Latin American countries are the only “western countries” that are poor. Why Latin America has not replicated Western economic success? Several authors as Cole, et al. [12] find that this failure is primarily due to TFP differences. Latin America’s TFP gap reflects inefficient production.
In a seminal work, Parente and Prescott[23] study the differences in TFP across countries. They find that although countries have access to the same stock of knowledge, they do not all make equally efficient use of this knowledge because policies in some countries lead to barriers that effectively prevent firms from adopting more productive technologies and from changing to more efficient work practices. These barriers exist in a large number of instances to protect interests of specialized suppliers of inputs to a particular production process. They show how the granting and protection of monopoly rights of industry insiders leads to the inefficient use of inferior technologies. This is an argument to explain the different roles copper and oil have played in the Chilean and Mexican economies during the last decades.
Does consumer behavior exhibit time inconsistency? This is an essential, yet difficult question to answer. Since the pioneering contribution of Samuelson (1937), it has become a standard assumption in dynamic economics models that consumers have an exponential time discount function, {1, ?, ?2, ...}, which implies that consumer behavior is time consistent. A significant body of evidence in experimental psychology and economics literature, however, suggests that consumers discount the future hyperbolically, not exponentially. The essential feature of hyperbolic discounting is that consumers are time inconsistent. In the last decade, a particular kind of hyperbolic discounting, the quasi-hyperbolic discount function, {1, ??,??2, ...}, has been widely studied due to its analytic simplicity.1 Many researchers have applied this discount function to explain various economic anomalies, such as procrastination, retirement, addiction and credit card borrowing.2 This paper also adopts this formulation, which shall be simply referred to as hyperbolic discounting in later discussion.
The recent use of hyperbolic discounting has been criticized for lack of convincing empirical evidence.3 An ideal test is to compare consumers’ long-run plans with their later actions, which will be consistent for exponential consumers but inconsistent for hyperbolic consumers. In the real world, it is difficult to track long-run plans or later actions — especially long-run plans. This paper examines time inconsistency using a large-scale randomized experiment in the credit card market, with which we have a unique opportunity to conduct a reasonably good test. In the experiment, 600,000 consumers were each randomly assigned to one of six different groups, denoted as Market Cells A to F, which were mailed six different credit card offers. The six offers had different introductory interest rates and different durations: Market Cell A (4.9% for 6 months), B (5.9% for 6 months), C (6.9% for 6 months), D (7.9% for 6 months), E (6.9% for 9 months) and F (7.9% for 12 months). All other characteristics of the solicitations were identical across the six market cells. Consumer responses and subsequent usage of respondents for 24 months were observed.
This paper analyzes exponentially affine and non-affine stochastic volatility models with jumps in returns, and jumps in returns and volatility. One of the main research topics in finance is to find models which fully capture the statistical properties of asset returns. In particular, the model framework forstock prices has evolved dramatically over the past decades. Staring from the fairly simpleassumption of constant volatility in the Black-Scholes-Merton framework, model complexity and sophistication have increased in order to capture stylized facts of the data. These include for examplecrash events in stock markets, volatility clustering, smile patterns in options data, and the leverage effect.
