

NadarayaWatson estimator
Used to estimate regression functions based on data {X_{i}, Y_{i}}. See the equation in the middle of Hardle's page 25. The equation produces an estimate for Y at any requested value of X (not only the ones in the data), using as input (1) the data set {X_{i}, Y_{i}}, and (2) a kernel function (which see) describing the weights to be put on values in the data set near X in estimating Y. The kernel function itself can be parameterized by the choice of its functional form and its 'bandwidth' which scales its width in the Xdirection. (!@#$ must add the equation when math avail in html)

NAICS
North American Industry Classification System, a set of industry categories standardized between the U.S. and Canada. In the U.S. it is taking over from the SIC code system.

NAIRU
NonAccelerating Inflation Rate of Unemployment. That is, a steady state unemployment rate above which inflation would fall and below which inflation would rise. By some estimates the NAIRU is 6% in the U.S. NAIRU is approximately a synonym for the natural rate of unemployment.
Paraphrased from Eisner's article: The essential hypotheses of the theory that there is a stable NAIRU are that (1) an existing rate of inflation selfperpetuates by generating expectations of future inflation; (2) higher unemployment reduces inflation and lower unemployment raises inflation.

narrow topology
Synonym for weak topology.

NASDAQ
National Association of Securities Dealers automatic quotation market. A mostlyelectronic market of stocks in the United States. There is no 'pit'  market makers in each stock offer buy and sell prices which are different.

Nash Equilibrium
A profile of strategies such that given the other players conform to the (hypothesized) equilibrium
strategies, no player has an incentive to unilaterally deviate from his (hypothesized) equilibrium
strategy. The selfreference in this definition can be made more explicit by saying that a Nash
equilibrium is a profile of strategies that form 'best responses' to one another, or a profile of
strategies which are 'optimal reactions' to 'optimal reactions'.
Nash equilibrium is the pure form of the basic concept of strategic equilibrium; as such, it is
useful mainly in normal form games with complete information.
When allowing for randomized strategies, at least one Nash equilibrium
exists in any game(unless the players' payoff functions are irregular); for an example, see the game
of matching pennies in the entry on game theory. Typically, a game possess several
Nash equilibria, and the number of these is odd.

Nash equilibrium
Sets of strategies for players in a noncooperative game such that no single one of them would be better off switching strategies unless others did.
Formally: Using the normal form definitions, let utility functions as functions of payoffs for the n players u_{1}() ... u_{n}() and sets of possible actions A=A_{1} x ... x A_{n}, be common knowledge to all the players. Also define a_{i} as the vector of actions of the other players besides player i. Then a Nash equilibrium is an array of actions a^{*} in A such that u_{i}(a^{*}) >= u_{i}(a_{i}^{*}  a_{i}) for all i and all a_{i} in A_{i}. In a twoplayer game that can be expressed in a payoff matrix, one can generally find Nash equilibria if there are any by, first, crossing out strictly dominated strategies for each player. After crossing out any strategy, consider again all the strategies for the other player. When done crossing out strategies, consider which of the remaining cells fail to meet the criteria above, and cross them out too. At the end of the process, each player must be indifferent among his remaining choices, GIVEN the action of the others.
In most noncooperatives games of interest, each player has to calculate what the strategies of the others will be before his own Nash equilibrium strategy can become clear. Introspection may also be needed to envision his own payoffs. This approach tends to presume that the payoffs are known, or knowable, and that the players are rational. An alternative line of thought with its own detailed theory, is that the players can arrive at Nash equilibria by repeated experimentation, searching for an optimal strategy. Theories of learning and evolutionary game theory are related.
A Nash equilibrium represents a prediction if there is a real world analog to the game.

Nash product
The maximand of the Nash Bargaining Solution: (s_{1}d_{1})(s_{2}d_{2}) where d_{1} and d_{2} are the threat points, and s_{1 } and s_{2} are the shares of the good to be divided.

Nash strategy
The strategy of a player in a Nash equilibrium.

national accounts
A measure of macroeconomic categories of production and purchase in a nation. The production categories are usually defined to be output in currency units by various industry categories, plus imports. (Output is usually approximately the same as industry revenue.) The purchase categories are usually government, investment, consumption, and exports, or subsets of these. The amount produced is supposed to be approximately equal to the amount purchased. Measures are in practice made by national governments.
a different definition, by Peter Wardley:
national accounts: a measure of all the income received by economic actors within an economy. It can be measured as expenditure (on investment and consumption), income (wages, salaries, profits and rent) or as the value of output (expenditure of all goods and services). Inevitably these three different methods of estimating national accounts will produce different results but these discrepancies are usually relatively small.

natural experiment
If economists could experiment they could test some theories more quickly and thoroughly than is now possible. Sometimes an isolated change occurs in one aspect of the economic environment and economists can study the effects of that change as if it were an experiment; that is, by assuming that every other exogenous input was held constant. An interesting example is that of the U.S. ban on the television and radio broadcast of cigarette advertising which took effect on Jan 2, 1971. The ban seems to have had substantial effects on industry profitability, the rate of new entrants, the rate of consumers switching brands and types of cigarettes, and so forth. The ban can be used as a natural experiment to test theories of the effects of advertising.

natural increase
population increase due to more births and less mortality

natural rate of unemployment
"The natural rate of unemployment is the level which would be ground out by the Walrasian system of general equilibrium equations, provided that there is [e]mbedded in them the actual structural characteristics of the labor and commodity markets, including market imperfections, stochastic variability in demands and supplies, the cost of gathering information about job vacancies and labor availiabilities, the costs of mobility, and so on."  Milton Friedman, "The Role of Monetary Policy" AER March 1968 121 This is a longrun rate. Transitory shocks could move unemployment away from the natural rate. Real wages would increase with productivity as long as unemployment were kept at the natural rate.

Natural sampling
In research on probabilistic inference the "natural sampling"approach offers an explanation for people´s poor performance on tasks concerning probability estimates like the baserate fallacy. Natural Sampling refers to the sequential acquisition of information. It is assumed that, as humans evolved, the "natural" format of information was frequencies as actually experienced in a series of events, rather than probabilities or percentages. Because of this "evolutionary advantage" of frequencies, people have less problems in processing frequencies rather than probabilities. Thus, a frequency presentation format leads to better performances in a number of tasks in judgment and decision making.

NBER
The U.S. National Bureau of Economic Research. At 1050 Massachusetts Avenue, Cambridge, MA 02138, USA. Focuses on macroeconomics. Data source by ftp: ftp nber.harvard.edu. NBER web site

NBS
Nash Bargaining Solution

NE
Nash Equilibrium

NELS
National Educational Longitudinal Survey, a U.S. survey administered to 24,599 eighth grade students from 1052 schools in 1988, with followup surveys to the same students every two years afterward. Many similar questions were asked of the parents of the students as well to obtain more accurate information.

neoclassical growth model
A macro model in which the longrun growth rate of output per worker is determined by an exogenous rate of technological progress, like those following from Ramsey (1928), Solow (1956), Swan (1956), Cass (1965), and Koopmans (1965).

neoclassical model
Often means Walrasian general equilibrium model.
Describes a model in which firms maximize profits and markets are perfectly competive.

neolassical
According to Lucas (1998), neoclassical theory has explicit reference to preferences. Contrast classical.

nests
We say "model A nests model B" if every version of model B is a special case of model A. This can be said of either structural (theoretical) or estimated (econometric) models.
Example: Model B is "Nominal wage is an affine function of the age of the worker." Model A is "Nominal wage is an affine function of the age and education of the worker." Here model A nests model B.

netput
Stands for "net output". A quantity, in the context of production, that is positive if the quantity is output by the production process and negative if it is an input to the production process. A technology is often be defined in a model by restrictions on the vector of netputs with the dimension of the number of goods.

network externalities
The effects on a user of a product or service of others using the same or compatible products or services. Positive network externalities exist if the benefits are an increasing function of the number of other users. Negative network externalities exist if the benefits are a decreasing function of the number of other users.
Katz and Shapiro, 1985 consider two types of positive network externalities. A communication externality or direct externality describes a communication network in which the more subscribers there are the greater the services provided by the network (e.g. the telephone system or the Internet). An indirect externality or hardwaresoftware externality exists if a durable good (e.g. computer) is compatible with certain complementary goods or services (e.g. software) and the owner of the durable good benefits if their system is compatible with a large pool of such complementary goods. Liebowitz and Margolis, 1994 have an insightful commentary on this subject, and offer among other things the following example: "if a group of breakfateaters joins the network of orange juice drinkers, their increased demand raises the price of orange juice concentrate, and thus most commonly effects a transfer of wealth from their fellow network members to the network of orange growers." The new group negatively affects the old group without compensation, but it is through the price system and is therefore a pecuniary externality. These authors strongly make the case that big network externalities are not often observed, and cite evidence against two common examples, the QWERTY and VHS standards.

neutral technological change
Refers to the behavior of technological change in models. Barro and SalaiiMartin (1995), page 33, refer to three types:
A technological innovation is Hicks neutral (following Hicks (1932)) if the ratio of capital's marginal product to labor's marginal product is unchanged for a given capital to labor ratio. That is: Y=T(t)F(K,L).
A technological innovation is Harrod neutral (following Hicks (1932)) if the technology is laboraugmenting ... contd, see barro p 33 ...

neutrality
"Money is said to be neutral [in a model] if changes in the level of nominal money have no effect on the real equilibrium."  Blanchard and Fisher, p. 207 . Money might not be neutral in a model if changes in the level of nominal money induce selffulfilling expectations or interact with real frictions like fixed nominal wages, fixed nominal prices, information asymmetries, or slow reactions by households to adjust their money holding quickly. (This list from a talk by Martin Eichenbaum, 11/11/1996.)

New Classical view
On policy  that no systematic (that is, predictable) monetary policy matters.

New Economy
A proper noun, describing one of several aspects of the late 1990s. Lipsey (2001) has discerned these meanings: (1) An economy characterized by the absence of business cycles or inflations. (2) The industry sectors producing computers and related goods and presumably services such as ecommerce. (3) An economy characterized by an accelerated rate of productivity growth. (4) The 'full effects on social, economic, and political systems of the [information and communications technologies] revolution' centered on the computer. This is Lipsey's meaning.

new growth theory
Study of economic growth. Called 'new' because unlike previous attempts to model the phenomenon, the new theories treat knowledge as at least partly endogenous. R&D is one path. Hulten (2000) says that the new growth theories have the new assumption that the marginal product of capital is constant rather than in diminishing as in the neoclassical theories of growth. Capital often in the new growth models includes investments in knowledge, research and development of products, and human capital.

new institutionalism
A school of thought in economic history, linked to the work of Douglas North.
New institutionalist. 'This body of literature has claimed that, in history, institutions matter, and in empirical analyses of history, institutions typically refer to those provided by the state: a currency, stock market, property rights, legal system, patents, insurance schemes, and so on.' The literature Hopcroft cites includes: North 1990b; North 1994; North and Thomas 1973; North and Weingast 1989; Bates 1990, p. 52; Campbell and Lindberg 1990; Eggertson 1990, pp 2478; Cameron 1993, p. 11. p 35: 'Using the terminology of the new institutionalizsm, field systems in preindustrial Europe were produces of local institutions. Institution is defined as a system of social rules, accompanied by some sort of enforcement mechanism. Rules may be formal in nature  for exapmle, legislation, constitutions, legal specifications of property rights, and so on (Coase 1960; Barzel 1989; North 1982: 23)  or informal in nature  for example, cultural norms, customs, and mores (North 1990a: 192; Knight 1992) . . . .' All these are from Hopcroft, Rosemary L. 'Local Institutions and Rural Development in European History' Social Science History 27:1 (spring 2003), pp 2574.

NIPA
Stands for the National Income and Product Accounts. This is a GDP account for the United States.

NLLS
Stands for Nonlinear least squares, an estimation technique. The technique is to choose the parameter, b, of assumed distribution pdf f(), to minimize this expression: sum over all i of (y_{i}f(x_{i}, b))^{2} where the x_{i}'s are the independent data, y_{i}'s are the dependent data.

NLREG
Stands for Nonlinear Statistical Regression program, discussed at http://www.sandh.com/sherrod/nlreg.html.

NLS
National Longitudinal Survey, done at the U.S. Bureau of Labor Statistics.

NLSY
"The National Longitundinal Survey of Youth is a detailed survey of more than 12,000 young people from 1979 through 1987. The original 1979 sample contained 12,686 youths age 14 to 21, of whom 6,111 represented the entire population of youths and 5,295 represented an oversampling of civilian Hispanic, black, and economically disadvantages nonHispanic, nonblack youth. An additional 1,280 were in the military. [ed.: meaning, their parents were?] The survey had a remarkably low attrition rate  4.9 percent through 1984  and thus represents the largest and best available longitudinal data set on youths in the period under study."
NLS web site.

NLSYW
National Longitudinal Survey of Young Women, done at the U.S. Bureau of Labor Statistics.

NNP
Net National Product. "Net national product is the net market value of the goods and services produced by labor and property located in [a nation]. Net national product equals GNP [minus] the capital consumption allowances, which are decudted from gross private domestic fixed investment to express it on a net basis."  Survey of Current Business

noarbitrage bounds
Describes the outer limits on a price in a model where that price must meet a noarbitrage condition. In many models a price is completely determined by a noarbitrage condition, but if some frictions are modeled  transactions costs or liquidity constraints, for example  then a noarbitrage condition defines a range of possible prices, because tiny variations from the theoretical noarbitrage price are not large enough to make arbitrage profits feasible. The range of possible prices is bounded by the "noarbitrage bounds"

noise trader
In models of asset trading, a noise trader is one who doesn't have any special information but trades for exogenous reasons; e.g., to raise cash.
Such trades make a market liquid for other traders; that is, they give a given trader someone to exchange with.

noncentral chisquared distribution
If n random values z_{1}, z_{2}, ..., z_{n} are drawn from normal distributions with known nonzero means and constant variance, then squared, and summed, the resulting statistic is said to have a noncentral chisquared distribution with n degrees of freedom: z_{1}^{2} + z_{2}^{2} + ... + z_{n}^{2}) ~ X^{2}_{(n, q)} This is a twoparameter family of distributions. Parameter n is conventionally labeled the degrees of freedom of the distribution. Parameter q is the noncentrality parameter. It is related to the means m_{i} and variance s^{2} of the normal distributions thus: q=(sum for i=1 to n) of (m_{i}^{2} / s^{2}). The mean of a distribution that is X^{2}_{(n, q)} is (n+q). The variance of that distribution is (2n+4q).

noncooperative game
A game structure in which the players do not have the option of planning as a group in advance of choosing their actions. It is not the players who are uncooperative, but the game they are in.

nondivisibility of labor
If one models labor as contractible in continuous units, workers as identical, and workers' utility functions as concave in leisure and income, an optimal outcome is often for all workers to work some fraction of the time. Then none are unemployed. We do not observe this.
If instead one presumes that labor cannot be effectively contracted in continuous units but must be purchased in blocks (e.g. of eight hours per day, or forty per week), this aspect can generate unemployed workers in the model while others work long schedules, even if the workers are otherwise identical. Labor may have to be sold in such blocks for several observed reasons: (a) because there are fixed costs to the employer of employing each worker; (b) because there are fixed costs (e.g. transportation; dressing for work) to the employee of each job. This idea of labor as nondivisible has been used in macro models by Gary Hansen (1985) and Richard Rogerson (1988).

nonergodic
A time series process {x_{t}} is nonergodic if it is so strongly dependent that it does not satisfy the law of large numbers. (Paraphrased straight from Wooldridge.)

nonlinear pricing
A pricing schedule where the mapping from quantity purchased to total price is not a strictly linear function. An example is affine pricing.

nonparametric
In the context of production theory (e,g, hulten 2000 circa p 21) a nonparametric index number would not be derived from a specific functional form of the production function.
See also nonparametric estimation.

nonparametric estimation
Allows the functional form of the regression function to be flexible. Parametric estimation, by contrast, makes assumptions about the functional form of the regression function (e.g. that it is linear in the independent variables) and the estimate is of those parameters that are free.

nonprofit
A nonprofit organization is one that has committed legally not to distribute any net earnings (profits) to individuals with control over it such as members, officers, directors, or trustees. It may pay them for services rendered and goods provided.

nonuse value
Synonym for existence value.

NORC
National Opinion Research Center at the University of Chicago.

normal distribution
A continuous distribution of major importance. Cdf is often denoted by capital F(x). Pdf is often denoted by little f(x). The cdf and pdf are not representable in html. The distribution has two parameters, mean m and variance s^{2}. Has momentgenerating function M(t)=exp(m*t + .5*s^{2}t^{2}).

normal form
A way of writing out a game. Formally: let n be the number of players, let A_{i} be the set of possible actions (or strategies) of player i, and let u_{i}:A_{1} x A_{2} x ... x A_{n} > R represents the payoff function (or utility function) for player i. That is once all players have chosen that set of actions, the payoff for player i is the value of that function. Then the normal form of the game is characterized by G = (A_{1}, A_{2}, ... A_{n}, u_{1}, ... , u_{n})

Normal form vs extensive form game
In normal (or strategic) form games, the players move (choose their actions) simultaneously.
Whenever the strategy spaces of the players are discrete (and finite), the game can be represented
compactly as an NxMgame (see below).
By contrast, a game in extensive form specifies the complete order of moves (along the direction of
time), typically in a game tree (see below), in addition to the complete list of payoffs and the
available information at each point in time and under each contingency. As any normal form can be
'inflated' to an extensive form game, concepts of strategic equilibrium in general relate to extensive
form games. Whenever the exact timing of actions is irrelevant to the payoffs, however, a game is
represented with more parsimony in normal form.

notation
Unusual notation, hard to put in glossary for definition, is listed here:
2^{A} has a particular meaning. For a finite set A, the expression 2^{A} means "the set of all subsets of A.". If as is standard we denote the number of elements in set A by A, the number of elements in 2^{A} is 2^{A}.

NPV
Net Present Value. Same as PDV (present discounted value).

NSF
The U.S. National Science Foundation, which funds much economic research.

null hypothesis
The hypothesis being tested. "The hypothesis that the restriction or set of restrictions to be tested does in fact hold." Often denoted H_{0}.

numeraire
The money unit of measure within an abstract macroeconomic model in which there is no actual money or currency. A standard use is to define one unit of some kind of goods output as the money unit of measure for wages.

NxM game
A normal form game for two players, where one player has N possible actions and the other
one has M possible actions. In such a game, the payoffs pairs to any strategy combination
can be neatly arranged in a matrix, and the game is easily analyzable. NxMgames thus provide an
easy way to gain an idea of what the structure of a more complex game looks like.

NYSE
New York Stock Exchange, the largest physical exchange in the U.S. Is in New York City.
