Figure 3 shows that the optimal volatility of inflation decreases when the elasticity of demand increases (the markup decreases).
Volatility of real output in the model with the variance of the technology shock approximately set to zero is computed.
The average of these regional volatilities of presidential elections is 29.05%, whereas that of the other regions is 16.59%.
Thus, the elimination of volatility may lead to welfare gains and simultaneous effects on mean and excess returns.
These are the excess volatility or learning equilibria of our model.
Several adjustments were made to better accommodate changes in volatility, to arrive at the final scales.
The puts would probably be priced with an increased volatility, hence destroying the interpretation above.
For this reason, for the 1992-96 electoral period we undertook a more detailed examination of volatility at the local level.
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