Location via proxy:   [ UP ]  
[Report a bug]   [Manage cookies]                
IDEAS home Printed from https://ideas.repec.org/p/cam/camdae/0468.html
   My bibliography  Save this paper

Modelling Stochastic Relative Preferences

Author

Listed:
  • Geraats, P.M.

Abstract

Stochastic relative preferences are prevalent in the literature, but it appears that modeling them is not trivial. This paper establishes that common stochastic specifications alter average relative preferences, which could induce spurious effects. A simple solution is presented that provides an unbiased specification that parameterizes pure white noise shocks to relative preferences. The importance of the results is illustrated by some instructive examples from consumer choice, monetary policy and micro- founded business cycle models.

Suggested Citation

  • Geraats, P.M., 2004. "Modelling Stochastic Relative Preferences," Cambridge Working Papers in Economics 0468, Faculty of Economics, University of Cambridge.
    • Handle: RePEc:cam:camdae:0468
    Note: MA, ET
    as

    Download full text from publisher

    File URL: https://files.econ.cam.ac.uk/repec/cam/pdf/cwpe0468.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "New directions for stochastic open economy models," Journal of International Economics, Elsevier, vol. 50(1), pages 117-153, February.
    2. Hall, Robert E, 1997. "Macroeconomic Fluctuations and the Allocation of Time," Journal of Labor Economics, University of Chicago Press, vol. 15(1), pages 223-250, January.
    3. S[empty]rensen, Jan Rose, 1991. "Political uncertainty and macroeconomic performance," Economics Letters, Elsevier, vol. 37(4), pages 377-381, December.
    4. HILDENBRAND, Werner, 1971. "Random preferences and equilibrium analysis," LIDAM Reprints CORE 100, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    5. Maurice Obstfeld & Kenneth Rogoff, 2002. "Global Implications of Self-Oriented National Monetary Rules," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 503-535.
    6. Beetsma, Roel M W J & Jensen, Henrik, 2003. "Why Money Talks and Wealth Whispers: Monetary Uncertainty and Mystique: Comment," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 35(1), pages 129-136, February.
    7. Hildenbrand, Werner, 1971. "Random preferences and equilibrium analysis," Journal of Economic Theory, Elsevier, vol. 3(4), pages 414-429, December.
    8. Petra M. Geraats, 2002. "Central Bank Transparency," Economic Journal, Royal Economic Society, vol. 112(483), pages 532-565, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Geraats, P.M., 2005. "Political Pressures and Monetary Mystique," Cambridge Working Papers in Economics 0557, Faculty of Economics, University of Cambridge.
    2. Petra M. Geraats, 2007. "The Mystique of Central Bank Speak," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 37-80, March.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Giuseppe Ciccarone & Enrico Marchetti & Giovanni Di Bartolomeo, 2007. "Unions, Fiscal Policy And Central Bank Transparency," Manchester School, University of Manchester, vol. 75(5), pages 617-633, September.
    2. Dai, Meixing & Sidiropoulos, Moïse, 2011. "Monetary and fiscal policy interactions with central bank transparency and public investment," Research in Economics, Elsevier, vol. 65(3), pages 195-208, September.
    3. Meixing Dai & Moïse Sidiropoulos & Eleftherios Spyromitros, 2015. "Fiscal Policy, Institutional Quality and Central Bank Transparency," Manchester School, University of Manchester, vol. 83(5), pages 523-545, September.
    4. Dai, Meixing & Sidiropoulos, Moise, 2008. "Fiscal Policy in a Monetary Union in the Presence of Uncertainty about the Central Bank Preferences," MPRA Paper 13907, University Library of Munich, Germany, revised Mar 2009.
    5. Geraats, P.M., 2005. "Political Pressures and Monetary Mystique," Cambridge Working Papers in Economics 0557, Faculty of Economics, University of Cambridge.
    6. Dai, Meixing & Sidiropoulos, Moïse, 2009. "Public investment, distortionary taxes and monetary policy transparency," MPRA Paper 15858, University Library of Munich, Germany.
    7. Petra M. Geraats, 2007. "The Mystique of Central Bank Speak," International Journal of Central Banking, International Journal of Central Banking, vol. 3(1), pages 37-80, March.
    8. van der Cruijsen, C.A.B. & Eijffinger, S.C.W., 2007. "The Economic Impact of Central Bank Transparency : A Survey," Discussion Paper 2007-06, Tilburg University, Center for Economic Research.
    9. Luiz Vitiello & Ser-Huang Poon, 2022. "Option pricing with random risk aversion," Review of Quantitative Finance and Accounting, Springer, vol. 58(4), pages 1665-1684, May.
    10. Bernd Hayo & Ummad Mazhar, 2014. "Monetary Policy Committee Transparency: Measurement, Determinants, and Economic Effects," Open Economies Review, Springer, vol. 25(4), pages 739-770, September.
    11. Hubert Kempf & Leopold von Thadden, 2007. "On policy interactions among nations: when do cooperation and commitment matter ?," 2007 Meeting Papers 801, Society for Economic Dynamics.
    12. Giancarlo Corsetti & Luca Dedola & Sylvain Leduc, 2008. "Productivity, External Balance, and Exchange Rates: Evidence on the Transmission Mechanism among G7 Countries," NBER Chapters, in: NBER International Seminar on Macroeconomics 2006, pages 117-194, National Bureau of Economic Research, Inc.
    13. Aruka, Yuji, 2004. "How to measure social interactions via group selection?: Cultural group selection, coevolutionary processes, and large-scale cooperation: a comment," Journal of Economic Behavior & Organization, Elsevier, vol. 53(1), pages 41-47, January.
    14. Yongming Hou, 2012. "Some inference results on random pure exchange economies," Annals of Operations Research, Springer, vol. 196(1), pages 293-309, July.
    15. Giuseppe Ciccarone & Giovanni Di Bartolomeo & Enrico Marchetti, 2005. "Supply- side Fiscal Policy, Conservativeness, and Central Bank trasparency," Working Papers in Public Economics 77, Department of Economics and Law, Sapienza University of Roma.
    16. Hefeker, Carsten, 2004. "Uncertainty, Wage Setting and Decision Making in a Monetary Union," HWWA Discussion Papers 272, Hamburg Institute of International Economics (HWWA).
    17. Charles Engel, 2003. "Expenditure Switching and Exchange-Rate Policy," NBER Chapters, in: NBER Macroeconomics Annual 2002, Volume 17, pages 231-300, National Bureau of Economic Research, Inc.
    18. Chen, Sihao & Devereux, Michael B. & Shi, Kang & Xu, Juanyi, 2021. "Exchange rates, local currency pricing and international tax policies," Journal of Monetary Economics, Elsevier, vol. 117(C), pages 460-472.
    19. Alan Sutherland, 2005. "Cost-push shocks and monetary policy in open economies," Oxford Economic Papers, Oxford University Press, vol. 57(1), pages 1-33, January.
    20. Chan Wang & Heng-fu Zou, 2013. "On the efficiency of monetary and fiscal policy in open economies," Annals of Economics and Finance, Society for AEF, vol. 14(1), pages 179-206, May.

    More about this item

    Keywords

    stochastic preferences; preference uncertainty;

    JEL classification:

    • D1 - Microeconomics - - Household Behavior
    • D8 - Microeconomics - - Information, Knowledge, and Uncertainty
    • E2 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment
    • E5 - Macroeconomics and Monetary Economics - - Monetary Policy, Central Banking, and the Supply of Money and Credit

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cam:camdae:0468. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Jake Dyer (email available below). General contact details of provider: https://www.econ.cam.ac.uk/ .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.