The purpose of this paper is to show that a very simple asset pricing model is able to reproduce a variety of stylized facts if one allows for very small departures from rationality.
The result is somehow remarkable, since the literature in empirical finance has had a very hard time in developing dynamic equilibrium rational expectations models that can account for some of those facts. For example, Campbell and Cochrane (1999) show that a habit-persistence model is able to match US data only after imposing a multiple-parameter complex specification for the formation of habit in preferences.
There is much agreement that asset prices, in particular residential property prices, provide a crucial link through which adverse macroeconomic developments can cause financial instability. Episodes of asset price booms are seen by many as raising the risk of a future sharp “correction” of prices, which could have immediate repercussions on the stability of financial institutions. Indeed, many observers have argued that property-price collapses have historically played an important role in episodes of financial instability at the level of individual financial institutions and the macro economy (e.g. Ahearne et al. 2005, Goodhart and Hofmann 2007).
Not surprisingly, this view has led to calls for central banks to react to movements in asset prices “over and beyond” what such changes imply for the path of aggregate demand and inflation (Borio and Lowe 2002, Cecchetti et al. 2000). Proponents of such a policy emphasise that episodes of financial instability risk depressing inflation and economic activity below their desired levels. Consequently, they argue, central banks that seek to stabilise the economy over a sufficiently long time horizon may need to react to current asset-price movements (Bean 2004, Ahearne et al. 2005). Importantly, this idea does not mean that asset prices should be targeted, only that central banks should be willing to tighten policy at the margin in order to slow down increases in asset prices that are viewed as being excessively rapid in order to reduce the likelihood of a future crash that could trigger financial instability and adverse macroeconomic outcomes.
This article is intended for the PHP programmer interested in avoiding some of the most common mistakes when applying PHP. The reader is expected to at least be familiar with PHP syntax, but should have a working knowledge of PHP functionality as well.
One of PHP's greatest strengths happens to be one of its greatest weaknesses as well: PHP is easy to learn. Many people are attracted to the language because of this, not realizing that it's a lot tougher to learn how to do it right.
There just hasn't been enough emphasis on good programming practice. Inexperienced coders are being asked to create and distribute complex web applications. Mistakes that an experienced programmer would avoid are all too common, such as the improper use of the printf() function or the misapplication of PHP's semantics.
In this three part article series, I present a list of 21 mistakes that I believe are frequently made and ranging in severity from non-critical down to those that can break the farm. I offer solutions, suggestions and/or comments on how to solve and prevent these errors, in addition to other tricks of the trade that I have gained over the years.
