Econometric policy evaluation: A critique

Foundations Of Statistics

Financial systems are crucial to the allocation of resources in a modern economy. They channel household savings to the corporate sector and allocate investment funds among firms; they allow intertemporal smoothing of consumption by households and expenditures by firms; and they enable households and firms to share risks. These functions are common to the financial systems of most developed economies. Yet the form of these financial systems varies widely. In the United States and the United Kingdom competitive markets dominate the financial landscape, whereas in France, Germany, and Japan banks have traditionally played the most important role. Why do different countries have such different financial systems? Is one system better than all the others? Do different systems merely represent alternative ways of satisfying similar needs? Is the current trend toward market-based systems desirable? Franklin Allen and Douglas Gale argue that the view that market-based systems are best is simplistic. A more nuanced approach is necessary. For example, financial markets may be bad for risk sharing; competition in banking may be inefficient; financial crises can be good as well as bad; and separation of ownership and control can be optimal. Financial institutions are not simply veils, disguising the allocation mechanism without affecting it, but are crucial to overcoming market imperfections. An optimal financial system relies on both financial markets and financial intermediaries.

比较金融系统 = Comparing financial systems

The paper elicits a mechanism by which private leverage choices exhibit strategic complementarities through the reaction of monetary policy. When everyone engages in maturity transformation, authorities haver little choice but facilitating refinancing. In turn, refusing to adopt a risky balance sheet lowers the return on equity. The key ingredient is that monetary policy is non-targeted. The ex post benefits from a monetary bailout accrue in proportion to the number amount of leverage, while the distortion costs are to a large extent fixed. This insight has important consequences. First, banks choose to correlate their risk exposures. Second, private borrowers may deliberately choose to increase their interest-rate sensitivity following bad news about future needs for liquidity. Third, optimal monetary policy is time inconsistent. Fourth, macro-prudential supervision is called for. We characterize the optimal regulation, which takes the form of a minimum liquidity requirement coupled with monitoring of the quality of liquid assets. We establish the robustness of our insights when the set of

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Collective Moral Hazard, Maturity Mismatch, and Systemic Bailouts †

Many economic problems are naturally modeled as a game of incomplete information, where a player’s payoff depends on his own action, the actions of others, and some unknown economic fundamentals. For example, many accounts of currency attacks, bank runs, and liquidity crises give a central role to players’ uncertainty about other players’ actions. Because other players’ actions in such situations are motivated by their beliefs, the decision maker must take account of the beliefs held by other players. We know from the classic contribution of Harsanyi (1967–1968) that rational behavior in such environments not only depends on economic agents’ beliefs about economic fundamentals, but also depends on beliefs of higher-order – i.e., players’ beliefs about other players’ beliefs, players’ beliefs about other players’ beliefs about other players’ beliefs, and so on. Indeed, Mertens and Zamir (1985) have shown how one can give a complete description of the “type” of a player in an incomplete information game in terms of a full hierarchy of beliefs at all levels. In principle, optimal strategic behavior should be analyzed in the space of all possible infinite hierarchies of beliefs; however, such analysis is highly complex for players and analysts alike and is likely to prove intractable in general. It is therefore useful to identify strategic environments with incomplete information that are rich enough to capture the important role of higher-order beliefs in economic settings, but simple enough to allow tractable analysis. Global games, first studied by Carlsson and van Damme (1993a), represent one such environment. Uncertain economic fundamentals are summarized by a state θ and each player observes a different signal of the state with a small amount of noise. Assuming that the noise technology is common knowledge among the players, each player’s signal generates beliefs about fundamentals, beliefs about other players’ beliefs about fundamentals, and so on. Our purpose in this paper is to describe how such models work, how global game reasoning can be applied to economic problems, and how this analysis relates to more general analysis of higher-order beliefs in strategic settings.

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Global Games: Theory and Applications

In a recent issue of this journal, Stephen Morris and Hyun Song Shin (1998a) prove the uniqueness of an equilibrium in a model of self-fulfilling currency attacks, when speculators face uncertainty in their signals about macroeconomic fundamentals. In Theorem 2 of their paper, Morris and Shin characterize the equilibrium as uncertainty approaches zero. They claim that the threshold of the fundamental state, up to which a currency attack will occur with probability one, is independent of the critical mass of capital needed for an attack to be successful. Hence, direct capital controls are less effective when speculators have fairly precise information about fundamentals. Yet, their Theorem 2 holds only for a special case. This Comment gives the correct generalization and proves that for small uncertainty currency crises depend on the critical mass of capital needed for success. Thus, direct capital controls are effective even when fundamentals are fairly transparent to all market participants. The reduced-game structure is given by the following assumptions: Fundamentals of the economy are characterized by some parameter u unknown to agents. There is a continuum of agents receiving independently and identically distributed (i.i.d.) signals x about the fundamentals. Each agent must decide whether or not to attack the currency, which is associated with transaction costs t . 0. If a proportion a(u ) of all traders attacks the currency, the attack is successful and each attacking agent obtains a reward R(u ) 5 e* 2 f(u ). a and R are continuous; there is a state u with a(u ) 5 0 for all u # u; a is strictly increasing above u; and a(u ) , 1 for all u. R is strictly decreasing and there is a state u# . u with R(u# ) 5 t. u is uniformly distributed over an interval, say [0, 1]. Given u, signals have a uniform distribution in [u 2 «, u 1 «]. Critical levels u and u# must be at least 2« away from the margins of the interval [0, 1]. In Section II of their paper, Morris and Shin show that a unique equilibrium switching point x* and a threshold u* exist, such that an agent attacks [does not attack] the currency if her signal x is smaller [larger] than x*, and that a successful speculative attack occurs with probability one [zero] if state u is below [above] u*. In Section III, Theorem 2 states that “In the limit as « tends to zero, u* is given by the unique solution to the equation f(u*) 5 e* 2 2t” (p. 594). As stated, this theorem holds only for the special case where a(u*) 5 1⁄2. It should therefore be generalized as follows.

Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment

This paper explores three aspects of strategic uncertainty: its relation to risk, predictability of behavior and subjective beliefs of players. In a laboratory experiment we measure subjects' certainty equivalents for three coordination games and one lottery. Behavior in coordination games is related to risk aversion, experience seeking, and age. From the distribution of certainty equivalents we estimate probabilities for successful coordination in a wide range of games. For many games, success of coordination is predictable with a reasonable error rate. The best response to observed behavior is close to the global-game solution. Comparing choices in coordination games with revealed risk aversion, we estimate subjective probabilities for successful coordination. In games with a low coordination requirement, most subjects underestimate the probability of success. In games with a high coordination requirement, most subjects overestimate this probability. Estimating probabilistic decision models, we show that the quality of predictions can be improved when individual characteristics are taken into account. Subjects' behavior is consistent with probabilistic beliefs about the aggregate outcome, but inconsistent with probabilistic beliefs about individual behavior.

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Measuring Strategic Uncertainty in Coordination Games

Financial markets and macroeconomic environments are often characterised by positive external- ities. In these environments, transparency may reduce expected welfare: public announcements serve as focal points for higher-order beliefs and affect agentsbehaviour more than justified by their informational contents. Some scholars conclude that reducing public signalsprecision or entirely withholding information may improve welfare. This article shows that public information should always be provided with maximum precision but, under certain conditions, not to all agents. Restricting the degree of publicity is a better-suited instrument for preventing the negative welfare effects of public announcements than restrictions on their precision are. There is a general presumption that higher central bank transparency in terms of information disclosure to a wider audience improves the effectiveness of monetary policy and is beneficial to markets as it reduces information asymmetries, helps to assess risk better and arrive at more informed decisions, thus enhancing market efficiency. While practitioners (in central banks and international institutions) agree on the desirability of informative announcements and promote higher transparency on the ground that any information is valuable to markets, recent academic literature distin- guishes private and public information and argues that public announcements may destabilise markets and reduce efficiency by their effects on higher-order beliefs, if markets are characterised by positive externalities. Morris and Shin (2002) (henceforth M-S) have shown that noisy public announcements may be detrimental to welfare from an ex ante point of view. They conclude that a commitment to withholding relevant information or deliberately reducing its precision may be welfare enhancing. In this article we challenge this conclusion by distinguishing two components of transparency:precision ofinformationanddegreeofpublicity.The degreeof publicity is the proportion of agents who receive a signal. Using a stylised coordination game introduced by M-S, we show that information should always be provided to the market

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Optimal Degree of Public Information Dissemination

The theory of global games has shown that coordination games with multiple equilibria may have a unique equilibrium if certain parameters of the payoff function are private information instead of common knowledge. We report the results of an experiment designed to test the predictions of this theory. Comparing sessions with common and private information, we observe only small differences in behavior. For common information, subjects coordinate on threshold strategies that deviate from the global game solution towards the payoff-dominant equilibrium. For private information, thresholds are closer to the global game solution than for common information. Variations in the payoff function affect behavior as predicted by comparative statics of the global game solution. Predictability of coordination points is about the same for both information conditions.

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The theory of global games on test: experimental analysis of coordination games with public and private information

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Objectives. The incidence of obesity-hypoventilation syndrome (OHS) has greatly increased over time, but data on long-term outcome are limited. We investigated survival and prognostic factors in these patients undergoing noninvasive positive pressure ventilation (NPPV).



Design.  Retrospective descriptive analysis of patients with OHS and NPPV up to 10 years.



Methods.  Long-term mortality and predictors of survival were assessed. Additionally, we evaluated changes in lung function, blood gas and laboratory parameters 5.7 ± 2.5 months after initiation of NPPV.



Results.  126 patients (BMI 44.6 ± 7.8 kg m−2; PaCO2 55.5 ± 7.7 mmHg) were followed for 41.3 ± 27.6 months. Upon follow-up, blood gases (daytime and nighttime), as well as pulmonary function improved, whilst haemoglobin and BMI decreased (P < 0.001 each). Adherence to NPPV was high (94.5% continuing NPPV 6.5 ± 2.3 h day−1). All-cause mortality was 12.7%, with 1-, 2- and 5-year survival of 97.1%, 92.0% and 70.2%, respectively. In univariate analysis, patients with PaO2 <50 mmHg, C-reactive protein ≥ 5.1 mg L−1, leucocytes ≥ 7.8 × 103 μl−1, or pH ≥ 7.44 at baseline had poor prognosis (P < 0.05 each). In Cox multivariate analysis, PaO2, pH and leucocytes were independent predictors of mortality. Reduction in nocturnal PaCO2 by ≥23.0% and haemoglobin at follow-up was associated with improved survival (P < 0.05 each) whilst a decrease in pH was a predictor of increased mortality. In contrast, neither baseline BMI nor its change was linked to survival.



Conclusion.  Gas exchange and lung function in OHS were improved after initiation of NPPV. Hypoxemia, high pH and elevated inflammation markers predicted poor survival. Overall, NPPV was well tolerated and survival was excellent when compared with data from historical matched controls.

https://onlinelibrary.wiley.com/doi/pdf/10.1111/j.1365-2796.2007.01765.x

Frank Heinemann

Papers

Unique Equilibrium in a Model of Self-Fulfilling Currency Attacks: Comment

Measuring Strategic Uncertainty in Coordination Games

Optimal Degree of Public Information Dissemination

The theory of global games on test: experimental analysis of coordination games with public and private information

Mortality and prognostic factors in patients with obesity-hypoventilation syndrome undergoing noninvasive ventilation.