Ex-ante

Last updated

The term ex-ante (sometimes written ex ante or exante) is a phrase meaning "before the event". [1] Ex-ante or notional demand refers to the desire for goods and services that is not backed by the ability to pay for those goods and services. This is also termed as 'wants of people'. Ex-ante is used most commonly in the commercial world, where results of a particular action, or series of actions, are forecast (or intended). The opposite of ex-ante is ex-post (actual) (or ex post). Buying a lottery ticket loses you money ex ante (in expectation), but if you win, it was the right decision ex post. [2]

Contents

Examples

Finance

The ex-ante (and ex-post) reasoning in economic topics was introduced mainly by Swedish economist Gunnar Myrdal in his 1927–39 work on monetary theory, who described it in this way:

An important distinction exists between prospective and retrospective methods of calculating economic quantities such as incomes, savings, and investments; and [...] a corresponding distinction of great theoretical importance must be drawn between two alternative methods of defining these quantities. Quantities defined in terms of measurements made at the end of the period in question are referred to as ex post; quantities defined in terms of action planned at the beginning of the period in question are referred to as ex ante. [3] )

Focusing attention on the relation between saving and investment, Myrdal argued that one may without any contradiction consider that, as they are made by separate agents, ex ante saving and investment decisions are not at parity in general while ex post saving and investment are recorded in bookkeeping balance exactly:

There is in fact no contradiction at all between the statement of an exact bookkeeping balance ex post and the obvious inference that in a situation when saving is increasing without a corresponding increase of investment, or perhaps with an adverse movement in investment, there must be a tendency ex ante to a disparity. (Gunnar Myrdal, Monetary Equilibrium, London : W. Hodge 1939: 46)

This analysis has become a standard tool in macroeconomics.

Prices are quantities that directly refer to a point of time: they are determined at a point of time, after an ex ante adjustment process has taken place. As for the macroeconomic quantities, Myrdal proposed to refer to the point of time at which they are calculated.

Gunnar Myrdal further explained that ex ante disparity and ex post balance are made consistent through price changes, which result from the behavior of economic agents, which is based on ex ante anticipations:

For these anticipations determine the behaviour of the economic subjects and consequently those changes in the whole price system which during a period actually occur as a result of the actions of individuals. (Gunnar Myrdal,Monetary Equilibrium, London : W. Hodge 1939: 121)

In context of ex-ante, the Swedish economist Myrdal also dealt with the question of the unit of time, which he proposed to solve by reducing the actual time-dimension of macroeconomic variables such as income, saving and investment to a point of time:

Some of these quantities refer directly to a point of time. That is true of "capital value" as also of such quantities as demand and supply prices. Other terms – as e.g. "income", "revenue", "return", "expenses", "savings", "investments" – imply, however, a time period for which they are reckoned. But in order to be unambiguous they must also refer to a point of time at which they are calculated. (Gunnar Myrdal, Monetary Equilibrium, London : W. Hodge 1939: 46–7)

Economist G. L. S. Shackle claimed the importance of Gunnar Myrdal´s analysis by which saving and investment are allowed to adjust ex ante to each other. However, the reference to ex ante and ex post analysis has become so usual in modern macroeconomics that the position of John Maynard Keynes to not include it in his work was currently considered as an oddity, if not a mistake. As Shackle put it:

Myrdalian ex ante language would have saved the General Theory from describing the flow of investment and the flow of saving as identically, tautologically equal, and within the same discourse, treating their equality as a condition which may, or not, be fulfilled. (Shackle, G.L.S. (1989) "What did the General Theory do?", in J. Pheby (ed), New Directions in Post-keynesian Economics, Aldershot: Edward Elgar.)

European Union law

In European Union law, ex ante regulation is a type of regulation that is designed to prevent companies engaging in harmful conduct. It is usually used in sectors where there is a anti-competitive behavior. For example, such regulations are used in the telecommunications sector as well as in relation to data protection (the General Data Protection Regulation is an ex-ante regulation)

See also

Related Research Articles

Keynesian economics are the various macroeconomic theories and models of how aggregate demand strongly influences economic output and inflation. In the Keynesian view, aggregate demand does not necessarily equal the productive capacity of the economy. It is influenced by a host of factors that sometimes behave erratically and impact production, employment, and inflation.

<span class="mw-page-title-main">Microeconomics</span> Behavior of individuals and firms

Microeconomics is a branch of economics that studies the behavior of individuals and firms in making decisions regarding the allocation of scarce resources and the interactions among these individuals and firms. Microeconomics focuses on the study of individual markets, sectors, or industries as opposed to the national economy as a whole, which is studied in macroeconomics.

<span class="mw-page-title-main">Macroeconomics</span> Study of an economy as a whole

Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/GDP and national income, unemployment, price indices and inflation, consumption, saving, investment, energy, international trade, and international finance.

In economics, general equilibrium theory attempts to explain the behavior of supply, demand, and prices in a whole economy with several or many interacting markets, by seeking to prove that the interaction of demand and supply will result in an overall general equilibrium. General equilibrium theory contrasts with the theory of partial equilibrium, which analyzes a specific part of an economy while its other factors are held constant. In general equilibrium, constant influences are considered to be noneconomic, or in other words, considered to be beyond the scope of economic analysis. The noneconomic influences may change given changes in the economic factors however, and therefore the prediction accuracy of an equilibrium model may depend on the independence of the economic factors from noneconomic ones.

<span class="mw-page-title-main">IS–LM model</span> Macroeconomic model relating interest rates and asset market

The IS–LM model, or Hicks–Hansen model, is a two-dimensional macroeconomic model which is used as a pedagogical tool in macroeconomic teaching. The IS–LM model shows the relationship between interest rates and output in the short run in a closed economy. The intersection of the "investment–saving" (IS) and "liquidity preference–money supply" (LM) curves illustrates a "general equilibrium" where supposed simultaneous equilibria occur in both the goods and the money markets. The IS–LM model shows the importance of various demand shocks on output and consequently offers an explanation of changes in national income in the short run when prices are fixed or sticky. Hence, the model can be used as a tool to suggest potential levels for appropriate stabilisation policies. It is also used as a building block for the demand side of the economy in more comprehensive models like the AD–AS model.

<span class="mw-page-title-main">Nicholas Kaldor</span> Hungarian-British economist

Nicholas Kaldor, Baron Kaldor, born Káldor Miklós, was a Hungarian economist. He developed the "compensation" criteria called Kaldor–Hicks efficiency for welfare comparisons (1939), derived the cobweb model, and argued for certain regularities observable in economic growth, which are called Kaldor's growth laws. Kaldor worked alongside Gunnar Myrdal to develop the key concept Circular Cumulative Causation, a multicausal approach where the core variables and their linkages are delineated.

<span class="mw-page-title-main">Stockholm School (economics)</span> School of economic thought (1930s)

The Stockholm School is a school of economic thought. It refers to a loosely organized group of Swedish economists that worked together, in Stockholm, Sweden primarily in the 1930s.

<i>The General Theory of Employment, Interest and Money</i> 1936 book by John Maynard Keynes

The General Theory of Employment, Interest and Money is a book by English economist John Maynard Keynes published in February 1936. It caused a profound shift in economic thought, giving macroeconomics a central place in economic theory and contributing much of its terminology – the "Keynesian Revolution". It had equally powerful consequences in economic policy, being interpreted as providing theoretical support for government spending in general, and for budgetary deficits, monetary intervention and counter-cyclical policies in particular. It is pervaded with an air of mistrust for the rationality of free-market decision making.

<span class="mw-page-title-main">Gunnar Myrdal</span> Swedish economist and sociologist (1898–1987)

Karl Gunnar Myrdal was a Swedish economist and sociologist.

A macroeconomic model is an analytical tool designed to describe the operation of the problems of economy of a country or a region. These models are usually designed to examine the comparative statics and dynamics of aggregate quantities such as the total amount of goods and services produced, total income earned, the level of employment of productive resources, and the level of prices.

<span class="mw-page-title-main">Knut Wicksell</span> Swedish economist (1851–1926)

Johan Gustaf Knut Wicksell was a Swedish economist of the Stockholm school. His economic contributions would influence both the Keynesian and Austrian schools of economic thought. He was married to the noted feminist Anna Bugge.

Monetary disequilibrium theory is a product of the monetarist school and is mainly represented in the works of Leland Yeager and Austrian macroeconomics. The basic concepts of monetary equilibrium and disequilibrium were, however, defined in terms of an individual's demand for cash balance by Mises (1912) in his Theory of Money and Credit.

In economics, the long-run is a theoretical concept in which all markets are in equilibrium, and all prices and quantities have fully adjusted and are in equilibrium. The long-run contrasts with the short-run, in which there are some constraints and markets are not fully in equilibrium. More specifically, in microeconomics there are no fixed factors of production in the long-run, and there is enough time for adjustment so that there are no constraints preventing changing the output level by changing the capital stock or by entering or leaving an industry. This contrasts with the short-run, where some factors are variable and others are fixed, constraining entry or exit from an industry. In macroeconomics, the long-run is the period when the general price level, contractual wage rates, and expectations adjust fully to the state of the economy, in contrast to the short-run when these variables may not fully adjust.

George Lennox Sharman Shackle was an English economist. He made a practical attempt to challenge classical rational choice theory and has been characterised as a "post-Keynesian", though he is influenced as well by Austrian economics. Much of his work is associated with the Dempster–Shafer theory of evidence.

Dynamic stochastic general equilibrium modeling is a macroeconomic method which is often employed by monetary and fiscal authorities for policy analysis, explaining historical time-series data, as well as future forecasting purposes. DSGE econometric modelling applies general equilibrium theory and microeconomic principles in a tractable manner to postulate economic phenomena, such as economic growth and business cycles, as well as policy effects and market shocks.

The neoclassical synthesis (NCS), neoclassical–Keynesian synthesis, or just neo-Keynesianism was a neoclassical economics academic movement and paradigm in economics that worked towards reconciling the macroeconomic thought of John Maynard Keynes in his book The General Theory of Employment, Interest and Money (1936). It was formulated most notably by John Hicks (1937), Franco Modigliani (1944), and Paul Samuelson (1948), who dominated economics in the post-war period and formed the mainstream of macroeconomic thought in the 1950s, 60s, and 70s.

In economics, the loanable funds doctrine is a theory of the market interest rate. According to this approach, the interest rate is determined by the demand for and supply of loanable funds. The term loanable funds includes all forms of credit, such as loans, bonds, or savings deposits.

<span class="mw-page-title-main">History of macroeconomic thought</span>

Macroeconomic theory has its origins in the study of business cycles and monetary theory. In general, early theorists believed monetary factors could not affect real factors such as real output. John Maynard Keynes attacked some of these "classical" theories and produced a general theory that described the whole economy in terms of aggregates rather than individual, microeconomic parts. Attempting to explain unemployment and recessions, he noticed the tendency for people and businesses to hoard cash and avoid investment during a recession. He argued that this invalidated the assumptions of classical economists who thought that markets always clear, leaving no surplus of goods and no willing labor left idle.

Robert Wayne Clower was an American economist. He is credited with having largely created the field of stock-flow analysis in economics and with seminal works on the micro-foundations of monetary theory and macroeconomics.

Circular cumulative causation is a theory developed by Swedish economist Gunnar Myrdal who applied it systematically for the first time in 1944. It is a multi-causal approach where the core variables and their linkages are delineated. The idea behind it is that a change in one form of an institution will lead to successive changes in other institutions. These changes are circular in that they continue in a cycle, many times in a negative way, in which there is no end, and cumulative in that they persist in each round. The change does not occur all at once as that would lead to chaos, rather the changes occur gradually.

References

  1. ↑ Dictionary.com. "ex ante". Dictionary.com. Retrieved September 18, 2007.
  2. ↑ Conceptually.org. "What is ex ante and ex post thinking?". Conceptually.org. Retrieved October 23, 2018.
  3. ↑ Gunnar Myrdal, Monetary Equilibrium, London \: W. Hodge 1939: 46–7)\
This page is based on this Wikipedia article
Text is available under the CC BY-SA 4.0 license; additional terms may apply.
Images, videos and audio are available under their respective licenses.