arXiv subjects

Nigar Hashimzade

Publications and source records attributed to Nigar Hashimzade.

6 recordsLinked to original sources

arXiv2026

Industrial Policy with Network Externalities: Race to the Bottom vs. Win-Win Outcome

Industrial policy has returned to the centre of economic governance, particularly in the high-tech sectors where positive network externalities in demand make market dominance self-reinforcing. This paper studies the welfare effects of an industrial policy targeting a sector with network externalities in a two-country model with strategic trade and R&D investment. We show how the welfare consequences of this policy are determined by the interaction between the strength of the externality, the type of R&D, and the degree of product differentiation between the home and the imported goods. When externalities are weak or the goods are close substitutes, the business-stealing effect produces a race to the bottom that dissipates more surplus than it creates. Under sufficiently strong externalities and weak substitutability or complementarity of the goods, industrial policy competition can make both countries simultaneously better off compared to the laissez-faire outcome because of the mutual business-enhancement effect. The case is stronger for the product innovation than for the process innovation, as the former directly affects the demand and triggers a stronger network effects than the latter which operates indirectly through the supply. Thus, the network externalities create an opportunity for a win-win industrial policies, but its realisation depends on the market structure and the nature of innovation.

econ.TH↗

arXiv2025

Green Transition with Dynamic Social Preferences

We examine a green transition policy involving a tax on brown goods in an economy where preferences for green consumption consist of a constant intrinsic individual component and an evolving social component. We analyse equilibrium dynamics when social preferences exert a positive externality in green consumption, creating complementarity between policy and preferences. The results show that accounting for this externality allows for a lower tax rate compared to policy ignoring the social norm effects. Furthermore, stability conditions permit gradual tax reductions or even removal along the transition path, minimising welfare losses. Thus, incorporating policy-preference interactions improves green transition policy design.

econ.TH↗

arXiv2024

Green antitrust conundrum: Collusion with social goals

Recent antitrust regulations in several countries have granted exemptions for collusion aimed at achieving environmental goals. Firms can apply for exemptions if collusion helps to develop or to implement costly clean technology, particularly in sectors like renewable energy, where capital costs are high and economies of scale are significant. However, if the cost of the green transition is unknown to the competition regulator, firms might exploit the exemption by fixing prices higher than necessary. The regulator faces the decision of whether to permit collusion and whether to commission an investigation of potential price fixing, which incurs costs. We fully characterise the equilibria in this scenario that depend on the regulator's belief about the high cost of green transition. If the belief is high enough, collusion will be allowed. We also identify conditions under which a regulator's commitment to always investigate price fixing is preferable to making discretionary decisions.

econ.TH↗

arXiv2024

On Bayesian Filtering for Markov Regime Switching Models

This paper presents a framework for empirical analysis of dynamic macroeconomic models using Bayesian filtering, with a specific focus on the state-space formulation of Dynamic Stochastic General Equilibrium (DSGE) models with multiple regimes. We outline the theoretical foundations of model estimation, provide the details of two families of powerful multiple-regime filters, IMM and GPB, and construct corresponding multiple-regime smoothers. A simulation exercise, based on a prototypical New Keynesian DSGE model, is used to demonstrate the computational robustness of the proposed filters and smoothers and evaluate their accuracy and speed for a selection of filters from each family. We show that the canonical IMM filter is faster and is no less, and often more, accurate than its competitors within IMM and GPB families, the latter including the commonly used Kim and Nelson (1999) filter. Using it with the matching smoother improves the precision in recovering unobserved variables by about 25 percent. Furthermore, applying it to the U.S. 1947-2023 macroeconomic time series, we successfully identify significant past policy shifts including those related to the post-Covid-19 period. Our results demonstrate the practical applicability and potential of the proposed routines in macroeconomic analysis.

econ.EM↗

arXiv2021

Fiscal policy and inequality in a model with endogenous positional concerns

We investigate the dynamics of wealth inequality in an economy where households have positional preferences, with the strength of the positional concern determined endogenously by inequality of wealth distribution in the society. We demonstrate that in the long run such an economy converges to a unique egalitarian steady-state equilibrium, with all households holding equal positive wealth, when the initial inequality is sufficiently low. Otherwise, the steady state is characterised by polarisation of households into rich, who own all the wealth, and poor, whose wealth is zero. A fiscal policy with government consumption funded by taxes on labour income and wealth can move the economy from any initial state towards an egalitarian equilibrium with a higher aggregate wealth.

econ.TH↗

arXiv2018

On the solution of the variational optimisation in the rational inattention framework

I analyse the solution method for the variational optimisation problem in the rational inattention framework proposed by Christopher A. Sims. The solution, in general, does not exist, although it may exist in exceptional cases. I show that the solution does not exist for the quadratic and the logarithmic objective functions analysed by Sims (2003, 2006). For a linear-quadratic objective function a solution can be constructed under restrictions on all but one of its parameters. This approach is, therefore, unlikely to be applicable to a wider set of economic models.

econ.EM↗