Crises

Are Financial Crises getting more severe? Bordo et al. investigate. They define two kinds of crises: bank,  currrency, or twin (both)

UPCs

Broda and Weinstein’s new paper on international price differences tells us the source of country price dispersion between US and Canada

They study this via UPCs obtained from AC Neilsen. The first key result is that UPCs sold in BOTH the US cities and Canadian regions follow the LOOP relatively well. The other key result is that common UPCs is quite small. For the US city pairs, the highest pair with w NY-Phili, with only 30% in common. The further the city pairs are to each other, the lower the fraction of common UPCs are: about 15% for LA-NY.

For US-Canada pairs, the slope of the distance-common UPCs line is flat — no matter what the distance is, the range is from 5% to almost 10%.

For Canada pairs, the range is wider (from 33% to 55% common UPCs), and the minimum is much higher than the maximum of the US city pairs.

These results are consistent with higher price variation within the US vs Canada. Broda/Weinstein say that the fact that common UPCs are smaller for cross-border pairs is the key reason why we observe deviations from LOOP in aggregated prices cross border. This is the result of Tesar and Gorodnichenko also, although they don’t know why the variation would be different.

Broda-Weinstein move this debate one step forward — now we know why Canada deviation is different from US variation in prices. Its about what UPCs are sold where. The next question is — why is product variety so different? One guesses that this is about retailers and manufacturers price discriminating via changing the goods characteristics. Examples: eggs can be large, medium and small, come in several pack sizes, free range or not, etc. BW report that fresh eggs have 2,275 possible varieties, while the ‘typical’ group has about 2,700 varieties.

Also, among US cities, the composition of goods is different, and is more different the further away, the more different it is. For Boston-LA, about 2,700 miles, the common UPCs are only 17%, while for Boston-NY, distance of 230 miles, the common UPCs are 24%. What is the source of this non-integration/State-City Bias?

Optimal Stopping

When do you know when to quit? When to buy? This is a hard question, so as first pass, we make some assumptions.

Money has value R that you discount at rate r. The cost of the good is C, and the cost falls at rate (r+w). This is a process innovation that makes producing the good cheaper over time, and, we assume that this savings is passed on to consumers. Clearly, there is a benefit to waiting because cost is falling to zero. A standard method for discounting is exponential discounting, which gives the result that cost is falling faster earlier in time, and slower later in time. Last, the good itself has value S, which the person discounts at rate r, but enjoys from time T to forever (we assume infinitely durable goods for convenience — it won’t affect the conclusions later).

The problem is to decide the value of T, i.e. when to exchange money for the good.

Note that it must be true that S>R, otherwise, the value of the good will forever be less than the value of money. You end up never buying, which means T is infinite.

What is the basic trade-off? At the best T, it must be that waiting longer isn’t worth it. In other words, the benefit of waiting (lower cost) is less than the cost of waiting (which is foregone benefits of owning the good, which is a function of S-R). It must also be true that buying sooner won’t help, coz the cost of buying early (high cost) is far greater than the benefit of owning the good.

So, suppose we decide the value of the best/optimal T according to the rules above. What then is is the effect of a faster rate of cost reduction (a higher w)? This should push you to wait; BUT only when the cost reduction benefits of waiting are huge, which as we’ve determined is when the optimal is small. The process improvement forces you to buy earlier if the optimal T is large.

What helps determine whether optimal T is large or small? The size of (S-R). The larger S-R is, the larger the benefit of buying sooner, coz the gain you get from buying, S, is larger than the value of money, R. The larger S-R is , the lower the optimal T — in this situation, a cost improvement leads to waiting longer.

Finally, lets say there is no secular price declines for this good, w is zero. What then? Pretend you are at time zero, deciding whether to buy. If you delay, you earn a net of R-S+rC, or R-(S-rC). If R>S-rC, you think, if i delay, i get R (money happiness), which is greater than S (good happiness) minus rC (one time cost of buying the good). The opposite holds when R<S-rC.

Funny Globalization — Colbert VS Rain

Last night, was the long awaited dance-off between fake political pundit Colbert and the very real k-pop superstar Rain. There has been alot of downsides to globalization recently, but now here is an incredibly silly but hilarious upside.

Speaking of the dangers of globalization, this comes after as something i was a afraid of — Koreans not ‘getting’ Colbert. But it all ends well, and i’m glad they figured out its all for laughs.

from outinfour.wordpress. posted with vodpod

Sex and the City

NYTimes has a great article on series creator Michael Patrick King.

An interesting excerpt:

Mr. King’s mother is also a practicing Roman Catholic, and his history has left him with a vexed relationship to his own faith. “I’m happiest in an empty church,” he said. “I love the smell of a church.” In the opinion of his closest friend, the novelist Adriana Trigiani (with whom he shares a brownstone in the West Village), his Catholicism is also a constant presence.

“He loves the pageantry and the drama,” Ms. Trigiani said. “He took the structure and holiness of the Mass, and I think it’s informed anything he’s done.” She noted that her friend writes with a sharp eye toward consequence.

Pursuing this meme, if you watch the show, you’ll see how most episodes are built as a parable that conveniently wraps up in less than 30 minutes. This is what i like best about the series. Its also what will surely be lost the movie version. But i’m sure Mr. King knows whats he’s doing.