Forward-looking Behavior Research Articles

Tax policy, housing prices, and housing investment

This paper employs a general equilibrium model with forward-looking behavior and adjustment dynamics to assess the effects of major components of the Tax Reform Act of 1986 on housing and other industries. Simulation results reveal significant differences between effects on housing and other industries as well as substantial changes over time. While the major tax reforms promote an expansion of the housing sector in the short run, they have a negative influence on both real housing investment and the total value of housing assets over the longer term. These negative long-run consequences stem from adverse effects which these reforms have on economy-wide output and real incomes.

The Labour Market

This paper summarises research on the labour market done over the past two years at the National Institute. It incorporates research into the determinants of employment—including the role of forward-looking behaviour—wage inflation and real wage models, and comments on some policy issues which have arisen in the past five years or so. The research was not aimed at producing a single approach to labour market behaviour, but touched on several separate topics. In part the present paper reflects this relative heterogeneity, although we will try to emphasise common themes where these are relevant.

Rational Expectations, Risk and Chaos in Financial Markets

Begg (1984) has recently presented a rational expectations model of equilibrium bond pricing. One important feature of this model is that lenders making portfolio choices between short and long assets are risk-averse, so that the well-known principle of certainty equivalence no longer applies to the optimal demand for bonds. When the policy for the supply of bonds and a simple policy rule for interest rates are specified, an equilibrium model of equilibrium bond pricing is obtained where expectations are self-fulfilling in both the mean and variance. The key feature of this interesting model of the bonds market is that it is nonlinear. As long as the degree of risk, the degree of risk-aversion or the supply of bonds are not too large, the forward evolution of the model will be unstable and a unique rational expectations solution exists as the backward evolution of equilibrium bond prices will converge. This is very much in the spirit of the conventional saddlepoint approach to solving rational expectations models (Blanchard and Kahn, 1980), where equilibrium asset prices are considered as forward-looking jump variables. However, if the degree of risk, the degree of risk-aversion, the coupon or the supply of bonds become large enough, the forward evolution of the model becomes locally stable. Begg's (1984) interpretation is that this leads to a loss of confidence and financial panic, because there is now an infinite number of convergent rational expectations trajectories. The main objective of this paper is to show that this interpretation is incomplete and to formalise Begg's notion of financial panic. Because the forward evolution of asset prices is stable, the backward evolution is unstable when there is a large degree of risk or riskaversion. It therefore seems as if equilibrium bond prices have become predetermined and are no longer jump variables, so that it seems as if risk-aversion investors have 'given up' their forward-looking behaviour in the face of too many shocks. This is only a locally valid argument and contradicts intuition, because efficient asset prices are generally regarded as jump variables that incorporate 'news' about current and future events. It is possible, however, still to have forward-looking asset prices, because increasing the degree of uncertainty or the degree of risk-aversion eventually leads to unique speculative bubbles and possibly financial chaos for the backward evolution of equilibrium bond prices. There exists therefore, in addition to the infinity of convergent and pre-determined rational expectations paths, a unique non-

Forecasting employment: The role of forward-looking behaviour

Manufacturing output per head rose at an unprecedented rate in the UK in 1981/2, and conventional econometric relationships failed to forecast the associated falls in employment. In this paper we estimate manufacturing employment equations in which output expectations play a central role. These compare fabourably with alternative models, and are able to predict most of the large falls in employment over this period.

Rational Expectations in an Econometric Model: Niesr Model 8∗

This article summarises research on the role of forward-looking behaviour in important sectors of a macro-econometric model. It is based on the work of a number of researchers at the National Institute over the last two years. Important changes are introduced into many central equations in the model We argue that on grounds of both the underlying theory and the plausibility of the empirical results, this work is a significant advance in explaining dynamic macro-economic behaviour.

Competitive Firm and the Theory of Input Demand under Price Uncertainty: Comment

Previous articleNext article No AccessCommunicationsCompetitive Firm and the Theory of Input Demand under Price Uncertainty: CommentRichard HartmanRichard Hartman Search for more articles by this author PDFPDF PLUS Add to favoritesDownload CitationTrack CitationsPermissionsReprints Share onFacebookTwitterLinkedInRedditEmail SectionsMoreDetailsFiguresReferencesCited by Journal of Political Economy Volume 83, Number 6Dec., 1975 Article DOIhttps://doi.org/10.1086/260399 Views: 6Total views on this site Citations: 26Citations are reported from Crossref Copyright 1975 The University of ChicagoPDF download Crossref reports the following articles citing this article:Richard Watt Overlooked results on the competitive firm under output price risk: Alternative sufficient conditions for downward sloping factor demand curves, Economics Letters (Sep 2020): 109507.https://doi.org/10.1016/j.econlet.2020.109507Jean-Philippe Boussemart, David Crainich, Hervé Leleu A decomposition of profit loss under output price uncertainty, European Journal of Operational Research 243, no.33 (Jun 2015): 1016–1027.https://doi.org/10.1016/j.ejor.2014.12.044Arno Riedl, Frans van Winden Input versus output taxation in an experimental international economy, European Economic Review 56, no.22 (Feb 2012): 216–232.https://doi.org/10.1016/j.euroecorev.2011.09.002Tai-Hsin Huang, Ying-Ting Liao, Li-Chih Chiang An examination on the cost efficiency of the banking industry under multiple output prices’ uncertainty, Applied Economics 42, no.99 (Apr 2010): 1169–1182.https://doi.org/10.1080/00036840701721190Kishor Kumar Guru‐Gharana, Matiur Rahman, Satyanarayana Parayitam Price and quantity setting behaviors of a monopolist facing uncertain product demand, Studies in Economics and Finance 25, no.33 (Aug 2008): 175–195.https://doi.org/10.1108/10867370810894701Arno Riedl, Frans van Winden An experimental investigation of wage taxation and unemployment in closed and open economies, European Economic Review 51, no.44 (May 2007): 871–900.https://doi.org/10.1016/j.euroecorev.2006.05.003Tai-Hsin Huang, Tong-Liang Kao Joint estimation of technical efficiency and production risk for multi-output banks under a panel data cost frontier model, Journal of Productivity Analysis 26, no.11 (Jul 2006): 87–102.https://doi.org/10.1007/s11123-006-0007-5Moawia Alghalith * Input demand with cost uncertainty, International Economic Journal 19, no.11 (Mar 2005): 115–123.https://doi.org/10.1080/1351161042000320425Tai-Hsin Huang Empirical estimation of production risk using a cost function with panel data, Applied Economics Letters 11, no.55 (Aug 2006): 297–301.https://doi.org/10.1080/1350485042000221553Simon Price Aggregate uncertainty, investment and asymmetric adjustment in the UK manufacturing sector, Applied Economics 28, no.1111 (Oct 2010): 1369–1379.https://doi.org/10.1080/000368496327633Simon Price Aggregate uncertainty, capacity utilization and manufacturing investment, Applied Economics 27, no.22 (Jul 2006): 147–154.https://doi.org/10.1080/00036849500000017Fathali Firoozi Sufficient conditions for an inverse relationship between productivity and employment, The Quarterly Review of Economics and Finance 34, no.33 (Sep 1994): 301–307.https://doi.org/10.1016/1062-9769(94)90029-9Simon Price AGGREGATE UNCERTAINTY, FORWARD LOOKING BEHAVIOUR AND THE DEMAND FOR MANUFACTURING LABOUR IN THE UK, Oxford Bulletin of Economics and Statistics 56, no.33 (May 2009): 267–283.https://doi.org/10.1111/j.1468-0084.1994.mp56003003.xJohn J. Haydu, Robert J. Myers, Stanley R. Thompson Why Do Farmers Forward Contract In Factor Markets?, Journal of Agricultural and Applied Economics 24, no.11 (Sep 2016): 145–151.https://doi.org/10.1017/S0081305200026066Ardeshir J. Dalal, Bala G. Arshanapalli Effects of expected cash and futures prices on hedging and production: Comments and extensions, Journal of Futures Markets 9, no.44 (Aug 1989): 337–345.https://doi.org/10.1002/fut.3990090407Gideon Fishelson Imperfect competition under uncertainty, Journal of Economics and Business 41, no.33 (Aug 1989): 253–263.https://doi.org/10.1016/0148-6195(89)90023-4Jean-Paul Chavas, Rulon D. Pope, Howard Leathers COMPETITIVE INDUSTRY EQUILIBRIUM UNDER UNCERTAINTY AND FREE ENTRY, Economic Inquiry 26, no.22 (Apr 1988): 331–344.https://doi.org/10.1111/j.1465-7295.1988.tb01497.xP.J. Dawson Labour on the Family Farm: a Theory under Uncertainty, Agricultural Economics 1, no.44 (Jan 1987): 365–380.https://doi.org/10.1111/j.1574-0862.1987.tb00031.xIraj Fooladi The effect of proportional profit tax on the level of output, under uncertainty, Atlantic Economic Journal 14, no.44 (Dec 1986): 90–94.https://doi.org/10.1007/BF02303218Karl Aiginger The Impact of Uncertainty on the Optimal Decision of Risk Neutral Firms, (Jan 1986): 355–373.https://doi.org/10.1007/978-94-009-4616-3_23Iraj Fooladi A general theory of the competitive firm under undercertainty, Atlantic Economic Journal 13, no.33 (Sep 1985): 41–49.https://doi.org/10.1007/BF02304293Jean-Paul Chavas, Rulon Pope Price uncertainty and competitive firm behavior: Testable hypotheses from expected utility maximization, Journal of Economics and Business 37, no.33 (Aug 1985): 223–235.https://doi.org/10.1016/0148-6195(85)90019-0Karl Aiginger The impact of risk attitude, uncertainty and disequilibria on optimal production and inventory, Theory and Decision 19, no.11 (Jul 1985): 51–75.https://doi.org/10.1007/BF00134354Yuzo Honda Risk, risk aversion and many control variables, Zeitschrift für Nationalökonomie 43, no.44 (Dec 1983): 405–422.https://doi.org/10.1007/BF01283188ROBERT E. MARTIN STOCHASTIC INPUT DELIVERIES, Economic Inquiry 19, no.44 (Oct 1981): 640–649.https://doi.org/10.1111/j.1465-7295.1981.tb00343.xSteven A. Lippman, John J. McCall Chapter 6 The economics of uncertainty: Selected topics and probabilistic methods, (Jan 1981): 211–284.https://doi.org/10.1016/S1573-4382(81)01010-2

A generalized logistic model for technological forecasting

Resulting from a predominantly forward-looking behavior of the producers, a generalized logistic model is developed and tested here as an approximation of engineering-design process.

The compass of behavior therapy

In a recent article, Susskind (1970, p. 538) made reference to outmoded practice of narrow behavior therapy which Lazarus, Bergin, and other forward-looking behavior therapists so rightly repudiate. She stated: is no wonder that patients who come to the more sophisticated behavior therapist naively expecting only desensitization or aversive shock, express surprise when additional techniques, such as discussion or behavioral exploration of pertinent problems, are introduced. Since I am on record as critical of broad-spectrum behavior therapy (Wolpe, 1968) I must no doubt regard myself as included among the less sophisticated, narrow therapists who, according to Susskind, do not engage in activities like discussion and behavioral exploration of pertinent problems. It is really surprising to find people who, despite years of identification with behavior therapy, do not know that discussion and exploration of the patient's problems have always been held to be indispensable to the conduct of behavior therapy. The behaviorist's realization that neurotic habits are stimulus-bound necessarily impels him to get the most comprehensive picture he can of the patient as a responding organism to both external and internal stimuli. The diligence of exploration that is customary is evident in practically every case that we have reported in detail. For a characteristic early example see Case 1 in Psychotherapy by Reciprocal Inhibition (Wolpe, 1958, pp. 120-127). However, far be it from me to claim that we are also in all other ways as catholic as Susskind and the other broad-spectrum practitioners. We only do what scientifically acceptable evidence indicates as likely to change the unadaptive habits that come before us in their varied combinations of motor, autonomic, and perceptual elements. This means that we apply, as far as we can, the experimentally based principles of learning that are the pith and substance of behavior therapy, drawing upon