This paper estimates a time-varying AR-GARCH model of inflation producing measures of inflation uncertainty for the euro area, and investigates the linkages between them in a VAR framework, also allowing for the possible impact of the policy regime change associated with the start of EMU in 1999. The main findings are as follows. Steady-state inflation and inflation uncertainty have declined st...

Stress in financial markets influences economic agents’ behavior by creating uncertainty and changing the expectations. Critical financial stress can lead to financial crisis. Financial crises are among the events always present in the world economy. Iran is not an exception. This paper aims to study the impact of financial stresses on Iran’s per capita GDP. By using ARDL (Auto Regressive Distr...

This paper generalizes the discussion about disagreement versus uncertainty in macroeconomic survey data by emphasizing the importance of the (unknown) true predictive density. Using a forecast combination approach, we ask whether crosssections of survey point forecasts help to approximate the true predictive density. We find that although these cross-sections perform poorly individually, their...

Affective decision-making (ADM) is a refutable and predictive theory of individual choice under risk and uncertainty. It generalizes expected utility theory by positing the existence of two cognitive processes – the “rational” and the “emotional” process. Observed choice is the result of their simultaneous interaction. We present a model of affective choice in insurance markets, where risk perc...

The neoclassical justification of the economic role state rests on concepts such as model economy in equilibrium, perfect competition, market failures, social efficiency and cost-benefit analysis, monopolies, ex-ternalities, theory public goods existence free riders. All this doctrine, which is used by economists to justify interventionism, can be critici-sed from theoretical methodological ten...

We extend the vector autoregression (VAR) based expectations hypothesis test of term structure, considered in Bekaert & Hodrick (2001) using recent developments in bootstrap literature. Modifications include the use of wild bootstrap to allow for conditional heteroskedasticity in the VAR residuals without imposing strict parameterization, endogeneous model selection procedure in the bootstrap r...

In the study of decision making under risk, preferences are assumed to be continuous. We present a model of discontinuous preferences over certain and uncertain outcomes. Using existing parameter estimates for certain and uncertain utility, five important decision theory phenomena are discussed: the certainty effect, experimentally observed probability weighting, the uncertainty effect, extreme...

Why does the current wave of globalization create more public concern/opposition than previous rounds of trade liberalization? This paper identifies a key difference between globalization and trade liberalization that could be responsible for it. It is shown that while both globalization and trade liberalization create inter-sector income distribution, the former also creates intra-sector incom...

We introduce both idiosyncratic and aggregate shocks in an endogenous growth model with endogenous partial insurance to the idiosyncratic shock. Aggregate uncertainty introduces an additional channel that can play an important role in determining the effects of private information on expected growth and asset prices. We show the impact of aggregate and idiosyncratic shocks on expected growth an...

Separating Uncertainty from Heterogeneity in Life Cycle Earnings This paper develops and applies a method for decomposing cross section variability of earnings into components that are forecastable at the time students decide to go to college (heterogeneity) and components that are unforecastable. About 60% of variability in returns to schooling is forecastable. This has important implications ...