This paper deals with hyperbolic discounting in a macro context. Time consistency is discussed in terms of rational behavior and rational expectations. The theory is applied to the intertemporal consumption decision in order to explain undersaving in an economy. Moreover, possible implications on policy makers’ decisions on reforms and budget deficits are evinced. Finally, the Ricardian equival...

In this paper we evaluate the empirical performance of a medium–scale DSGE model (Smets andWouters 2007) when agents form expectations about forward variables by using small forecasting models. Agents learn about these simple AR and VAR forecasting models through Kalman filter estimation and they combine them either using a prediction basedweighting scheme or fixed weights. The results indicate...

Rationalizing Boundedly Rational Choice: Sequential Rationalizability and Rational Shortlist Methods A sequentially rationalizable choice function is a choice function which can be obtained by applying sequentially a fixed set of asymmetric binary relations (rationales). A Rational ShortlistMethod (RSM) is a choice function which is sequentially rationalizable by two rationales. These concepts ...

          The aim of this paper is to simulate the effects of some macroeconomic policy tools on production and inflation of Iran by the current worldwide financial and real crisis. The theoretical framework of the analysis is based on the so-called ‘IMF/World Bank Integrated Model’ which is the synthesis (a merger) of the basic monetary approach of the Balance of Payments used at t...

At a Rational Expectations Equilibrium (REE), individuals are assumed to know the map from states to prices. This hypothesis has two components, that agents agree (consensus) and that they have point expectations (degeneracy). We consider economies where agents' beliefs are described by a joint distribution on states and prices, and these beliefs are fulfilled at equilibrium. Beliefs are self-f...

Sometimes the leaders of ethnic minority groups behave in a way that may promote xenophobia. A simple two-subject model is used to find out when this behaviour is rational. The conditions are briefly discussed with reference to the Italian case. An appendix illustrates the definition of xenophobia adopted in the paper. JEL Classification number: D70

We study efficient and individually rational exchange rules for markets with heterogeneous indivisible goods that exclude the possibility that an agent benefits by bundling goods in her endowment. Even if agents’ preferences are additive, no such rule exists. JEL Classification: C71, D63, D71.

In this paper we show that every finite-player game in characteristic function form obeying an innocuous condition (that the set of individually rational pay-off vectors are bounded) possesses a farsighted von-Neumann-Morgenstern stable set. JEL Classification No.: C71, D71.