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Growth and Welfare Gains from Financial Integration Under Model Uncertainty
We build a robustness (RB) version of the Obstfeld (1994) model to study the effects of financial integration on growth and welfare. Our model can account for the empirically observed heterogeneity in the relationship between growth and volatility for different countries. The calibrated model shows that financial integration leads to significantly larger gains in growth and welfare for advanced countries than developing countries, with some developing countries experiencing growth and welfare loss in financial integration. Our analytical solutions help uncover the key mechanisms by which this ...
Achievement Gap Estimates and Deviations from Cardinal Comparability
This paper assesses the sensitivity of standard empirical methods for measuring group differences in achievement to violations in the cardinal comparability of achievement test scores. The paper defines a distance measure over possible weighting functions (scalings) of test scores. It then constructs worst-case bounds for the bias in the estimated achievement gap (or achievement gap change) that could result from using the observed rather than the true test scale, given that the true and observed scales are no more than a fixed distance from each other. The worst-case weighting functions have ...
Doubts about the Model and Optimal Policy
This paper analyzes optimal policy in setups where both the leader and the follower have doubts about the probability model of uncertainty. I illustrate the methodology in two environments: a) an industry populated with a large firm and many small firms in a competitive fringe, where both types of firms doubt the probability model of demand shocks, and b) a general equilibrium economy, where a policymaker taxes linearly the labor income of a representative household in order to finance an exogenous stream of stochastic spending shocks. The policymaker can distrust the probability model of ...