A survey on strategic market games
The Strategic Market Game (SMG) is the general equilibrium mechanism of strategic reallocation of resources. It was suggested by Shapley and Shubik in a series of papers in the 70s and it is one of the fundamentals of contemporary monetary macroeconomics with endogenous demand for money. This survey highlights features of the SMG and some of the most important current applications of SMGs, especially for monetary macroeconomic analysis.
The paper analyzes the effect of positive trend inflation in the framework of a standard New Keynesian model with Calvo price setting and capital accumulation. We are building on the work of Carlstrom and Fuerst (Carlstrom, Charles T., and Timothy S. Fuerst. 2005. “Investment and Interest Rate Policy: A Discrete-Time Analysis.” Journal of Economic Theory 123: 4–20.) and Ascari and Ropele (Ascari, Guido, and Tiziano Ropele. 2007. “Optimal Monetary Policy under Low Trend Inflation.” Journal of Monetary Economics 54 (8): 2568–2583., Ascari, Guido, and Tiziano Ropele. 2009. “Trend Inflation, Taylor Principle, and Indeterminacy.” Journal of Money, Credit and Banking 48 (1): 1557–1584.) who separately considered effects of capital accumulation and trend inflation in a similar context. It is shown that the simultaneous presence of positive trend inflation and capital accumulation greatly affect the determinacy property of equilibrium under this setup. Namely, in the presence of positive trend inflation the determinacy region shrinks, and it is virtually impossible to produce a determinate equilibrium with the Taylor-type rule given a steady state of inflation of more than 5%. Even for a moderate value of 2.5%, the design of the rule that ensures the uniqueness of the equilibrium requires detailed knowledge of the parameters of an economy. We also show that for a large set of plausible parameters, the standard Taylor rule leads to indeterminacy. Alternative monetary policy rules such as interest rate smoothing, output growth targeting and price level targeting are also analyzed. It is shown that the latter improves the determinacy of the model solution, and the best way to guarantee the determinate equilibrium is to use price level targeting in the policy rule.
We propose a general model of monopolistic competition, which encompasses existing models while being flexible enough to take into account new demand and competition features. Even though preferences need not be additive and/or homothetic, the market outcome is still driven by the sole variable elasticity of substitution. We impose elementary conditions on this function to guarantee empirically relevant properties of a free-entry equilibrium. Comparative statics with respect to market size and productivity shocks are characterized through necessary and sufficient conditions. Furthermore, we show that the attention to the CES based on its normative implications was misguided: we propose a new class of preferences, which express consumers' uncertainty about their love for variety, that yield variable markups and may sustain the optimum. Last, we show how our approach can cope with heterogeneous firms once it is recognized that the elasticity of substitution is firm-specific.
The paper examines the structure, governance, and balance sheets of state-controlled banks in Russia, which accounted for over 55 percent of the total assets in the country's banking system in early 2012. The author offers a credible estimate of the size of the country's state banking sector by including banks that are indirectly owned by public organizations. Contrary to some predictions based on the theoretical literature on economic transition, he explains the relatively high profitability and efficiency of Russian state-controlled banks by pointing to their competitive position in such functions as acquisition and disposal of assets on behalf of the government. Also suggested in the paper is a different way of looking at market concentration in Russia (by consolidating the market shares of core state-controlled banks), which produces a picture of a more concentrated market than officially reported. Lastly, one of the author's interesting conclusions is that China provides a better benchmark than the formerly centrally planned economies of Central and Eastern Europe by which to assess the viability of state ownership of banks in Russia and to evaluate the country's banking sector.
The paper examines the principles for the supervision of financial conglomerates proposed by BCBS in the consultative document published in December 2011. Moreover, the article proposes a number of suggestions worked out by the authors within the HSE research team.
The paper studies a problem of optimal insurer’s choice of a risk-sharing policy in a dynamic risk model, so-called Cramer-Lundberg process, over infinite time interval. Additional constraints are imposed on residual risks of insureds: on mean value or with probability one. An optimal control problem of minimizing a functional of the form of variation coefficient is solved. We show that: in the first case the optimum is achieved at stop loss insurance policies, in the second case the optimal insurance is a combination of stop loss and deductible policies. It is proved that the obtained results can be easily applied to problems with other optimization criteria: maximization of long-run utility and minimization of probability of a deviation from mean trajectory.