Abstract | PDF (917 kilobytes)

In the standard lifecycle model, consumption grows at a constant rate during the lifetime of an individual or household. The empirical study, however, shows that income and consumption moves together and have hump-shaped paths during the life of an individual or household. In explaining this comovement and humpshapedness, two approaches are prominent. One is to introduce the uncertain income. The other is to introduce the hump-shaped labor productivity. This paper follows the latter approach. We show that, in this approach, the sizes of two elasticities of substitution (the intertemporal elasticity of substititution and the elasticity of substitution between consumption and leisure) are important. We show that the smaller is the intertemporal elasticity of substitution and the larger the elasticity of substitution between consumption and leisure, the more hump-shaped and co-moving are the income and the consumption.

Abstract | PDF (941 kilobytes)

This paper considers conditional heteroskedasticity-robust testing for cointegration in nonstationary vector autoregressive models under conditional heteroskedasticity. The likelihood ratio (LR) cointegration tests of Johansen (1988, 1991) assume the Gaussian independent and identically distributed innovations, and hence the stylized facts of time-variant and persistent volatility may affect the performance of the tests. In this paper, we allow for conditionally heteroskedastic innovations and formulate the Wald test statistics. The asymptotic distribution of the Wald tests is shown to follow the nonstandard distribution. The simulation evidence regarding the performance of the proposed tests demonstrates robustness to persistent conditional volatility.

Abstract | PDF (599 kilobytes)

This paper considers a model of repeated litigation in which a single long-lived defendant faces an infinite sequence of short-lived plaintiffs. Court decisions are correlated across periods, rejecting the presence of precedent effects. We derive unique Markov perfect equilibrium payoffs for the long-lived defendant, and compare them to the predictions of a corresponding two-period benchmark model.

Abstract | PDF (635 kilobytes)

Firms keep introducing new products in markets. In making a buy-or-wait decision, consumers rely on information provided by firms. In a cheap-talk game model (i.e., Crawford and Sobel (1982), we identify a simple informative equilibrium, in which firms make a discrete announcement, either low or high quality, even though product quality space is continuous. We characterize the equilibrium properties and evaluate its welfare effects.