DAF - Liceo Frisi (Monza), 28 Aprile 2022
Student @ UniBocconi & fellow of Tortuga
Research interests:
We identify a long and a short run.
Can we explain crisis using irrationality?
Irrationality can explain everything, hence nothing
We need models and we need assumptions
The gvt decides to give 100€ more to each citizen. What is the effect?
Rationality can be seen as consistency. It is formed by a set of axioms (representation theorem) that are sufficient to negate blantantly irrational patterns.
Consistency means that we cannot derive any proposition from a set of premises.
Economic agents act to maximize their utility
Is this good or bad? Is this an accurate description of the process? Is this an accurate description of the outcome?
Yes, it can! How?
the outcome of a weighted average of quantitative benefits multiplied by quantitative probabilities. (Keynes)
Culture is customary beliefs and values that [are] transmitted fairly unchanged from generation to generation (Guiso, Sapienza and Zingales 2006)
Culture can have a rule of thumb origin: as if acquiring informations and deciding is complex
Ernst Fehr and Klaus Schmidt
$$U_i=x_i-\frac{\alpha_i}{N-1}\sum_{x_j\geq x_i}(x_j-xi)-\frac{\beta_i}{N-1}\sum_{x_j<x_i}(x_i-x_j)$$
Imagine that you have 1000€ on your bank account. With probability $\frac{1}{2}$ there is a bank run (if you withdrawn you get 1000, otherwise 0). With probability $\frac{1}{2}$ there is no bank run (if you withdrawn you get 1000, otherwise 1500).
Multiple equilibria and self-fulfilling prophecies (Diamond and Dybvig, 1983 and Obstfeld, 1986) It is the same with bubbles
Small idiosyncratic forecast errors cannot explain crisis, rather they anchor the system!
Multiple equilibria is linked to confidence, from the latin world for trust (Akerlof and Shiller)
Is confidence even more powerfull?
Is it important only in case of multiple equilibria?
It is necessary for the functioning of markets. It builds up social capital
If the ECB announces that it will rise interest rate to 5% tomorrow, would it be credible? No, because agents forms expectations that are model consistent
A decentralized economy with incomplete information can show a short run trade off between output and inflation
Maybe no. Why?
If integrated in HANK: front and not back-loaded monetary policy