appears that the intsitutional inertia will imminently be overcome, and AREC students are apt to have personal web pages spaces in the near future, I'll throw a few of my thoughts into the open. I know that there has been discussion about possible templates. (The dean made some comments about a year and a half ago, but there has been no visible website redesign since--on that note, inductive change may be the way to go.) The format that UCSB uses seems to be a good one. Much as I hate to toot Harvard's horn (they seem to do well enough on their own), their format appears to be simple and adequate. I have not made an exhaustive search on the topic, nor do I intend to. However, there will clearly be variance in how much students want/need to post, and the key to an appropriate template is to dampen this variance. Obviously those who really want vast pages can (and likely already do), and an external link makes the most sense. However, a well-considered template is likely to give the department a professional appearance. It seems that this is a field where collective knowledge is apt to be far greater than individual--perhaps a survey of students is in order to solicit preferences?

Whoa! New NYT feature is awesome.

Try double-clicking on any word in a NYT story. You instantly get a popup window with ecyclopedia-type info on whatever word you clicked. I just found it by accident. Awesome.

A Little Off Topic...

Those of you who listen to morning edition already got the short version of this story. See http://www.burlingtonfreepress.com/apps/pbcs.dll/article?AID=/20070216/NEWS02/702160305/1007 for the rest. John McCardell (ex-pres of Mumbleberry or as NESCACer Tim likes to call them, Dumbleberry) is working on a campaign to lower the drinking age to 18. Only good things can come of this.
Seriously, though, I agree with him. I can't imagine that a drinking age of 21 does anything positive for our society in the long run. The problem we will face if this becomes law (it won't) is the short run trickle-down effect. Usually 18 year olds have 21 year old acquaintances who buy them beer...under the new law 15 year olds would have 18 year old acquaintances who buy them beer. Anyway, I thought this was a cool story. Has Quebec ever enforced a drinking age higher than it does now?

Fellowship opportunities

We are constantly getting emails about fellowship opportunities for supplemental income at various points in our dissertation writing experience. It would be great to compile those somewhere central so I don't have to scroll through my email all the time. I suggest that we aggregate them in the comment section of this post. So please all, comment accordingly.

ERS Summer Interns

the summer internship cycle has started and lasts a little less than a month. if you're interested come talk to me or send me an email.

Econometrics. Q'est-ce que c'est. Fa fa fa fa

http://www.youtube.com/watch?v=a6UdgzWpjD4


Any first year gets Just to do this, and notifies me in advance so I can come watch, I pay $20.

"In house" question GEONETCAST

Does anyone know anything about accessing GEONETCAST data?
More info: http://www.earthobservations.org/progress/GEONETCast.html
You know where to reach me. If I find out more I will post follow ups.
D

Wow! I like the results from the student survey of job candidates. Here's to hoping the department pursues them aggressively.

National Parks Centennial Initiative

Go here:
http://www.whitehouse.gov/news/releases/2007/02/20070207.html
to see some detail of the Bush funding proposal I mentioned earlier this week. Just scroll down a little bit until this heading: and note
The National Parks Centennial Initiative

to read about the proposed matching funds.