The paper studies the function space of continuous piecewise linear functions in the space of continuous functions on the m-dimensional Euclidean space. It also studies the special case of one dimensional continuous piecewise linear functions. The study is based on the theory of Riesz spaces that has many applications in economics. The work also provides the mathematical background to its sister paper Aliprantis, Harris, and Tourky (2006), in which we estimate multivariate continuous piecewise linear regressions by means of Riesz estimators, that is, by estimators of the the Boolean form

where X=(X1, X2, …, Xm) is some random vector, {Ej}j∈J is a finite family of finite sets.

We consider two kinds of answers to the title question: Do random shifts in monetary policy account for historical recessions, and would changes in the systematic component of monetary policy have allowed reductions in inflation or output variance without substantial costs. The answer to both questions is no. We use weak identifying assumptions and include extensive discussion of these assumptions, including a completely specified dynamic stochastic equilibrium model in which our identifying assumptions can be shown to be approximately satisfied.

Under certain interpretations of its coefficients, a specified econometric model is an exact representation of the “true” model, defining the “objective” probability distribution. This note enumerates these interpretations. In the absence of the conditions implied by these interpretations, the econometric model is misspecified. The note shows that model misspecifications prevent the satisfaction of a necessary and sufficient condition for individual expectations to be rational in Muth's sense. Whereas restrictive forms of econometric models can give very inaccurate predictions, this note describes the conditions under which the predictions generated from time-varying coefficient models coincide with the predictions generated from the relevant economic theory.

In time-series from the United States, the relationship between the money to income ratio and the nominal interest rate is a negative and stable one. In Swedish data, there is no such stable relationship. In this paper, we argue that this difference can be explained by the differences in the shock processes that have hit the two countries. Using a dynamic general equilibrium model driven by shock processes estimated to fit the two countries, we find that we can account for the main properties of the data remarkably well.

S. James Press's many contributions to statistical research, lecturing, mentoring students, the statistics profession, etc., are summarized. Then some new developments in Bayesian analysis are described and remarks on the future of Bayesian analysis are presented.

Sweden has a long and distinguished tradition in economics, beginning with Knut Wicksell and continuing with Gustav Cassel, Eli Heckscher, Erik Lindahl, Gunnar Myrdal, Bertil Ohlin, and Erik Lundberg, all of whom are now gone. Yet, for several of these men, economics was not enough: Wicksell spoke out on moral issues and served time in jail, and Myrdal was for many years a high official at the United Nations and, briefly, a cabinet minister, as was Ohlin, who made his mark at home primarily as leader of the opposition in a country governed mostly by Social Democrats, serving in parliament for 32 years. For Assar Lindbeck, however, economics has been broad enough: he has devoted a long and distinguished career to economics, and to economics alone, with unfailing enthusiasm and energy over half a century. Not that he was not wanted elsewhere: over the years, he has declined challenging job offers from an international organization and a Swedish daily newspaper, to name but two examples, as well as from universities outside Sweden. Assar has managed to harness his varied and wide-ranging talents within the many mansions of economics. He is one of the most versatile economists of his generation. Indeed, he is one of the few who, for clarity, need to divide their bibliography into categories by subject: Macroeconomics and monetary economics, Public economics, Labor economics, International economics, Economic systems and economic structures, Methodology and history of economic thought, and Swedish economy. His work on these different subjects has ranged from pure theory to applied policy-oriented and empirical studies. In addition to the numerous scientific publications listed at the end of this interview, his bibliography includes nearly 200 articles for magazines and newspapers. His ivory tower has always been equipped with a high-speed elevator. But, as he points out in the conversation to follow, all his research work, as well as his journalism, is driven by an overarching interest in bettering economic policy and organization—in other words, boosting economic and social efficiency for the purpose of lifting ordinary people's standard of life. This has been, and remains, a guiding principle—a Leitmotiv, if you prefer—from which he has never swerved. Assar Lindbeck is a towering figure in Swedish economics and in Swedish national life.

This note proposes a general equilibrium model with heterogeneous households and a financial market where each financial instrument provides liquidity services in addition to enabling a transfer of purchasing power over time. Importantly, liquidity services may be asymmetric according to whether the financial instrument is held as an asset or as a liability, and are also agent-specific. The main purpose of the study is to develop an analytical framework and a language for evaluating the effect of (broadly defined) liquidity factors on equilibrium rates of return.

This paper provides a closed-form solution to a standard asset pricing model with habit formation when the growth rate of endowment follows a first-order Gaussian autoregressive process. We determine conditions that guarantee the existence of a stationary bounded equilibrium. The findings are useful because they allow to evaluate the accuracy of various approximation methods to nonlinear rational expectation models. Furthermore, they can be used to perform simulation experiments to study the finite sample properties of various estimation methods.

This study constructs a dynamic model of the coexistence of public and private schools to study the impact of voucher programs when there are nonlinear peer group effects. The government provides public schools as well as tuition vouchers for households attending private schools. School quality depends on expenditure per student and peer quality within the school. When peer quality is nonlinear, more agents will choose public schools if peer quality is more substitutable, whereas more agents will attend private schools if peer quality is more complementary. We find that vouchers will typically create a “cream skimming” effect and the impact of voucher programs on economic performance is sensitive to the way in which peer interactions affect school quality.

Taking Dutta and Kapur's study (Review of Economic Studies 65, 551–572, 1998) as a case of the Tobin effect, this note investigates the extent to which the Tobin effect persists with the addition of sophisticated financial instruments in incomplete markets. On one hand, after dynamic contracts are introduced to the fullest extent, money demand as a precautionary device is crowded out completely, and there is thus no room for the Tobin effect to persist. On the other hand, the Tobin effect may be strengthened under conditions of coexistence of fiat money and dynamic insurance contracts with limited transfers thanks to relaxed incentive compatibility conditions in a moderately inflationary environment.