The price stability goal and the nominal anchor
-price stability: low and stable inflation; high inflation = lower economic growth; creates uncertainty
1. The role of a nominal anchor
-a nominal variable such as inflation rate or the money supply ties down price level to achieve price stability; adherence to nominal anchor promotes low inflation
-limits time-inconsistency problem
2. The time-inconsistency problem
-tempted to pursue discretionary monetary policy that is more expansionary than expected becauses boost economic output in the short run
-best policy is not to purue expansionary policy because decisions about wages and prices relect workers' and firms' expectations about policy; when they see an expansionary policy, they expect inflation driving wages and prices up --> higher inflation but not higher output
-best policy is to keep inflation under control
-nominal anchor is a behavior rule; prevent the time-inconsistency problem in monetary policy by providing an expected constraint on discretionary policy.;
Other goals of monetary policy
1. Higher employment: the alternative situation: high unemployment causes misery; high ue = idle workers and resources = loss of output
-frictional ue: searches to find suitable matchups; beneficial to economy
-structural ue: mismatch between job requirements and skills or availability of local workers; undesirable
-natural rate of ue: demand for labor equals the supply of labor
2. Economic growth
-related to high employment;encouraging firms to invest or encouraging people to save
-supply-side economics polcies: intended to spur economic growth by tax incentives for businesses to invest and for taxpayers to save.
3. Stability of financial markets
4. Interest rate stability
-fluct can create uncertainty
-reduce upward movements: generate hostility toward central banks and lead to demands that their power be curtailed
-increase in interest rate: large capital losses on long-term bonds and mortgages
5. Stability in foreign exchange markets
-rise in value eof dollar makes american industries less competitive; declines in value stimulate inflation in us.
Should price stability be the primary goal of monetary policy?
1. in long-run, no trade-off between price stability and other goals
-short run price stability conflicts with goals of high employment and interest-rate stability
2. Hierachical vs. dual mandates
-hierachical mandates: primary goal is price stability then other goals
dual mandate: price stability and max employment
-price stability should be the primary, long-run goal of monetary policy
Monetary targeting
1. central bank announces certain vaule of annual growth rate of a monetary agggregate such as 5% growth rate of M1 or 6% growth rate of m2.
2. US: kept missing target
-shocks that made monetary aggregates control difficult
-smokescreen: free to manipulate interest rates to dampen inflation; won't be blame for high interest rates
no longer use monetary aggregates as guide for monetary policy
3. Germany: success
-focus on narrow monetary aggregate called central bank money: sum of currency in circulation and bank deposits
-more transparent to the public; not rigid; more accountable
4. Advantages of monetary targetiing
-info on whether central bank is achieving its target is known immediately; fix inflation expectations and produce less inflation
-allow immediate accountability for monetary policy to keep inflation low --> help precent from falling into the time-inconsistency trap
5. Disadvantage sof monetary targeting
-there must be strong and reliable relationship between goal variable (inflation or nominal income) and the targeted monetary aggregate
Inflation targeting
1. public announcement of medium-term numerical targets for inflation;
-an institutional commitment to price stability as the primary, long-run goal of monetary policy and a commitment to achieve the inflation goal;
-an information-inclusive approach in which many variables (not just monetary aggregates) are used in making decisions about monetary policy;
-increased transpareny of monetary policy strategy through communication with the public and the markets about the plans and objectives of monetary policymakers;
-increased accountability of the central bank for attaining its inflation objectives
2. New Zealand was first to adoptt inflation targeting
3. Canada: inflation dropped but ue soared
4. UK: inflation fell and there was growth and reduction in ue
Advantages of inflation targeting
1. does not rely on relationship of money and inflation
2. can use all information and not just one variable
3. understood by public and highly transparent
4. increase accountability of central bank; prevent time-inconsistency trap
Disadvantages
1. delayed signaling; too much rigidity; potential for increased output fluctuations; and low economic growth
2. delayed signaling: inflation not easily controlled; unable to send immediate signals to public
3. too much rigidity: limits ability to respond to unforseen circumstances
-flexible inflation targeting in practice
4. potential for increased output fluctuations: does not require sole focus on inflation
-choose inflation targets above 0 to prevent deflation; concerned about output and ue too.
Tuesday, December 11, 2007
Chapter 15: Tools of Monetary Policy
The market for resesrves and the federal funds rate
Supply and Demand in the market for reserves
1. Demand curve: quantity of excess reserves demanded = required reserves + quantity of excess reserves demanded
-excess reserves are insurance against deposit outflow and the cost of holding er is the interest rate that could have been earned on lending it out which is the federal funds rate.
-fund funds rate decreases --> cost of holding er falls --> quan of reserves rises
2. Supply curve:
-two components: amount of reserves supplied by fed's open market operations called nonborrowed reserves; and the amount of reserves borrowed from the fed, the borrowed reserves
-cost of borrowing from fed is the interest rate fed charges on these loans, the discount rate (id)
-bowworing from other banks at the fed funds rate; as long as iff is less than id, banks will not borrow from fed; vertical line until id
How changes in the tools of monetary policy affect the federal funds rate
1. open market operations: an open market purchase causes the fed funds rate to fall, whereas an open market sale causes the fed funds rate to rise
-open market purchase leads to greater quan of reservess supplied; shirts the sc to the right
2. discount lending: effect depends on whether dc intersects the supply curve in its vertical section or flat section
-when intersect at vertical section - most changes int eh discount rate have no effect on the fed runds rate
-intersect at flat section; some discount lending; iff moves with id
3. reserve requirements: when required reserve ratio increases, quan of resreves demanded increases for any given interest rate --> shift demand curve to the right --> raises the fed funds rate
-when the fed raises reserve requirements, the fed funds rate rises
Open market operations (t-bills)
-most useful monetary policy tool; primary determinants of changes in interest rates and monetary base --> change in money supply
-open market purchases expand reserves and monetary base and money supply lowering short-term interest rates
-open market sales shrink reserves and monetary base decreasing money supply and increasing short-term interest rates.
-two types of open market operations: dynamic open market operations: change the level of reserves and monetary base
-defensive omo: offset movements in other factors that affect reserves and the monetary base
-repurchase agreement: fed purchases securities with an agreement that the seller will repurchase them; temp open market purchase
-matched sale-purchase transaction (reverse repo): temp open market sale; fed sells securities and buyer agrees to sell them back to fed
Advantages of open market operations
1. fed has complete control over it
2. flexible, precise and used to any extent
3. easily reversed
4. implemented quickly; no administrative delays
Operation of the discount window
1. three types of discount loans:
a. primary credit: most important; healthy banks allowed to borrow all they want for short maturities --> standing lending facility
-lent at discountr ate which is 100 basis points (1%) higher than fed funds rate
b. secondary credit: banks taht are in financial trouble and experiencing severe liquidity problems
-interest set at 50 basis points above the discount rate
c. seasonal credit: small banks in vacation and agricultural areas that ahve seasonal pattern of deposits
-interest rate is average of fed funds rate and certificate of deposit rates
Lender of last resort
1. fed as lender of last resort to prevent bank panics
2. moral hazard problems
Advantages and disadvantages of discount policy
1. ad: lender of last resort
2. dis: decisions to take out discount loans are made by banks and are not controlled by the fed
Reserve requirements
-affect money supply by changing money supply multiplier
-rise in reserve requirements reduces the amount of deposits that can be supported by level of monetary base and lead to contraction of ms.
-rise in rr also increases the demand for reserves and raises the fed funds rate
1. disadvantages of reserve requirements
-no longer binding for most banks
-raising requirements can cause immediate liquidity problems for banks where reserve requirements are binding; create more uncertainty for banks
Application: Why have reserve requirements been declining worldwide?
-makes banks less competitive
ApplicationThe channel/corridor system for setting interest rates used in other countries
-central banks ets up a standing lending facility; commonly called a lombard facility; interest rate charged is called lombard rate
-overnight interest rate is always between ir and il
Monetary policy tools of the european central bank
1. set target financing rate which sets target for overnight cash rate
2. Open market operations: main refinancing operations are predominant form of open market operations and are similar to the fed's repo; they involve weekly reverse transactions
-longer-term refnancing operations: similar to fed's outright purchases or sales
3. lending to banks: marginal lending facility; borrow overnight loans from national central banks at the marginal lending rate which is 100 basis points above target financing rate; similar to discount rate; ceiling
-deposit facility: banks are paid fixed interest rate that is 100 basis points below target financing rate; floor for overnight market interest rate
4. Reserve requirements: pays interest on required reserves
Supply and Demand in the market for reserves
1. Demand curve: quantity of excess reserves demanded = required reserves + quantity of excess reserves demanded
-excess reserves are insurance against deposit outflow and the cost of holding er is the interest rate that could have been earned on lending it out which is the federal funds rate.
-fund funds rate decreases --> cost of holding er falls --> quan of reserves rises
2. Supply curve:
-two components: amount of reserves supplied by fed's open market operations called nonborrowed reserves; and the amount of reserves borrowed from the fed, the borrowed reserves
-cost of borrowing from fed is the interest rate fed charges on these loans, the discount rate (id)
-bowworing from other banks at the fed funds rate; as long as iff is less than id, banks will not borrow from fed; vertical line until id
How changes in the tools of monetary policy affect the federal funds rate
1. open market operations: an open market purchase causes the fed funds rate to fall, whereas an open market sale causes the fed funds rate to rise
-open market purchase leads to greater quan of reservess supplied; shirts the sc to the right
2. discount lending: effect depends on whether dc intersects the supply curve in its vertical section or flat section
-when intersect at vertical section - most changes int eh discount rate have no effect on the fed runds rate
-intersect at flat section; some discount lending; iff moves with id
3. reserve requirements: when required reserve ratio increases, quan of resreves demanded increases for any given interest rate --> shift demand curve to the right --> raises the fed funds rate
-when the fed raises reserve requirements, the fed funds rate rises
Open market operations (t-bills)
-most useful monetary policy tool; primary determinants of changes in interest rates and monetary base --> change in money supply
-open market purchases expand reserves and monetary base and money supply lowering short-term interest rates
-open market sales shrink reserves and monetary base decreasing money supply and increasing short-term interest rates.
-two types of open market operations: dynamic open market operations: change the level of reserves and monetary base
-defensive omo: offset movements in other factors that affect reserves and the monetary base
-repurchase agreement: fed purchases securities with an agreement that the seller will repurchase them; temp open market purchase
-matched sale-purchase transaction (reverse repo): temp open market sale; fed sells securities and buyer agrees to sell them back to fed
Advantages of open market operations
1. fed has complete control over it
2. flexible, precise and used to any extent
3. easily reversed
4. implemented quickly; no administrative delays
Operation of the discount window
1. three types of discount loans:
a. primary credit: most important; healthy banks allowed to borrow all they want for short maturities --> standing lending facility
-lent at discountr ate which is 100 basis points (1%) higher than fed funds rate
b. secondary credit: banks taht are in financial trouble and experiencing severe liquidity problems
-interest set at 50 basis points above the discount rate
c. seasonal credit: small banks in vacation and agricultural areas that ahve seasonal pattern of deposits
-interest rate is average of fed funds rate and certificate of deposit rates
Lender of last resort
1. fed as lender of last resort to prevent bank panics
2. moral hazard problems
Advantages and disadvantages of discount policy
1. ad: lender of last resort
2. dis: decisions to take out discount loans are made by banks and are not controlled by the fed
Reserve requirements
-affect money supply by changing money supply multiplier
-rise in reserve requirements reduces the amount of deposits that can be supported by level of monetary base and lead to contraction of ms.
-rise in rr also increases the demand for reserves and raises the fed funds rate
1. disadvantages of reserve requirements
-no longer binding for most banks
-raising requirements can cause immediate liquidity problems for banks where reserve requirements are binding; create more uncertainty for banks
Application: Why have reserve requirements been declining worldwide?
-makes banks less competitive
ApplicationThe channel/corridor system for setting interest rates used in other countries
-central banks ets up a standing lending facility; commonly called a lombard facility; interest rate charged is called lombard rate
-overnight interest rate is always between ir and il
Monetary policy tools of the european central bank
1. set target financing rate which sets target for overnight cash rate
2. Open market operations: main refinancing operations are predominant form of open market operations and are similar to the fed's repo; they involve weekly reverse transactions
-longer-term refnancing operations: similar to fed's outright purchases or sales
3. lending to banks: marginal lending facility; borrow overnight loans from national central banks at the marginal lending rate which is 100 basis points above target financing rate; similar to discount rate; ceiling
-deposit facility: banks are paid fixed interest rate that is 100 basis points below target financing rate; floor for overnight market interest rate
4. Reserve requirements: pays interest on required reserves
Monday, December 10, 2007
Chapter 14: Determinants of the Money Supply
The money supply model and the money multiplier
1. fed can control monetary base better than reserves: money supply = money multiplier X monetary base
2. desired level of currency and excess reserves grow proportionally with checkable deposits
-currency ratio = currency/deposit
-excess reserves ratio = excess reserves/deposits
-total reserves = required reserves + excess reserves
-required reserves = required reserve ratio X deposits
-R=(rXD) + ER
-MB = R + C = (rXD) + ER + C ; the amount of monetary base needed to support the existing amounts of checkable deposits, currency, and excess reserves
-an increase in the monetary base that goes into currency is not multiplied, whereas an increase that goes into supporting deposits is multiplied
-MB = (r X D) + (e X D) + (c X D) = (r + e + c) X D ; D = [1/(r + e +c) ] X MB
-M = [(1+c)/(r+c+e)] X MB ; currency ratio set by depositors, excess reserves ratio set by banks, and required reserve ratio set by Fed
-money multiplier is less than teh simple deposit multiplier; although there is multiple expansion deposits, there is no such expansion for currency
Factors that determine the money multiplier
1. the money multiplier and money supply are negatively related to the required reserve ratio
2. the money multiplier and money supply are negatively related to the currency ratio
3. negatively related to the excess reserves ratio
4. banking system's excess reserves ratio is negatively related to the market interest rate; as market interest rate increases, the expected return on loans and securities rises relative to the zero return on excess reserves and the excess reserves ratio falls
5. excess reserves ratio is positively related to expectedd deposit outflows
Additional factors that determine money supply
1. monetary base into two components: one that the Fed can control and one that it can't
-less tightly controlled is the amount of the base that is created by discount loans (borrowed reserves)
- the tightly controlled is the nonborrowed monetary base which results from open market operations
-(nonborrowed monetary base) = (monetary base) + (borrowed reserves from the Fed
-M = m X (MBn + BR)
-money supply is positively related to the nonborrowed monetary base
-money supply is positively related to the level of borrowed reserves fromt eh fed
Application: movements in money supply
1. over long periods, the primary determinant of movements in the money supply is the nonborrowed monetary base which controlled by fed open market operations
Application: bank panics
1. cause substantial reduction in the money supply by increasing in c and e.
1. fed can control monetary base better than reserves: money supply = money multiplier X monetary base
2. desired level of currency and excess reserves grow proportionally with checkable deposits
-currency ratio = currency/deposit
-excess reserves ratio = excess reserves/deposits
-total reserves = required reserves + excess reserves
-required reserves = required reserve ratio X deposits
-R=(rXD) + ER
-MB = R + C = (rXD) + ER + C ; the amount of monetary base needed to support the existing amounts of checkable deposits, currency, and excess reserves
-an increase in the monetary base that goes into currency is not multiplied, whereas an increase that goes into supporting deposits is multiplied
-MB = (r X D) + (e X D) + (c X D) = (r + e + c) X D ; D = [1/(r + e +c) ] X MB
-M = [(1+c)/(r+c+e)] X MB ; currency ratio set by depositors, excess reserves ratio set by banks, and required reserve ratio set by Fed
-money multiplier is less than teh simple deposit multiplier; although there is multiple expansion deposits, there is no such expansion for currency
Factors that determine the money multiplier
1. the money multiplier and money supply are negatively related to the required reserve ratio
2. the money multiplier and money supply are negatively related to the currency ratio
3. negatively related to the excess reserves ratio
4. banking system's excess reserves ratio is negatively related to the market interest rate; as market interest rate increases, the expected return on loans and securities rises relative to the zero return on excess reserves and the excess reserves ratio falls
5. excess reserves ratio is positively related to expectedd deposit outflows
Additional factors that determine money supply
1. monetary base into two components: one that the Fed can control and one that it can't
-less tightly controlled is the amount of the base that is created by discount loans (borrowed reserves)
- the tightly controlled is the nonborrowed monetary base which results from open market operations
-(nonborrowed monetary base) = (monetary base) + (borrowed reserves from the Fed
-M = m X (MBn + BR)
-money supply is positively related to the nonborrowed monetary base
-money supply is positively related to the level of borrowed reserves fromt eh fed
Application: movements in money supply
1. over long periods, the primary determinant of movements in the money supply is the nonborrowed monetary base which controlled by fed open market operations
Application: bank panics
1. cause substantial reduction in the money supply by increasing in c and e.
Chapter 13: Multiple Deposit Creation and the Money Supply Process
Multiple deposit creation: a simple model
1. when fed supplies banking system with $1 of additional reserves, deposits increase by a multiple of this amount
Deposit creation: The banking system
1. A bank cannot safely make loans for an amount greater than the excess reserves it has before it makes the loan
2. whether a bank chooses to use its excess reserves to make loans or to purchase securities, the effect on deposit expansion is the same
3. multiple increase in deposits generated from an increase in the banking system's reserves is called the simple deposit multiplier: (change in checkable deposits in the banking system) = (required reserve ratio)(change in reserves for the banking system)
4. Critique: fed has no complete control over the level of checkable deposits
1. when fed supplies banking system with $1 of additional reserves, deposits increase by a multiple of this amount
Deposit creation: The banking system
1. A bank cannot safely make loans for an amount greater than the excess reserves it has before it makes the loan
2. whether a bank chooses to use its excess reserves to make loans or to purchase securities, the effect on deposit expansion is the same
3. multiple increase in deposits generated from an increase in the banking system's reserves is called the simple deposit multiplier: (change in checkable deposits in the banking system) = (required reserve ratio)(change in reserves for the banking system)
4. Critique: fed has no complete control over the level of checkable deposits
Chapter 12: Structure of Central Banks and the Federal Reserve System
Structure of the Federal Reserve System
1. Diffusion of power: the Fed Reserve banks, Board of Governors of the Federal Reserve System, Federal Open Market Comittee (FOMC), Fed Advisory Council and member commercial banks.
2. Federal Reserve Banks: for 12 district; largest are New York, Chicago, and SF
-quasi-public (part private, part government)
-each with nine directors who appoint president and other officers of the FRB
-The twleve Fed Reserve banks perform the following functions:
a. clear checks, issue new currency, withdraw damaged currency, administer and make discount loans to banks, evaluate mergers, liaisons between the business communitry and FRS, examine bank holding companies and state-chartered member banks, collect data, use staffs of prof economists to research topics related to monetary policy.
-Involved in monetary policy:
a. establish discount rate; which banks can obtain discount loans; directors select banker to serve on Fed Advisory Council; 5 of 12 presidents have vote in the FOMC
3. Special role of the FRB of NY
-contains many large banks in the US; bond and foreign exchange markets; only FRB to be a member of the Bank for International Settlements (BIS); president is the only permanent member of FOMC serving as vice-chairman of the committee.
Member Banks
1. all national banks are members of Fed Reserve System; required all banks to have required reserves; all banks can borrow from fed
Board of Governors of the Fed Reserve System
1. seven members, including the chairman, appointed by the president of the US and confirmed by the Senate
2. head of the fed; monetary policy; FOMC; set reserve requirements; control discount rate; mergers; bank holding companies; supervises the activities of foreign banks in US
Federal Open Market Committee
1. influence money supply and interest rates
2. open market operations
The FOMC Meeting, Why the Chairman of the Board of Governors Really Runs the Show
How Independent is the Fed?
1. instrument iindependence: the ability of the central bank to set monetary policy instruments
2. Goal independence: the ability of central bank to set the goals of monetary policy
3. The fed has both types of independence
4. factor that contribue to independence: income from Fed
5. Congress can change fed structure; president can appoint governors
Structure and Independence of the European Central Bank
1. conducts monetary policy for countries that are members of the European Monetary Union
2. The central banks for each country has similar role to that of the Federal Reserve Banks
Differences Between the European System of Central Banks and the Federal Reserve System
1. budgets of fed controlled by board of governors, while national central banks control their own budgets and the budget of the ECB in Frankfurt; ECB has less power than does the BoG
2. monetary operations of teh ECB are conducted by the NCB in each country so monetary operations are not centralized as Fed.
3. ECB not involved in supervision and regulation of financial institutions
Governing Council
1. concensus but no votes; fed releases statement of fomc; ECB have news conference
How independent is the ECB?
1. most independent central bank in the world; long-term goal is price stability
2. ecb's charter cannot be changed by legislation
Structure and independence of other foreign central banks
1. Bank of Canada
-gave monetary policy to the government; on paper, BoC is not as instrument-independent as the fed.; in practice, does control monetary policy
-goal for monetary policy, a target for inflation, is set jointly by the bank of canada an the government so the bank of canada has less goal independence than the fed.
2. Bank of England
-least independent of the central banks because the decision to raise or lower interest rates is controlled by the chancellor
-makes it monetary policy independently from the ECB.
-inflation target is set by chancellor so less goal-independent than fed
3. Bank of Japan
-price stability, granted greater instrument and goal independence
-Ministry of Finance has control over budget --> limit independence
4. The trend toward greater independence
-greater independence produce better monetary policy
Explaining central bank behavior
1. factor affecting central bank behavior is its attempt to increase its power and prestige
2. fed maintain autonomy; avoid conflict with powerful groups
3. hide actions from public and politicians to avoid conflicts with them
Should the fed be independent?
1. favor
-inflationary bias to monetary policy; politicians are short-sighted; politically insulated fed is more likely to be concerned with long-run objectives
-political business cycle: just before election, expansionary policies are pursued to lower unemployment and interest rates.
2. against
-undemocratic to have monetary policy controlled by elite troup that is responsible to no one.; lack of accountability; only by placing monetary policy under the control of politicians who also control fiscal policy can these two policies be prevented from working at cross-purposes.
-fed has not always used its greedom sucessfully.
1. Diffusion of power: the Fed Reserve banks, Board of Governors of the Federal Reserve System, Federal Open Market Comittee (FOMC), Fed Advisory Council and member commercial banks.
2. Federal Reserve Banks: for 12 district; largest are New York, Chicago, and SF
-quasi-public (part private, part government)
-each with nine directors who appoint president and other officers of the FRB
-The twleve Fed Reserve banks perform the following functions:
a. clear checks, issue new currency, withdraw damaged currency, administer and make discount loans to banks, evaluate mergers, liaisons between the business communitry and FRS, examine bank holding companies and state-chartered member banks, collect data, use staffs of prof economists to research topics related to monetary policy.
-Involved in monetary policy:
a. establish discount rate; which banks can obtain discount loans; directors select banker to serve on Fed Advisory Council; 5 of 12 presidents have vote in the FOMC
3. Special role of the FRB of NY
-contains many large banks in the US; bond and foreign exchange markets; only FRB to be a member of the Bank for International Settlements (BIS); president is the only permanent member of FOMC serving as vice-chairman of the committee.
Member Banks
1. all national banks are members of Fed Reserve System; required all banks to have required reserves; all banks can borrow from fed
Board of Governors of the Fed Reserve System
1. seven members, including the chairman, appointed by the president of the US and confirmed by the Senate
2. head of the fed; monetary policy; FOMC; set reserve requirements; control discount rate; mergers; bank holding companies; supervises the activities of foreign banks in US
Federal Open Market Committee
1. influence money supply and interest rates
2. open market operations
The FOMC Meeting, Why the Chairman of the Board of Governors Really Runs the Show
How Independent is the Fed?
1. instrument iindependence: the ability of the central bank to set monetary policy instruments
2. Goal independence: the ability of central bank to set the goals of monetary policy
3. The fed has both types of independence
4. factor that contribue to independence: income from Fed
5. Congress can change fed structure; president can appoint governors
Structure and Independence of the European Central Bank
1. conducts monetary policy for countries that are members of the European Monetary Union
2. The central banks for each country has similar role to that of the Federal Reserve Banks
Differences Between the European System of Central Banks and the Federal Reserve System
1. budgets of fed controlled by board of governors, while national central banks control their own budgets and the budget of the ECB in Frankfurt; ECB has less power than does the BoG
2. monetary operations of teh ECB are conducted by the NCB in each country so monetary operations are not centralized as Fed.
3. ECB not involved in supervision and regulation of financial institutions
Governing Council
1. concensus but no votes; fed releases statement of fomc; ECB have news conference
How independent is the ECB?
1. most independent central bank in the world; long-term goal is price stability
2. ecb's charter cannot be changed by legislation
Structure and independence of other foreign central banks
1. Bank of Canada
-gave monetary policy to the government; on paper, BoC is not as instrument-independent as the fed.; in practice, does control monetary policy
-goal for monetary policy, a target for inflation, is set jointly by the bank of canada an the government so the bank of canada has less goal independence than the fed.
2. Bank of England
-least independent of the central banks because the decision to raise or lower interest rates is controlled by the chancellor
-makes it monetary policy independently from the ECB.
-inflation target is set by chancellor so less goal-independent than fed
3. Bank of Japan
-price stability, granted greater instrument and goal independence
-Ministry of Finance has control over budget --> limit independence
4. The trend toward greater independence
-greater independence produce better monetary policy
Explaining central bank behavior
1. factor affecting central bank behavior is its attempt to increase its power and prestige
2. fed maintain autonomy; avoid conflict with powerful groups
3. hide actions from public and politicians to avoid conflicts with them
Should the fed be independent?
1. favor
-inflationary bias to monetary policy; politicians are short-sighted; politically insulated fed is more likely to be concerned with long-run objectives
-political business cycle: just before election, expansionary policies are pursued to lower unemployment and interest rates.
2. against
-undemocratic to have monetary policy controlled by elite troup that is responsible to no one.; lack of accountability; only by placing monetary policy under the control of politicians who also control fiscal policy can these two policies be prevented from working at cross-purposes.
-fed has not always used its greedom sucessfully.
Saturday, December 8, 2007
Chapter 7: The Stock Market, the Theory of Rational Expectations, and the Efficient Market Hypothesis
-Theory of rational expectations; financial markets: efficient market hypothesis
Computing the price of common stock
1. the principal way to raise capital; right to vote and residual claimant of profits; dividends
2. Price equals the present value of all cash flows the investment will generate over its life.
3. one-period valuation model: to find price of stock; buy stock, hold it for one period to get dividend and sell it.
The one-period valuation model and The generalized dividend valuation model
1. Stocks that do not pay dividends: buyers of the stock expect that the firm will pay dividends someday.
The Gordon Growth Model
1. increase dividends at a constant rate each year.
2. assumptions:
-dividends are assumed to continue growing at a constant rate forever or at least for an extended period of time
-the growth rate is assumed to be less than the required return on equity, ke. If the growth rate were faster than the rate required, the firm would grow impossibly large.
How the market sets stock prices
1. the price is set by the buyer willing to pay the highest price.
2. the market price will be set by buyer who can take advantage of the asset
3. superior information can increase value by reducing risk
4. market price is set by buyers bidding against each other; new information causes change in expectations and change in stock prices.
Application: monetary policy and stock prices
1. Monetary policy affect stock prices in two ways
-Fed lowers interest rates, the return on bonds dclins and investors are likely to accept a lower required rate of retrun on an investment in equity (ke) --> raise stock prices
-Lower interest rate --> stimulate economy --> rise in g --> rise in stock prices
Application: the 911 terrorist attacks, the Enron Scandal, and the stock market
1. 911: raised possibility that terrorism would paralyze the country; expect lower growth --> decrease in g --> decline in stock prices
2. increased uncertainty would raise the ke --> decline in stock prices
3. the Enron scandal and overstated earnings cause doubt and uncertainty --> decrease in g and rise in ke --> decline in stock prices
The theory of rational expectations
1. Adaptive expectations: the changes in expectations will occur slowly over time as past data change.
2. people use more than just past information; people change expectations to new info
3. Rational expectations: expectations will be identical to optimal forecasts using all available information
-does not have to be perfectly accurate; only needs to be the best possible given the available information
-even though a rational expectation equals the optimal forecast using all available information, a prediction based on it may not always be perfectly accurate
4. Two reasons why an expectation may fail to be rational
-people might be aware of all available information but find it takes too much effort to make their expectation the best guess possible
-people might be unaware of some available relevant information, so their best guess of the future will not be accurate
5. If an additional factor is important but not available, the expectation is still rational
Rationale behind the theory
1. people make their expectations match their best possible guess using all available information because it is costly for people not to do so.
Implications of the theory
1. if there is a change in the way a variable moves, the way in which expectations of this variable are formed will change as well
2. The forecast errors of expectations will, on average, be zero and cannot be predicted ahead of time; forecast errors of expectations cannot be predicted
The efficient market hypothesis: rational expectations in financial markets
1. application of rational expectations to the pricing of stocks
2. assumption that prices of securities in financial markets fully reflect all available information
3. R(of)=R* - current prices in a financial market will be set so that the optimal forecast of a security's return using all available information equals the security's equilibrium return.
4. a security's price fully reflects all available information
Rationale behind the hypothesis
1. Unexploited profit opportunity: people earning more than they should; R(of) > R* driving up P(of)t+1 lowering R(of) --> unexploited profit opportunity disappeared
2. In an efficient market, all unexploited profit opportunities will be eliminated
3. Not everyone in a financial market must be well informed about a security or have rational expectations for its price to be driven to the point at which the efficient market condition holds; as long as a few keep their eyes open for unexploited profit opportunities, they will eliminate the profit opportunities
Stronger version of the efficient market hypothesis:
1. not only does optimal forecasts using all available information but also in an efficient market is one in which prices reflect the true fundamental (intrinsic) value of the securities.
2. implies that one investment is as good as any other because the securities' prices are correct
3. implies that a security's price reflect all available information about the intrinsic value of the security
4. implies that security prices can be used by managers of both financial and nonfinancial firms to asses their cost of capital accurately and hence that security prices can be used to help make the correct decisions about whether the investment is worth making.
Evidence on the efficient market hypothesis
1. in favor
-having performed well in the past does not indicate that an investment adviser or a mutual fund will perform well in the future.
-stock prices reflect publicly available information
-random walk: future changes cannot be predicted; EMH states that stock prices should follow random walk - future changes in stock prices should, for all practical purposes, be unpredictable
-technical analysis: study past stock price data and search for patterns such as trends on regular cycles; waste of time
2. against
-small-firm effect: small firms have earned abnormally high returns over long periods of time even when the risk of these firms are taken into account; may be due to rebalancing of portfolios by institutional investors, tax issues, low liq of stocks, large info costs in eval small firms, inappropriate measurement of risk
-January effect: abnormal price rise from dec to jan that is predictable and inconsistent with random-walk behavior; decresed for large companies; due to tax issues --> incentive to sell sotcks before the end of year to reduce liabilities
-market overreaction: stock prices overreact to news announcements and pricing errors are correctly only slowly.
-excess volatility: related to market overreaction; fluct in prices greater than are warranted by fluct in fundamental value; prices driven by other factors
-mean reversion: stocks with low returns today have high returns in the future; predicatable positive change in the future price
-new information is not always immediately incorporated into stock prices: stock prices continue to rise after announcement of high profits
Application: practical guide to investing in the stock market
1. stock prices will respond to announcements only when the information is new and unexpected
Summary
1. Stocks are valued as sthe present value of future dividens. Unfortunately, we do not know very precisely what these dividens will be. This uncertainty introduced a great deal of error inot the valuation process. The gordon gorwth model is a simplified method of computing stock value that depends on the assumption that the dividends arer growing at a constant rate forevr. Given our uncertainty regarding future dividends, this assumption is often the best we can do.
2. The interaction among traders in the market is what actually sets prices on a day-to-day basis. The trader who values the security the most (either because of less uncertainty about the cash flows or because of greater estimated cash flows) will be willing to pay the most. As new information is released, investors will revise their estimates of the true value of the security and will either buy or sell it depending on how the market price compares to their estimated valuation. Becasuse small changes in estimated growth rates or required return result in large changes in price, it is not surprising that the markets are often volatile.
3. The efficient market hypothesis states that current security prices will fully reflect all available information, because in an efficient market, all unexploited profit opport are eliminated. The elimination of unexp prof opport necess for a financial market to be efficient does not require that all market parti be well informed.
4. The evidence on the EMH is mixed. Early evidence are quite favorable.
Computing the price of common stock
1. the principal way to raise capital; right to vote and residual claimant of profits; dividends
2. Price equals the present value of all cash flows the investment will generate over its life.
3. one-period valuation model: to find price of stock; buy stock, hold it for one period to get dividend and sell it.
The one-period valuation model and The generalized dividend valuation model
1. Stocks that do not pay dividends: buyers of the stock expect that the firm will pay dividends someday.
The Gordon Growth Model
1. increase dividends at a constant rate each year.
2. assumptions:
-dividends are assumed to continue growing at a constant rate forever or at least for an extended period of time
-the growth rate is assumed to be less than the required return on equity, ke. If the growth rate were faster than the rate required, the firm would grow impossibly large.
How the market sets stock prices
1. the price is set by the buyer willing to pay the highest price.
2. the market price will be set by buyer who can take advantage of the asset
3. superior information can increase value by reducing risk
4. market price is set by buyers bidding against each other; new information causes change in expectations and change in stock prices.
Application: monetary policy and stock prices
1. Monetary policy affect stock prices in two ways
-Fed lowers interest rates, the return on bonds dclins and investors are likely to accept a lower required rate of retrun on an investment in equity (ke) --> raise stock prices
-Lower interest rate --> stimulate economy --> rise in g --> rise in stock prices
Application: the 911 terrorist attacks, the Enron Scandal, and the stock market
1. 911: raised possibility that terrorism would paralyze the country; expect lower growth --> decrease in g --> decline in stock prices
2. increased uncertainty would raise the ke --> decline in stock prices
3. the Enron scandal and overstated earnings cause doubt and uncertainty --> decrease in g and rise in ke --> decline in stock prices
The theory of rational expectations
1. Adaptive expectations: the changes in expectations will occur slowly over time as past data change.
2. people use more than just past information; people change expectations to new info
3. Rational expectations: expectations will be identical to optimal forecasts using all available information
-does not have to be perfectly accurate; only needs to be the best possible given the available information
-even though a rational expectation equals the optimal forecast using all available information, a prediction based on it may not always be perfectly accurate
4. Two reasons why an expectation may fail to be rational
-people might be aware of all available information but find it takes too much effort to make their expectation the best guess possible
-people might be unaware of some available relevant information, so their best guess of the future will not be accurate
5. If an additional factor is important but not available, the expectation is still rational
Rationale behind the theory
1. people make their expectations match their best possible guess using all available information because it is costly for people not to do so.
Implications of the theory
1. if there is a change in the way a variable moves, the way in which expectations of this variable are formed will change as well
2. The forecast errors of expectations will, on average, be zero and cannot be predicted ahead of time; forecast errors of expectations cannot be predicted
The efficient market hypothesis: rational expectations in financial markets
1. application of rational expectations to the pricing of stocks
2. assumption that prices of securities in financial markets fully reflect all available information
3. R(of)=R* - current prices in a financial market will be set so that the optimal forecast of a security's return using all available information equals the security's equilibrium return.
4. a security's price fully reflects all available information
Rationale behind the hypothesis
1. Unexploited profit opportunity: people earning more than they should; R(of) > R* driving up P(of)t+1 lowering R(of) --> unexploited profit opportunity disappeared
2. In an efficient market, all unexploited profit opportunities will be eliminated
3. Not everyone in a financial market must be well informed about a security or have rational expectations for its price to be driven to the point at which the efficient market condition holds; as long as a few keep their eyes open for unexploited profit opportunities, they will eliminate the profit opportunities
Stronger version of the efficient market hypothesis:
1. not only does optimal forecasts using all available information but also in an efficient market is one in which prices reflect the true fundamental (intrinsic) value of the securities.
2. implies that one investment is as good as any other because the securities' prices are correct
3. implies that a security's price reflect all available information about the intrinsic value of the security
4. implies that security prices can be used by managers of both financial and nonfinancial firms to asses their cost of capital accurately and hence that security prices can be used to help make the correct decisions about whether the investment is worth making.
Evidence on the efficient market hypothesis
1. in favor
-having performed well in the past does not indicate that an investment adviser or a mutual fund will perform well in the future.
-stock prices reflect publicly available information
-random walk: future changes cannot be predicted; EMH states that stock prices should follow random walk - future changes in stock prices should, for all practical purposes, be unpredictable
-technical analysis: study past stock price data and search for patterns such as trends on regular cycles; waste of time
2. against
-small-firm effect: small firms have earned abnormally high returns over long periods of time even when the risk of these firms are taken into account; may be due to rebalancing of portfolios by institutional investors, tax issues, low liq of stocks, large info costs in eval small firms, inappropriate measurement of risk
-January effect: abnormal price rise from dec to jan that is predictable and inconsistent with random-walk behavior; decresed for large companies; due to tax issues --> incentive to sell sotcks before the end of year to reduce liabilities
-market overreaction: stock prices overreact to news announcements and pricing errors are correctly only slowly.
-excess volatility: related to market overreaction; fluct in prices greater than are warranted by fluct in fundamental value; prices driven by other factors
-mean reversion: stocks with low returns today have high returns in the future; predicatable positive change in the future price
-new information is not always immediately incorporated into stock prices: stock prices continue to rise after announcement of high profits
Application: practical guide to investing in the stock market
1. stock prices will respond to announcements only when the information is new and unexpected
Summary
1. Stocks are valued as sthe present value of future dividens. Unfortunately, we do not know very precisely what these dividens will be. This uncertainty introduced a great deal of error inot the valuation process. The gordon gorwth model is a simplified method of computing stock value that depends on the assumption that the dividends arer growing at a constant rate forevr. Given our uncertainty regarding future dividends, this assumption is often the best we can do.
2. The interaction among traders in the market is what actually sets prices on a day-to-day basis. The trader who values the security the most (either because of less uncertainty about the cash flows or because of greater estimated cash flows) will be willing to pay the most. As new information is released, investors will revise their estimates of the true value of the security and will either buy or sell it depending on how the market price compares to their estimated valuation. Becasuse small changes in estimated growth rates or required return result in large changes in price, it is not surprising that the markets are often volatile.
3. The efficient market hypothesis states that current security prices will fully reflect all available information, because in an efficient market, all unexploited profit opport are eliminated. The elimination of unexp prof opport necess for a financial market to be efficient does not require that all market parti be well informed.
4. The evidence on the EMH is mixed. Early evidence are quite favorable.
Wednesday, December 5, 2007
Ecn 135
Problem set #7
Due Dec. 5th
1) Suppose the euro-dollar exchange rate moves from $0.90 per euro to $0.92 per euro. At the same time, the prices of European-made goods and services rise 1 percent, while prices of American-made goods and services rise 3 percent. What happens to the real exchange rate between the dollar and the euro? Assuming the same change in the nominal exchange rate, what if inflation were 3 percent in Europe and 1 percent in the United States?
2) The most common type of discount lending that the Fed extends to banks is called
a. Seasonal credit
b. Secondary credit
c. Primary Credit
d. Installment Credit
3) Monetary policy is considered time-inconsistent because
of the lag times associated with the implementation of monetary policy and its effect on the economy
policymakers are tempted to pursue discretionary policy that is more contractionary in the short run
policymakers are tempted to pursue discretionary policy that is more expansionary in the short run
of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy
4) Which of the following is a disadvantage to monetary targeting?
It relies on a stable money-inflation relationship
There is a delayed signal about the achievement of a target
It implies larger output fluctuations
It implies a lack of transparency
5) The monetary policy strategy that provides the least accountability is
Exchange rate targeting
Monetary targeting
Inflation targeting
The implicit nominal anchor
6) If the dollar depreciates relative to the Swiss franc
Swiss chocolate will become cheaper in the United States
American computers will become more expensive in Switzerland
Swiss chocolate will become more expensive in the United States
Swiss computers will become cheaper in the United States
7) According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is:
40 pesos per real
100 pesos per real
25 pesos per real
0.4 pesos per real
8) If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will
rise by 6 percent
rise by 2 percent
fall by 6 percent
fall by 2 percent
9) State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."
10) The same television set costs $500 in the United States, 450 Euro in France, 300 Pounds in United Kingdom and 100,000 Yen in Japan. If the law of one price holds, what are the euro-dollar, pound-dollar, and yen-dollar exchange rates? Why might the law of one price fail?
11) One of the ways macroeconomic activity overseas can affect our economy is through exchange rates, especially in the short-run. Discuss how a decrease in European interest rates, keeping everything else constant, affects the euro-dollar parity. Make sure to demonstrate this effect on the exchange rate – dollar asset graph as well.
Chapter 15, question #10 and web exercise # 1
Problem set #7
Due Dec. 5th
1) Suppose the euro-dollar exchange rate moves from $0.90 per euro to $0.92 per euro. At the same time, the prices of European-made goods and services rise 1 percent, while prices of American-made goods and services rise 3 percent. What happens to the real exchange rate between the dollar and the euro? Assuming the same change in the nominal exchange rate, what if inflation were 3 percent in Europe and 1 percent in the United States?
2) The most common type of discount lending that the Fed extends to banks is called
a. Seasonal credit
b. Secondary credit
c. Primary Credit
d. Installment Credit
3) Monetary policy is considered time-inconsistent because
of the lag times associated with the implementation of monetary policy and its effect on the economy
policymakers are tempted to pursue discretionary policy that is more contractionary in the short run
policymakers are tempted to pursue discretionary policy that is more expansionary in the short run
of the lag times associated with the recognition of a potential economic problem and the implementation of monetary policy
4) Which of the following is a disadvantage to monetary targeting?
It relies on a stable money-inflation relationship
There is a delayed signal about the achievement of a target
It implies larger output fluctuations
It implies a lack of transparency
5) The monetary policy strategy that provides the least accountability is
Exchange rate targeting
Monetary targeting
Inflation targeting
The implicit nominal anchor
6) If the dollar depreciates relative to the Swiss franc
Swiss chocolate will become cheaper in the United States
American computers will become more expensive in Switzerland
Swiss chocolate will become more expensive in the United States
Swiss computers will become cheaper in the United States
7) According to the law of one price, if the price of Colombian coffee is 100 Colombian pesos per pound and the price of Brazilian coffee is 4 Brazilian reals per pound, then the exchange rate between the Colombian peso and the Brazilian real is:
40 pesos per real
100 pesos per real
25 pesos per real
0.4 pesos per real
8) If the 2005 inflation rate in Canada is 4 percent, and the inflation rate in Mexico is 2 percent, then the theory of purchasing power parity predicts that, during 2005, the value of the Canadian dollar in terms of Mexican pesos will
rise by 6 percent
rise by 2 percent
fall by 6 percent
fall by 2 percent
9) State whether the following statement is true or false AND explain why: "A decrease in the discount rate will always cause a decrease in the federal reserve funds rate."
10) The same television set costs $500 in the United States, 450 Euro in France, 300 Pounds in United Kingdom and 100,000 Yen in Japan. If the law of one price holds, what are the euro-dollar, pound-dollar, and yen-dollar exchange rates? Why might the law of one price fail?
11) One of the ways macroeconomic activity overseas can affect our economy is through exchange rates, especially in the short-run. Discuss how a decrease in European interest rates, keeping everything else constant, affects the euro-dollar parity. Make sure to demonstrate this effect on the exchange rate – dollar asset graph as well.
Chapter 15, question #10 and web exercise # 1
Monday, November 26, 2007
PSC 129 Chapter 13 Olfaction
I. Olfactory Physiology
1. Odors and Odorants
- Odors are chemical compounds; must be volatile, small, and hydrophobic
2. The human olfactory apparatus
- The primary function of nose is to filer, warm and humidify the air that we breathe
- Air pass through a narrow space called olfactory cleft and settle on a yellowish patch of mucous membrane called the olfactory epithelium
- Epithelium contains three types of cells: supporting cells, basal cells, and olfactory sensory neurons
a. OSN are small neurons that have cilia protruding into the mucus covering the olfactory epithelium
b. The cilia have olfactory receptors on their tips.
c. The interaction between an odorant and OR stimulates a cascade events that will produce an action potential that is transmitted along the axon of the OSN to the olfactory bulb.
d. In order to fire action potential, 7 or 8 odor molecules must bind to receptor, and takes 40 of these nerve impulses for a smell sensation to be reported.
e. The axons on the ends of OSN opposite the cilia pass through the tiny holes of the cribriform plate
f. Anosmia: smell blindness
g. Stem cells in the olfactory epithelium can form new OSN
h. The OSN axons pass through the cribriform plate and bundle together to form the olfactory nerve (CN I) and enter a blueberry-sized extension of the brain just above the nose, called the olfactory bulb.
i. Olfactory is ipsilateral: the right olfactory bulb gets information from the right nostril and the left olfactory bulb gets information from the left nostril.
j. Inside the olfactory bulb are glomeruli where OSN axons synapse with dendrites of two other types of neurons: mitral cells and tufted cells.
k. Each glomerulus may receive axons from different receptor types.
-Brain structures: olfactory bulb, olfactory cortex, amygdala-hippocampal complex, and entorhinal cortex --> network called limbic system which is involved in emotion and memory
1. Odors and Odorants
- Odors are chemical compounds; must be volatile, small, and hydrophobic
2. The human olfactory apparatus
- The primary function of nose is to filer, warm and humidify the air that we breathe
- Air pass through a narrow space called olfactory cleft and settle on a yellowish patch of mucous membrane called the olfactory epithelium
- Epithelium contains three types of cells: supporting cells, basal cells, and olfactory sensory neurons
a. OSN are small neurons that have cilia protruding into the mucus covering the olfactory epithelium
b. The cilia have olfactory receptors on their tips.
c. The interaction between an odorant and OR stimulates a cascade events that will produce an action potential that is transmitted along the axon of the OSN to the olfactory bulb.
d. In order to fire action potential, 7 or 8 odor molecules must bind to receptor, and takes 40 of these nerve impulses for a smell sensation to be reported.
e. The axons on the ends of OSN opposite the cilia pass through the tiny holes of the cribriform plate
f. Anosmia: smell blindness
g. Stem cells in the olfactory epithelium can form new OSN
h. The OSN axons pass through the cribriform plate and bundle together to form the olfactory nerve (CN I) and enter a blueberry-sized extension of the brain just above the nose, called the olfactory bulb.
i. Olfactory is ipsilateral: the right olfactory bulb gets information from the right nostril and the left olfactory bulb gets information from the left nostril.
j. Inside the olfactory bulb are glomeruli where OSN axons synapse with dendrites of two other types of neurons: mitral cells and tufted cells.
k. Each glomerulus may receive axons from different receptor types.
-Brain structures: olfactory bulb, olfactory cortex, amygdala-hippocampal complex, and entorhinal cortex --> network called limbic system which is involved in emotion and memory
PSC 129 Chapter 12 Touch
- Touch is the mechanical displacements of the skin; kinesthesis: internal sensations that inform us of the psoitions and movements of our limbs
-Somatosensation: sensory signals from the body
-Proprioception: perception by kinesthetic and vestibular receptors.
I. Touch Physiology
1. The sense organ and receptors for touch
-Touch is in skin
-Touch receptors are in both the outer layer (epidermis) and the underlying layer (dermis)
-Multiple types of touch receptors; receptors form the basis for multiple "channels" that contribute to the overall sense of touch; shape, temperature, texture
-Each touch receptor has three attributes:
a. Type of stimulation the receptor responds to (pressure, vibration, or temperature changes)
b. Size of the receptive field: the extent of the body area to which teh receptor will respond.
c. Rate of adaptation
- A fast-adapting receptor responds with lots of action potentials when its preferred stimulus is first applied and when it is removed but not in between.
- A slow-adapting receptor remains active throughout the period when the stimulus is in contact with its receptive field.
2. Tactile receptors
-Four types of receptors: mechanoreceptors because they respond to mechanical stimulation or pressure
a. Meissner corpuscles, Merkel cell neurite complexes, Pacinian corpuscles, and Ruffini endings
b. Meissner and Merkel receptors are located at the junction of the epidermis and dermis; enlarged endings of nerve fibers that have smaller receptive fields than Pacinian and Ruffini which are in the dermis and subcuticle
c. The four types of receptors can be characterizzed by their adaptation rates and sizes of receptive fields (look at table in 289)
d. Each receptor has a different range of responsiveness and is responsible for perceiving a different feature of mechanical stimulation
e. SAI respond to fine spatial details; important in texture and pattern perception
f. SAII respond to sustained downward pressure; lateral skin stretch when you grasp an object.
g. FAI respond to low-freq vibrations; feel the motion of coffee cup slipping acorss your fingers
h. FAII detect high-freq vibrations when object first makes contact with skin; object in hand contacts another object
3. Kinesthetic receptors
-Another type of mechanoreceptors that lie within msucles, tendons and joints; play rorle in our sense of where our limbs are and what kinds of movement they are making
-Spindles: muscle receptors that perceive the angle formed by a limb; convey the rate that the muscle fibers are changing in length
- Receptors in the tendons provide signals about hte tension in muscles attached to the tendons and receptors directly in the joints themselves come into play when a joint is bents to an extreme angle
4. Thermoreceptors
- Located in both the epidermis and dermis; changes in skin temperature
- Warmth fibers fire when the temp of skin surrounding the fibers rises; cold fibers (outnumbers warmth fibers) fire in response to decrease in temp
- Fire when you touch something that is warmer or colder than your skin
5. Nociceptors
- Signals pain; are touch receptors that have bare nerve endings and that respond to various forms of tissue damage
- Two types: A-delta fibers respond primarily to strong pressure or heat and are myelinated which allows them to conduct signals rapidly; C fibers are unmyelinated and respond to intense stimulation such as pressure, temp, or poisonous chemicals; both are smaller in diameter
- Pain in two stages: quick sharp burst of pain followed by throbbing sensation; A-delta fibers respond and then C fibers
6. From Skin to Brain
- Axons of various tactile receptors are combined into single nerve trunks in the same way that retinal ganglion axons converge in the optic nerve and cochlear hair cells converge in the auditory nerve.
- A number of somatosensory nerve trunks; axons in the older nerve trunks synapse first in the spinal cord.
- In spinal cord, touch information proceed upward toward the brain via two pathways
a. Spinothalamic pathway is the slower of the two and carries most of the information from thermoreceptors and nociceptors; includes a number of synapses within the spinal cord, thus slowing conduction while providing a mechanism for inhibiting pain perception
b. The dorsal-column-medial-lemniscal (DCML) pathway: wider-diameter axons and fewer synases and therefore conveys information more quickly to brain; planning and executing rapid movements; carries signals from skin, muscles, tendons and joints
c. Neurons in DCML make first synapse in the medulla; then passed to neurons that synapse in the ventral posterior nucleus of the thalamus à somatosensory area 1 (S1) à somatosensory area 2 (S2)
- Mapped somatotopically in correspondence to the skin
- Somatosensory cortex is organized into sensory homunculus which is a spatial map of the layout of the skin; twin homunculi; the left-hemisphere S1 receives information from the right side of the body
7. Pain
- Analgesia and gate control theory: damping of pain without losing consciousness- In soldiers caused by endogenous opiates: chemicals that block the release or uptake of NT to transmit pain
- Gate control theory: pain sensations can be blocked by a feedback circuit located in an area called substantia gelatinosa of the dorsal horn of the spinal cord.
- Inhibitory signals from the gate neurons cancel transmission to the brain.
- Gate neurons activated by expreme pressure, or cold.
8. Pain sensitization
- Nociceptive pain: ongoing damage to the body's tissue; once damaged, the site becomes more sensitive, triggers pain more readily than before --> hyperalgesia = heightened response
- Resulting pain is inflammatory
- Neuropathic pain: damage to nervous system
9. Cognitive aspects of pain
- the sensation of pain and the emotion that accompanies it
III. Tactile Sensitivity and Acuity
1. How finely can we resolve spatial details?
- Two-point touch threshold: the smallest separation at which you can tell that you are being touched by two points and not just one
- Low two-point threshold only when the density of receptors is relatively high, the receptive fields are small and cortical convergence does not occur
Summary:
1. The sense of touch produces a number of distinct sensory experiences, each mediated by its own sensory receptor system (s). Touch sensors are responsive not only to pressure, but also to vibration, temperature, and noxious stimulation. The kinesthetic system, which also contributes to our sense of touch, is further involved in sensing limbs in space.
2. The skin is the largest sensory organ, covering the entire exterior surface of the body. Four classes of pressure-sensitive (mechano-) receptors have been found within the skin. The organs used to sense limb position and movement (namely, our muscles, tendons, and joints) ar emore deeply situated within the body. Thermoreceptors respond to changes in skin temperature that occur, for example, when we contact objects that are warmer or cooler than our bodies. Nociceptors signal tissue damage (or its potential) and give rise to sensations of pain.
3. The pathways from touch receptors to the brain are complex. Two major pathways have been identified: a fast pathway that carries information from mechanoreceptors, and a slower one that carries thermal and nociceptive information. Only the second pathway synapses when it first enters the spinal cord. These pathways project to the thalamus and from there to the primary somatosensory area, located in the parietal lobe just behind the central sulcus. This area contains several somatotopically organized subregions, in which adjacent areas of the body project to adjacent areas of the brain.
4. Downward pathways from the brain play an important role int he perception of pain. According to the gate control theory, signals along these pathways interact at the spinal cord with those from the periphery of the body. Such interactions can block the pain signals that would otherwise be sent forward to the brain. The sensation of pain is further moderated by areas in the cortex.
5. Investigators have measured sensitivity to mechanical pressure by applying nylon hairs of different diameters to the skin. They determine spatial acuity of the skin by measuring the two-point touch threshold, and more precisely by discriminating the orientation of gratings applied to the skin. Tactile pressure sensitivity and spatial acuity vary with body site, because of varying concentrations of different types of mechanoreceptors. The minimum depression of the skin needed to feel a stimulus vibrating at a particular rate provides a measure of vibration sensitivity.
6. The sense of touch is intimately related to our ability to perform actions. Signals from the mechanoreceptors are necessary for simple actions such as grasping and lifting an object. Conversely, our own movements determine how touch receptors respond and, hence, what properties of the concrete world we can feel. Touch is better adapted to feeling the material properties of objects than it is to feeling their shapes, particularly when an object is large enough to extend bejond the fingertip.
PSY 129 Chapter 9
Chapter 9: Hearing: Physiology and Psychoacoustics
I. What is Sound?
- Sounds are created when objects vibrate
- Sound waves travel faster through denser substances
- Sonic boom: when objects passes the sound waves that it is creating; huge pressure fluctuation
1. Basic Qualities of Sound Waves: Frequency and Amplitude
- The difference between the highest pressure and lowest pressure is called amplitude or intensity of a wave; loudness
- Frequency: how quickly the pressure fluctuates; hertz – one cycle per second; pitch – high freq = high pitch
- Speech, music, audible range, high risk threshold, pain threshold
- Sound levels are measured by decibels: difference between two sounds in terms of the ratio between sound pressures; small decibel changes can correspond to large physical changes
2. Sine Waves, Complex Tones, and Fourier Analysis
- Sine wave: pure tone; simplest kinds of sounds; air pressure changes continuously at same frequency; not common
- Complex tones: different frequencies, combination of different sine waves
- Fourier analysis: any sound can be divided into a set of sine waves
- Spectrum: energy at each frequency
- Timbre: quality of a sound that depends upon the relative energy levels of harmonic components.
II. Basic Structure of the Mammalian Auditory System
1. Outer Ear
- Pinna: the curly structure on the side of the heard that first collect sounds from the environment
- Sound waves funneled by the pinna into the ear canal; ear canal enhance sound frequencies; main purpose is to insulate the tympanic membrane (eardrum) from damage.
-Tympanic membrane: a thin sheet of skin that movies in and out in response to the pressure changes of sound waves
2. Middle Ear
- The tympanic membrane is the border between the outer ear and the middle ear
- Middle ear consists of three tiny bones called ossicles that amplify sound waves
a. First ossicle is malleus: connected to the tympanic membrane and second ossicle
b. Incus: second ossicle; connected to stapes
c. Stapes: third ossicle; transmits the vibrations of sound waves to the oval window
- Oval Window: another membrane that borders between the middle and inner ear
- Ossicles: smallest bones in the body; amplifies sound vibrations
a. joints between the bones are hinged to make them work like levers; small energy on one side becomes larger on the other; lever action increases the pressure change by 33%
b. increase energy transmitted to the inner ear by concentrating energy a larger to a smaller surface area; the tympanic membrane is 18 times as large as the oval window
c. the pressure on the oval window is magnified 18 times
d. Amplification allows us to hear faint sounds; inner ear is fluid-filled chambers; need more energy to move liquid than air.
e. Loud sounds: middle ear has two muscles – tenor tympanic (attached to malleus) and stapedius (attached to the stapes); smallest muscles; tense to loud sounds, restricting the movement of ossicles and muffling pressure changes that may cause damage à acoustic reflex
f. Acoustic reflex help for sustained loud environments but not abrupt loud sounds
g. Muscles tense when swallowing, talking, helping to keep auditory system from being overwhelmed by general body movement sounds.
3. Inner ear
- Sound pressure translated into neural signals; analogous to retina
- Cochlear canals and membranes:
a. Cochlear: tiny coiled structure in the temporal bone of the skull; size of pea; filled with watery fluids in three parallel canals: tympanic canal (scala tympani); vestibular canal (scala vestiguli) and the middle canal (scala media)
b. Tympanic and vestibular canals are connected by a small opening, helicotrema, and wrapped around the middle canal
c. T and V canals blow up and fold back on itself; middle canal is another balloon that is squeezed lengthwise
d. The three canals are separated by two membranes: Reissner’s membrane (between vestibular and middle canal) and Basilar membrane (between middle and tympani canal
e. Basilar membrane is not a membrane but a plate made up of fibers that have stiffness; forms the base of the cochlear partition – a complex structure through which sound waves are transduced into neural signals.
f. Vibrations through the tympanic membrane and middle ear bones cause stapes to push and pull the oval window in and out of the vestibular canal at the base of the cochlea
g. A “bulge” forms in the vestibular canal and travels from the base of the cochlear down to the apex; by the time the traveling wave reaches the apex, its displacement has mostly dissipated; if sounds are intense, pressure is transmitted back to the cochlear base through the tympanic canal, where it is absorbed by another membrane – round window
h. When vestibular canal bulges out, it pressures the middle canal; displaces cochlear partition
- The organ of Corti
a. Movements of cochlear partition are translated into neural signals by organ of Corti which goes from the top of the basilar membrane.
b. Organ of Corti made up of specialized neurons called hair cells, dendrites of auditory nerve fibers that terminate at the base of hair cells, and a scaffold of supporting cells
c. Hair cells: support the stereocilia that transducer mechanical movement into neural activity sent to the brain stem; also receive inputs from the brain
d. Auditory nerve fivers: collection of neurons that convey information from hair cells to (afferent) and from (efferent) the brain stem; includes neurons for the vestibular system
e. Hair cells are arranged in four rows that run down the length of the basilar membrane
f. Inner and outer hair cells provide the foundation for minuscule hair-like bristles called stereocilia which are hair-like extensions on tips of hair cells that initiate the release of neurotransmitters when they are flexed
g. Tectorial membrane: not really a membrane either; attached on one end and floats above the outer hair cells on the other end; taller stereocilia of outer hair cells are in the tectorial membrane, and the cilia of inner hair cells are nestled against it; shears across the width of the cochlear partition whenever partition moves à causes the stereocilia of both inner and outer hair cells to bend back and forth.
h. Deflection of hair cells’ stereocilia causes a voltage change that releases NT à firing by auditory nerve fibers with dendritic synapses on hair cells.
i. Summary 216
- Coding of amplitude and frequency in the cochlea
a. As amplitude increases, tympanic membrane and oval window move more à larger bulge in the vestibular canal à cochlear partition to move farther up and down à tectorial membrane to shear across the organ of Corti more forcefully à hair cells to bend back and forth more à more NT release à faster firing of auditory nerve fiber action potential
b. Different parts of the cochlear partition are displaced to different degrees by different sound wave frequencies
c. High freq cause displacements closer to the oval window, near the base of the cochlea, and lower freq cause displacements nearer to the apex à different parts of cochlea are tuned to different freq à place coding for sound freq
d. Cochlear freq tuning is caused by the way the structure of the basilar membrane changes along the length of the cochlea
e. Cochlea becomes narrower from base to apex but the basilar membrane becomes wider toward the apex; the basilar begins thicker at the base and thinner as it gets wider
f. Higher freq bend the narrower, stiffer regions of the basilar membrane near the base more, the lower freq cause greater displacements in the wider, more flexible regions near the apex
- Inner and Outer Hair cells
a. Afferent fibers: auditory nerve fibers that give information to the brain; synapse on the inner hair cells
b. Efferent fibers: take information from the brain; synapse to outer hair cells; the longer they synapse, the stiffer the cochlear partition à less sensitive to pressure changes
c. Outer hair cells: feedback system
4. The Auditory Nerve
- Response of individual AN fibers to different freq are related to their place along the cochlear partition à freq selectivity
- Characteristic frequency: the freq that increases the neuron’s firing rate at the lowest intensity; the lowest point on the threshold tuning curve
- Transduction of acoustic energy at different freq to neural responses: low-intensity sine wave tone with a certain freq will cause certain AN fivers to increase their firing rates; as long as the brain knows which AN fibers have which characteristic freq, the brain can interpret the pattern of firing rates across all the AN fibers to determine the freq of any tone
-Two-Tone Suppression
a. A decrease in the firing rate of one auditory nerve fiber due to one tone, when a second tone is presented at the same time; caused by mechanical changes to the basilar membrane
-Rate saturation
a. For relatively quiet sounds, the neuron is still selectively tuned, but at louder sounds, the neuron fire at about the same rate for any freq; freq such as 1000 Hz to which AN fiber had no response at low intensity, had substantial response when intensity is increased.
b. Rate saturation: broadening of freq selectivity; the point at which a nerve fiber is firing as rapidly as possible and further stimulation is incapable of increasing the firing rate.
c. For moderately intense tones, the brain cannot rely on a single AN fiber to determine freq
d. Solution: use AN fibers with different spontaneous firing rates
e. Low-spontaneous fibers: auditory nerve fibers with low rates of spontaneous firing; require intense sound before firing at higher rates; cones; require higher intensity but retain freq selectivity over a broad range of intensity
f. High-spontaneous fibers: auditory nerve fibers with high rates of spontaneous firing; increase firing to low levels of sound; reaches saturation quickly à poor freq selectivity when intensity is high
g. Mid-spontaneous fibers: medium rates
- The Temporal Code for Sound Freq
a. Another way to encode freq; phase locking: AN fibers fire action potentials at one particular point in the phase of a sound wave
b. AN fibers fire when stereocilia of hair cells move in one direction but not in the other direction
c. Phase locking à firing patter of an AN fiber carries a temporal code for sound freq
d. Volley principle: multiple neurons can provide a temporal code for freq if each neuron fires at a distinct point in the period of a sound wave but does not fire on every period; “took turns”
5. Auditory Brain Structures
- Cranial Nerve 8; from cochlea to the brain stem; AN gibers synapse in the cochlear nucleus; neurons fire when multiple freq are heard but stop firing if the sound continues playing
- Cochlea à superior olive à inferior colliculus à medial geniculate nucleus (thalamus) à cerebral cortex
- Tonotopic organization: an arrangement in which neurons that respond to different freq are organized anatomically in order of freq
- TO is maintained in the primary auditory cortex (A1): neurons from A1 project to the belt area and neurons from this belt synapse with neurons in the parabelt area
III. Basic Operating Characteristics of the Auditory System
-Psychoacoustics: the physical characteristics of sounds and the impressions of these sounds for listeners.
-Inequality of sound pressure and loudness: equal amplitude sounds can be perceived as softer or louder depending on the freq
-The loudness of sound depends on how long the sound is: longer sounds are louder
-The difference between the intensity at which a neuron just starts firing and the intensity at which te neuron's firing rate saturates is less than the window that humans can detect loudness differences
-AN fibers have different intensity thresholds; a population can encode a broader range of intensities
1. Frequency and Pitch
- For any freq increase, listeners perceive a greater rise in pitch for lower freq than they do for higher freq.
- Critical bandwidth: adding more energy to the noise stops affecting the detectability
IV. Hearing Loss
1. Damage to any structures along the chain of auditory processing
2. Conductive hearing loss: middle-ear bones lose their ability to conduct vibrations from tympanic membrane to oval window; otitis media: middle ear fills with mucus during ear infections
3. Otosclerosis: abnormal growth of the middle ear bones
4. Sensorineural hearing loss: inside the cochlea; damage of hair cells
Summary:
1. Sounds are fluctuations of pressure. Sound waves are defined by the frequency, intensity (amplitude), and phase of fluctuations. Sound freq and intensity correspond to our perception of pitch and loudness, respectively.
2. Sound is funneled into the ear by the outer ear, made more intense by the middle ear, and gtransformed into neural signals by the inner ear.
3. In the inner ear, cilia on the tops of inner hair cells are flexed by pressure fluctuations in ways that provide information about freq and intensity to the auditory nerve and the brain. Auditory nerve fibers convey information through both the rate and the timing patterns with which they fire.
4. There are multiple places in the brain stem where different characteristics of sounds are processed before information reaches the cortex. Information from both ears is brought together very early in the chain of processing. At each stage of auditory processing, including primary auditory cortex, neurons are organized in relation to the freq of sounds (tonotopically).
5. Humans and other mammals can hear sounds across an enormous range of intensities. Not all sound freq are heard as being equally loud. Hearing acorss such a wide range of intensities is accomplished by the use of many auditory neurons. Some neurons respond across certain levels of intensity; others span different levels of intensity. In addition, more neurons overall respond when sounds are more intense.
6. A series of channels (or filters) processes sounds within bands of feq. Depending on freq, these channels vary in how wide (many freq) or narrow they are. Consequently, it is easier to detect differences between some freq than between others. When energy from multiple freq is present, lower-freq energy makes it relatively more difficult to hear higher freq.
7. Hearing loss is caused by damage to the bones of the middle ear, to the hair cells in the cochlea, or to the neurons in the auditory nerve. Although hearing aids are helpful to listeners with hearing impairment, they cannot restore hearing as well as glasses can improve vision.
Monday, November 12, 2007
Ecn 135
Problem set #5
Due Nov. 14th
1) An expectation may fail to be rational if
relevant information was not available at the time the forecast is made.
relevant information is available but ignored at the time the forecast is made.
information changes after the forecast is made.
information was available to insiders only.
2) According to rational expectations theory, forecast errors of expectations
are more likely to be negative than positive.
are more likely to be positive than negative.
tend to be persistently high or low.
are unpredictable.
3) The efficient markets hypothesis suggests that if an unexploited profit opportunity arises in an efficient market
It will tend to go unnoticed for some time.
It will be quickly eliminated.
financial analysts are your best source of this information
prices will reflect the unexploited profit opportunity
4) A phenomenon closely related to market overreaction is
The random walk.
The small-firm effect.
The January effect.
Excessive volatility.
5) The president from which Federal Reserve Bank always has a vote in the Federal Open Market Committee?
Philadelphia
Boston
San Francisco
New York
6) Which of the following is an entity of the Federal Reserve System?
U.S. Treasury Secretary
The FOMC
The Comptroller of the Currency
The FDIC
Chapter 7, questions #9 and #15
9. "If stock prices did not follow a random walk, there would be unexploited profit opportunities in the market." Is this tatement true, false, or uncertain? Explain your answer.
False. Efficient market hypothesis says that stock prices should follow random walk - that is, future changes in stock prices should be unpredictable. If it is not random walk, then prices are predictable and people will exploit any unexploited profit opportunities even easier.
15. "If most participants in the stock market do not follow what is happening to the monetary aggregates, prices of common stocks will not fully reflect iinormation about them." Is this statement true, false, or uncertain? Explain your answer.
Chapter 12 question #4
4. In what ways can the regional Federal Reserve banks influence the conduct of monetary policy?
a. Their directors "establish" the discount rate (although the discount rate in each district is reviewed and determined by the Board of Governors).
b. They decide which banks, member and nonmember alike, can obtain discount loans from the Federal Reserve bank.
c. Their directors select one commerical banker from each bank's distric to serve on the Federal Advisory Council, which consults with the Board of Governors and provides information that helps in the conduct of monetary policy.
d. Five of the twelve bank presidents each have a vote in the Federal Open Market Committee, which directs open market operations (the purchase and sale of government securities that affect both interest rates and the amount of reserves in teh banking system). As explained in the Fed box, "The Special Role of the Ffederal Reserve Bank of New York," the president of the New York Fed always has a vote inthe FOMC, making it the most important of the banks; the other four votes allocated to the district banks rotate annually among the remaining eleven presidents.
Sunday, November 4, 2007
PSC129: Chapter 5 The Perception of Color
I) Basic Principles of color Perception
-Color is the result of the interaction of physical stimulus with a particular nervous system.
1. The Problem of Univariance
-Different wavelengths of light give rise to different experiences of color, and the varying responses of this photoreceptor to different wavelengths could provide a basis for color vision.
-Problem: two different wavelengths can produce the same response –
-Output of a single photoreceptor is ambiguous à problem of univariance
II) Trichromacy
1. Rods and Cones
-Rods: sensitive to low light (scotopic); contain photopigment, rhodopsin; have same sensitivity to wavelength à can’t tell color
-Cones: three types of photoreceptors with different photopigment which give each type of cone a distinctive wavelength sensitivity
a. S-cones: short-wavelength cones; 440nm; blue cone
b. M-cones: middle-wavelength cones; peak at 535nm; green cone
c. L-cones: long-wavelength cones; peak at 565nm; red cone
-Different outputs from the three cones; any wavelength will produce a unique set of three responses
-If increase intensity of light, the response sizes wil change but the proportions will not
-Trichromacy: the theory that the color of any light is defined in our visual system by the relationships between a set of three numbers, the outputs of three receptor types now known to be the three cones.
2. Metamers
-Usually see a mixture of wavelengths
-A single wavelength can excite the cones equally
-The rest of the nervous system knows only what the cones tell it.
-Metamers: different mixtures of wavelengths that look identical; if mixture of red plus green produces the same cone output as the single wavelength of yellow, then the mixture and the single wavelength must look identical and are called metamers.
a. Mixing wavelengths does not change the physical wavelengths; If mix 500 and 600, the stimulus contains 500 and 600 nm wavelengths and not 550.
b. For the mixture of red and green light to look perfectly yellow, we would have to have just the right red and just the right green.
3. Lights and Fingerpaints
-Additive color mixture: a mixture of lights; taking one wavelength and adding it to another
-Subtractive color mixture: a mixture of pigments; if pigments a and b mix, some of the light shining on the surface will be subtracted by a, and some by b. Only the remainder contributes to the perception of color; pigment absorbs some wavelengths, subtracting them from white light and reflecting the rest.
-Hue: the chromatic aspect of color (red, blue, green, etc.)
-Saturation: the amount of hue present in a light; white has zero saturation and red is fully saturated
-Brightness: physical intensity of light; the distance from black (zero brightness) in color space
III) Opponent Processes
1. Opponent Cells in the Lateral Geniculate Nucleus
-Some cells are excited by the L-cone onset in their center and inhibited by M-cone onsets in their surrounds --> color-opponent cell
-Color-opponent cell: a neuron whose output is based on a difference between sets of cones; different sources of chromatic information are pitted against each other
-Opponent color theory: the theory that perception of color is based on the output of three mechanisms, each of them on an opponency between two colors: red-green, blue-yellow, and black-white.
2. Psychophysical Roots of Opponent Color Theory
-Red and green are opposed to each other
-Unique hues: red, yellow, blue and green; can only be described with one color
3. Afterimages
-Negative Afterimages: used to see opponent colors in action
a. If look at one color, a subsequent achromatic region will appear to take on a color opposite to the original color
b. The first colored stimulus is called the adapting stimulus
c. The illusory color is the negative afterimage
-Neutral point: the point at which an opponent color mechanism is outputting no signal
4. Color in the Visual Cortex
-In opponent-process, found three opponency: red-green, blue-yellow, and black-white
-Mismatch between color perception and responses of LGN cells: LGN is not the end of color processing
-Axons go to visual cortex from LGN; LGN contains cells whose opponency is based on adding and subtracting the outputs of cones
-Achromatopsia: loss of color vision
IV) Does Everyone See Colors the Same Way?
1. Does Everyone See Colors the Same Way? - Yes
-Standard measures of color vision is same as others
2. No
-Color blindness: genes don't encode one or more of the three cone photopigments
a. Genes coding M and L-cone photopigments are in the X chromosome
b. Can still see color but 2D
-Deuteranope: has no M-cones; classify 560 and 610 lights as the same
-Protanope: no L-cones
-Tritanope: no S-cones
-Color anomalous: have three cone photopigments, but two is very similar
-Cone monochromat: one type of cone in retina; world is a shade of gray
-Agnosia: can see but fail to recognize
-Anomia: can recognize but fail to name
3. Maybe
-Cultural relativism: determined in part by the cultural environment.
-Color perception is not much influenced by culture and language
V) From the Color of Lights to a World of Color
-Unrelated colors: a color that can be experienced in isolation
-Related colors: a color, such as brown or gray, that is seen only in relation to other colors.
1. Color Constancy
-Illuminant: the light that illuminates a surface; not all illuminants are the same
-Color constancy: the tendency for colors to appear relatively unchanged in spite of substantial changes in the illuminant.
2. Problem witht he Illuminant
-Reflectance: percentage of light that is reflected
-What we perceive is the combination of illuminant and reflectance
-Mondrians: stimuli that are strongly influenced by the environment; the presence of other colors allowed the colors of the test patches to remain constant over a change of illumination
3. Physical Constraints Make Constancy Possible
-Assumptions of physics of the world influence color perception
Summary
1. Probably the most important fact to know about color vision is that lights and surfaces look colored because a particular distribution of wavelengths of light is being analyzed by a particular visual system. Color is a psychophysical phenomenon, not a physical phenomenon. Many animal species have some form of color vision. It seems to be important for identifying possible mates, possible rivals, and good things to eat. Color vision has evolved several time in several different ways in the animal kingdom.
2. Rod photoreceptors are sensitive to low (scotopic) light levels. There is only one type of rod photoreceptor. It yields one "number" for each location in the visual field. Rods can support only a one0dimensional representation of color from dark to light. Thus, scotopic vision is achromatic vision.
3. There are three types of cone photoreceptors with different sensitivities to the wavelength of light. Cones operate at brighter light levels, producing three "numbers" at each location; the pattern of activity over the different cone types defines the color.
4. If two regions of an image produce the same response in the three cones types, they will look identical; that is, they will be metamers. And they will look identical even if the physical wavelengths coming from the two regions are different.
5. In additive color mixture, two or more lights are mixed. Adding a light that looks blue to a light that looks yellow will produce a light that looks white. In subtractive color mixture, paints or other pigments that absorb some wavelengths and reflect others are mixed. Mixing a typical blue paint an a typical yellow paint will subtract most long and short wavelengths from the light reflected by the mixture, and the result will look green.
6. Information from the three cones is combined to form three opponent processes. Cones sensitive to long wavelengths (L-cones) are pitted against medium-wavelength (M) cones to create an L-M process that is roughly sensitive to the redness or greenness of a region. L+M cones are pitted against short-wavelength (S) cones to create a process roughly sensitive to the blueness or yellowness of a region. The third process is sensitive to the overall brightness of a region.
7. Color blindness is typically caused by the congenital absence or abnormality of one cone type - usually the L or M cones, usually in males. Most color-blind individuals are not blind to differences in wavelength. Rather their color perception is based on the outputs of two cone types instead of the normal three.
8. The goal of color vision is to describe the properties of surfaces in the world and to ignore the color of the light shining on the surface. Mechanisms of color constancy use implicit knowledge about the world to correct for the influence of different illuminants and to keep the apple looking red under a wider range of conditions.
-Color is the result of the interaction of physical stimulus with a particular nervous system.
1. The Problem of Univariance
-Different wavelengths of light give rise to different experiences of color, and the varying responses of this photoreceptor to different wavelengths could provide a basis for color vision.
-Problem: two different wavelengths can produce the same response –
-Output of a single photoreceptor is ambiguous à problem of univariance
II) Trichromacy
1. Rods and Cones
-Rods: sensitive to low light (scotopic); contain photopigment, rhodopsin; have same sensitivity to wavelength à can’t tell color
-Cones: three types of photoreceptors with different photopigment which give each type of cone a distinctive wavelength sensitivity
a. S-cones: short-wavelength cones; 440nm; blue cone
b. M-cones: middle-wavelength cones; peak at 535nm; green cone
c. L-cones: long-wavelength cones; peak at 565nm; red cone
-Different outputs from the three cones; any wavelength will produce a unique set of three responses
-If increase intensity of light, the response sizes wil change but the proportions will not
-Trichromacy: the theory that the color of any light is defined in our visual system by the relationships between a set of three numbers, the outputs of three receptor types now known to be the three cones.
2. Metamers
-Usually see a mixture of wavelengths
-A single wavelength can excite the cones equally
-The rest of the nervous system knows only what the cones tell it.
-Metamers: different mixtures of wavelengths that look identical; if mixture of red plus green produces the same cone output as the single wavelength of yellow, then the mixture and the single wavelength must look identical and are called metamers.
a. Mixing wavelengths does not change the physical wavelengths; If mix 500 and 600, the stimulus contains 500 and 600 nm wavelengths and not 550.
b. For the mixture of red and green light to look perfectly yellow, we would have to have just the right red and just the right green.
3. Lights and Fingerpaints
-Additive color mixture: a mixture of lights; taking one wavelength and adding it to another
-Subtractive color mixture: a mixture of pigments; if pigments a and b mix, some of the light shining on the surface will be subtracted by a, and some by b. Only the remainder contributes to the perception of color; pigment absorbs some wavelengths, subtracting them from white light and reflecting the rest.
-Hue: the chromatic aspect of color (red, blue, green, etc.)
-Saturation: the amount of hue present in a light; white has zero saturation and red is fully saturated
-Brightness: physical intensity of light; the distance from black (zero brightness) in color space
III) Opponent Processes
1. Opponent Cells in the Lateral Geniculate Nucleus
-Some cells are excited by the L-cone onset in their center and inhibited by M-cone onsets in their surrounds --> color-opponent cell
-Color-opponent cell: a neuron whose output is based on a difference between sets of cones; different sources of chromatic information are pitted against each other
-Opponent color theory: the theory that perception of color is based on the output of three mechanisms, each of them on an opponency between two colors: red-green, blue-yellow, and black-white.
2. Psychophysical Roots of Opponent Color Theory
-Red and green are opposed to each other
-Unique hues: red, yellow, blue and green; can only be described with one color
3. Afterimages
-Negative Afterimages: used to see opponent colors in action
a. If look at one color, a subsequent achromatic region will appear to take on a color opposite to the original color
b. The first colored stimulus is called the adapting stimulus
c. The illusory color is the negative afterimage
-Neutral point: the point at which an opponent color mechanism is outputting no signal
4. Color in the Visual Cortex
-In opponent-process, found three opponency: red-green, blue-yellow, and black-white
-Mismatch between color perception and responses of LGN cells: LGN is not the end of color processing
-Axons go to visual cortex from LGN; LGN contains cells whose opponency is based on adding and subtracting the outputs of cones
-Achromatopsia: loss of color vision
IV) Does Everyone See Colors the Same Way?
1. Does Everyone See Colors the Same Way? - Yes
-Standard measures of color vision is same as others
2. No
-Color blindness: genes don't encode one or more of the three cone photopigments
a. Genes coding M and L-cone photopigments are in the X chromosome
b. Can still see color but 2D
-Deuteranope: has no M-cones; classify 560 and 610 lights as the same
-Protanope: no L-cones
-Tritanope: no S-cones
-Color anomalous: have three cone photopigments, but two is very similar
-Cone monochromat: one type of cone in retina; world is a shade of gray
-Agnosia: can see but fail to recognize
-Anomia: can recognize but fail to name
3. Maybe
-Cultural relativism: determined in part by the cultural environment.
-Color perception is not much influenced by culture and language
V) From the Color of Lights to a World of Color
-Unrelated colors: a color that can be experienced in isolation
-Related colors: a color, such as brown or gray, that is seen only in relation to other colors.
1. Color Constancy
-Illuminant: the light that illuminates a surface; not all illuminants are the same
-Color constancy: the tendency for colors to appear relatively unchanged in spite of substantial changes in the illuminant.
2. Problem witht he Illuminant
-Reflectance: percentage of light that is reflected
-What we perceive is the combination of illuminant and reflectance
-Mondrians: stimuli that are strongly influenced by the environment; the presence of other colors allowed the colors of the test patches to remain constant over a change of illumination
3. Physical Constraints Make Constancy Possible
-Assumptions of physics of the world influence color perception
Summary
1. Probably the most important fact to know about color vision is that lights and surfaces look colored because a particular distribution of wavelengths of light is being analyzed by a particular visual system. Color is a psychophysical phenomenon, not a physical phenomenon. Many animal species have some form of color vision. It seems to be important for identifying possible mates, possible rivals, and good things to eat. Color vision has evolved several time in several different ways in the animal kingdom.
2. Rod photoreceptors are sensitive to low (scotopic) light levels. There is only one type of rod photoreceptor. It yields one "number" for each location in the visual field. Rods can support only a one0dimensional representation of color from dark to light. Thus, scotopic vision is achromatic vision.
3. There are three types of cone photoreceptors with different sensitivities to the wavelength of light. Cones operate at brighter light levels, producing three "numbers" at each location; the pattern of activity over the different cone types defines the color.
4. If two regions of an image produce the same response in the three cones types, they will look identical; that is, they will be metamers. And they will look identical even if the physical wavelengths coming from the two regions are different.
5. In additive color mixture, two or more lights are mixed. Adding a light that looks blue to a light that looks yellow will produce a light that looks white. In subtractive color mixture, paints or other pigments that absorb some wavelengths and reflect others are mixed. Mixing a typical blue paint an a typical yellow paint will subtract most long and short wavelengths from the light reflected by the mixture, and the result will look green.
6. Information from the three cones is combined to form three opponent processes. Cones sensitive to long wavelengths (L-cones) are pitted against medium-wavelength (M) cones to create an L-M process that is roughly sensitive to the redness or greenness of a region. L+M cones are pitted against short-wavelength (S) cones to create a process roughly sensitive to the blueness or yellowness of a region. The third process is sensitive to the overall brightness of a region.
7. Color blindness is typically caused by the congenital absence or abnormality of one cone type - usually the L or M cones, usually in males. Most color-blind individuals are not blind to differences in wavelength. Rather their color perception is based on the outputs of two cone types instead of the normal three.
8. The goal of color vision is to describe the properties of surfaces in the world and to ignore the color of the light shining on the surface. Mechanisms of color constancy use implicit knowledge about the world to correct for the influence of different illuminants and to keep the apple looking red under a wider range of conditions.
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