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on Utility Models and Prospect Theory |
| By: | Luca Pieroni (University of Perugia (Italy) and University of the West of England, Bristol) |
| Abstract: | A long run conditional demand model is specified to provide empirical evidence on the relationship between government defence expenditure and private consumption in the United States. By assuming that government defence expenditure is exogenously determined with respect to private consumption decisions, the empirical results show a significant impact on the utility function of households and substitutable or complementary effects for specific categories of private expenditure. The findings are in line with the evidence that in aggregate it is possible to obtain a weak impact of defence expenditure on consumption. |
| Keywords: | Military Expenditure; Consumption; crowding out/in; |
| JEL: | D12 H31 H4 |
| Date: | 2007–03 |
| URL: | http://d.repec.org/n?u=RePEc:uwe:wpaper:0705&r=upt |
| By: | Giovanni Ganelli; Juha Tervala |
| Abstract: | This paper focuses on the trade-off faced by governments in deciding the allocation of public expenditures between productivity-enhancing public infrastructures and utility-enhancing public consumption. From the modeling point of view, the paper augments a standard New Open Economy Macroeconomics (NOEM) model by introducing productive public infrastructures. The results show that a temporary increase in the domestic stock of public capital financed by a reduction in public consumption reduces domestic welfare in the short run because the temporary gains from higher productivity do not compensate domestic residents for the utility loss due to lower public consumption. If the policy shift is permanent domestic utility is likely to increase, while foreign residents suffer short-run welfare losses but benefit from welfare gains in the long run. This analysis implies that a permanent domestic reallocation of public spending might result in a virtuous global technological cycle. |
| Keywords: | Public spending composition , welfare , imperfect competition , nominal rigidities , Infrastructure , Government expenditures , Consumption , Economic models , |
| Date: | 2007–03–22 |
| URL: | http://d.repec.org/n?u=RePEc:imf:imfwpa:07/67&r=upt |
| By: | Abhay Abhyankar; Angelica Gonzalez |
| Abstract: | We study the cross-section of expected corporate bond returns using an intertemporal CAPM with three factors; innovations in future excess bond returns, future real interest rates and future expected inflation. Our test assets are a broad range of bond market index portfolios of different default categories. We find, using the Fama MacBeth cross-sectional method, that innovations in future expected real interest ratesand future expected inflation explain the cross-section of expected corporate bond returns. Our model provides an alternative to ad hoc risk factors used, for example, in evaluating the performance of bond mutual funds. |
| Keywords: | bond market, fixed income mutual funds, asset pricing model, variance decomposition, recursive utility, betas, factor pricing. |
| JEL: | F31 F37 |
| URL: | http://d.repec.org/n?u=RePEc:edn:esedps:157&r=upt |