- Nicholas Barberis, Robin Greenwood, Lawrence Jin, and Andrei Shleifer: X-CAPM: An Extrapolative Capital Asset Pricing Model: "Survey evidence suggests that many investors form beliefs about future stock market returns by extrapolating past returns: they expect the stock market to perform well (poorly) in the near future if it performed well (poorly) in the recent past. Such beliefs are hard to reconcile with existing models of the aggregate stock market. We study a consumption-based asset pricing model in which some investors form beliefs about future price changes in the stock market by extrapolating past price changes, while other investors hold fully rational beliefs. We find that the model captures many features of actual prices and returns, but is also consistent with the survey evidence on investor expectations. This suggests that the survey evidence does not need to be seen as an inconvenient obstacle to understanding the stock market; on the contrary, it is consistent with the facts about prices and returns, and may be the key to understanding them."
Austin Frakt: A brief note on ACA implementation hurdles and delays: "Maybe I’m observing a skewed slice of the media, but it seems like many are blaming ACA implementation issues and delays on the Obama Administration or inherent flaws in the law itself. Is that fair? Maybe. Is it the whole story? Hardly. Harold already noted that the Supreme Court’s decision to make the Medicaid expansion a state option threw in a monkey wrench, and few saw it coming. He also mentioned the limited resources that Congress has made available for implementation and the political gridlock on the issue that prevents sensible adjustments. It should, however, also be said that states have a huge role to play in facilitating or interrupting the implementation glide path. For reasons I find completely reasonable — though still risky — many officials delayed putting full weight behind implementation until after the the Supreme Court passed judgement and the 2012 elections were decided. Some have put their full weight behind impeding implementation, which is their right. However, the active opposition to implementation is not a design flaw or the Administration’s doing."
Greg Sargent: Sabotage governing: "It’s not unusual to hear dirty hippie liberal blogger types (and the occasional lefty Nobel Prize winner) point out that today’s GOP has effectively abdicated the role of functional opposition party, instead opting for a kind of post-policy nihilism in which sabotaging the Obama agenda has become its only guiding governing light. But when you hear this sort of argument coming from Chuck Todd, the mild-mannered, well respected Beltway insider, it should prompt folks to take notice. That’s essentially what Todd, along with Mark Murray and the rest of MSNBC’s First Read crew, argued this morning. It’s worth quoting at length: 'Here’s a thought exercise on this summer morning: Imagine that after the controversial Medicare prescription-drug legislation was passed into law in 2003, Democrats did everything they could to thwart one of George W. Bush’s top domestic achievements. They launched Senate filibusters to block essential HHS appointees from administering the law; they warned the sports and entertainment industries from participating in any public service announcements to help seniors understand how the law works; and, after taking control of the House of Representatives in 2007, they used the power of the purse to prohibit any more federal funds from being used to implement the law. As it turns out, none of that happened. And despite Democratic warnings that the law would be a bust — we remember the 2004 Dem presidential candidates campaigning against it — the Medicare prescription-drug law has been, for the most part, a pretty big success. But that thought exercise has become a reality 10 years later as Republicans have worked to thwart/stymie/sabotage — pick your word — the implementation of President Obama’s health-care and financial-reform laws. Recently, the top-two Senate Republicans — Mitch McConnell and John Cornyn — wrote a letter to the NFL and other major sports leagues warning them not to participate in any campaign to promote implementation of Obamacare. The Koch Brothers-backed Americans for Prosperity is in unchartered waters running TV ads to help prevent the law from being implemented, while the Obama political arm is also on the air promoting implementation. And Senate Republicans have vowed to filibuster any nominee (no matter how qualified) to run the Consumer Financial Protection Bureau under the financial-reform law.'"
Paul Krugman: Potential Mistakes: "There are two main methods. One looks at past levels of output and/or unemployment, and basically uses some weighted average of the past as an estimate of what’s normal…. The other looks at inflation, and tries to back out the unemployment rate consistent with price stability. And both methods break down completely under depression conditions…. The first method is based on the normal experience that fluctuations in unemployment tend to revert fairly quickly to the mean… so you can treat this as a signal-extraction problem…. What about inflation?… Right now we have high unemployment combined with more or less stable core inflation. Typical models would interpret this as a sharp rise in the natural rate, from maybe 5.5 to 8 percent. But what it almost surely reflects instead is the stickiness of inflation at low levels…. I wish that these were narrow technical issues, of no importance for real-world policy. Unfortunately, they’re not."
The Economic Writings of Sir William Petty | Jeff Weintraub: Mark Thoma, Brad DeLong, and Ernst Kantorowicz on Xia Yeliang, the importance of tenure, and the dangers of political tests | The 38 Essential Washington Restaurants | Erik Loomis: Are Finns White? |