In this entry we characterize pricing kernels or stochastic discount factors that are used to represent valuation operators in dynamic stochastic economies. A kernel is commonlyused mathematical term used to represent an operator. The term stochastic discount factor extends concepts from economics and finance to include adjustments for risk. As we will see, there is a tight connection between t...

I show that adding an overlapping generations structure to the canonical New Keynesian model can generate optimal inflation rate is significantly positive. In a baseline calibration of model, target comprised between 0.8% and 3.2% in annual terms. this framework, deviations from long-run price stability are because at which firms discount future profit flows naturally differs planner discounts ...

Desharnais, Gupta, Jagadeesan and Panangaden introduced a family of behavioural pseudometrics for probabilistic transition systems. These pseudometrics are a quantitative analogue of probabilistic bisimilarity. Distance zero captures probabilistic bisimilarity. Each pseudometric has a discount factor, a real number in the interval (0, 1]. The smaller the discount factor, the more the future is ...

We analyze an alternating-offer model in which an arbitrator uses the splitthe-difference arbitration rule to determine the outcome if both players’ offers are rejected by the opponents. We find that the usual chilling effect of split-the-difference arbitration only arises when the discount factor is sufficiently large. When the discount factor is sufficiently small, players tend to reach agree...

In general terms, decreasing impatience means decreasing discount rates. This property has been usually referred to as hyperbolic discounting, although there are other discount functions which also exhibit decreasing discount rates. This paper focuses on the measurement of the impatience associated with a discount function with the aim of establishing a methodology to compare this characteristi...

In the repeated Prisoner’s Dilemma, when every player has a different discount factor, the grim-trigger strategy is an equilibrium if and only if the discount factor of each player is higher than some threshold. What happens if the players have incomplete information regarding the discount factors? In this work we look at repeated games in which each player has incomplete information regarding ...