a portfolio approach to endogenous growth equilibrium and optimal policy abstract this paper develops a portfolio approach to modeling endogenous growth in continuous time that is especially suitable for addressing fiscal and financial issues in policy design the analysis focuses on the equilibrium relationship between fiscal and financial policy rates of return and wealth allocation we analyze two models the first is based on the arrow romer model with increasing returns and an external effect of capital on labor productivity the second draws on barro s analysis of government spending and endogenous growth in both models we study the equilibrium allocation and discuss the optimal fiscal and financial policy

can stabilisation policy reduce long run growth this paper presents an analysis of the long run implications of short term stabilisation policy the analysis is based on a simple stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology by virtue of the latter temporary shocks have permanent effects such that the cyclical and secular properties of output are related in particular smoother cyclical fluctuations may be associated with flatter secular trends implying a trade off between short term stabilisation and long term growth

long term growth and short term economic instability when learning by doing is at the origin of growth the long run growth rate should be negatively related to the amplitude of the business cycle if human capital accumulation is increasing and concave in the cyclical component of production empirical evidence strongly supports this nding for industrialized countries and european regions using the standard control variables we nd that countries and regions that have a higher standard deviation of growth and of unemployment have lower growth rates the result does not come from an e ect of instability on investment the negative relation however does not hold for non industrialized countries for which learning by doing may not to be the main engine of growth 2000 elsevier science b v all rights reserved jel classixcation o40 e32

the relationship between spot and futures oil prices do structural breaks matter abstract this paper examines the effect of structural breaks on the spot futures oil prices relationship we explore the impact of structural breaks on four critical issues including cointegrating relationships market efficiency under the expectation hypothesis and the no arbitrage rule causalities and forecasting performance of futures oil volatility as far as our empirical results exhibit the structural break we detect endogenously causes some influences on these issues which is in sharp contrast to the conclusions of existing studies our findings offer some implications and suggestions to researchers investors and policymakers

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

business cycles and long run growth in this survey we discuss the effect of macroeconomic fluctuations on long run growth from both a theoretical and empirical perspective we emphasize the opportunity cost approach which states that firms will intertemporally substitute productivity enhancing activities for regular production activity during recessions we provide aggregate evidence in favor of the opportunity cost approach copyright 1997 by oxford university press

fertility volatility and growth abstract empirically growth rates are negatively correlated with birth rates they are also correlated with production risk we argue that these stylized facts are related and arise jointly from the decision of how many children to have in a risky environment

differential taxation and the encouragement of risk taking abstract in the framework of expected utility maximization with risk aversion it is shown that the standard result about the tax encouragement of risk taking in a two asset model can be extended to the case of many risky assets there are no tax substitution effects within the set of risky assets in particular there is no substitution from less to more risky assets it is also demonstrated that the qualitative response pattern is independent of the assumed existence of a safe asset the by now common conclusion that capital income taxation encourages risk taking must therefore be interpreted with some care

risk the financial market and macroeconomic equilibrium growing recognition of the importance of stock market phenomena to the real economy underscores the need for models linking exogenous uncertainty asset market performance and the rest of the economy in an optimizing framework without certainty equivalence this paper constructs a three agent model with continuous time stochastic variables uncertain private production and government expenditure and forward looking rational agents the growth rate of output physical capital accumulation financial asset returns and uncertain inflation are determined as functions of the exogenous uncertainty in the economy analysis of the model finds that increased risk associated with government policy often reverses in an explainable way the conventional comparative static predictions of nonstochastic macro models

factor income taxation in a horizontal innovation model we consider the optimal factor income taxation in a standard r d model with technical change represented by an increase in the variety of intermediate goods in the model there are externalities both to working and to saving due to market power by firms incomplete appropriability of the benefits of inventions and the cost of economic activity in terms of public expenditures redistributing the tax burden from labor to capital will increase employment but in most cases reduce the rate of growth with conflicting effects on the deadweight loss from the externalities under plausible calibrations of the model the optimal tax rate on capital will be sizable

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

portfolio choice with non expected utility in continuous time non expected utility preferences which can distinguish intertemporal substitution from attitudes towards risk are extended to continuous time the consumption savings and portfolio problem is solved for constant intertemporal elasticity of substitution and constant relative risk aversion

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

agreement matters opec announcement effects on wti term structure abstract we investigate the relationships between different types of opec announcements and term structure variables level slope and curvature for wti crude oil futures we find that agreements to increase decrease production are positively negatively associated with changes in oil price levels in futures markets this finding is consistent with recent research for the first time in the literature we evaluate announcements which signify no change in production quotas in particular a no change announcement may be due to a unanimous agreement to maintain quotas unchanged or it may be due to a failure to agree on a change in quotas we find the term structure effects on slope and curvature of the two types of announcement to be statistically significantly different from each other our results suggest that markets are more optimistic following agreements to maintain production and more cautious following a failure to agree

macroeconomic policies growth and welfare in a stochastic economy an integrated stochastic equilibrium growth model is constructed and directed to various questions pertaining to monetary and tax policy two main issues addressed include 1 the tradeoff between the rate of capital accumulation and inflation in a stochastic environment and 2 economic welfare and optimal policy making the key result is that policy variables impact on welfare through their effect on the after tax nominal interest rate which therefore serves as an intermediate policy target the welfare maximizing interest rate target is derived and the author discusses its attainment through appropriate monetary and tax policies tradeoffs between policy instruments are also addressed copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

consequences of debt policy in a stochastically growing monetary economy the effects of open market operations and long versus short bond financing on risk in financial markets in a stochastically growing economy are studied an increase in short bonds resulting from exchanging long bonds increases the riskiness of long bonds and raises their real rate of return an open market purchase of either long or short bonds raises the price of long bonds and lowers their risk and real return however debt policy adjustments that affect the real return to long bonds do not affect real investment or growth so that overall the welfare consequences of debt policy are neutral copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

opec news announcements effects on oil price expectation and volatility abstract several times a year opec hosts conferences among its members to agree on further oil production policies prior to opec conferences there is usually rampant speculation about which decision concerning world oil production levels no change increase or cut will be announced the purpose of our investigation is to assess the impact of opec announcements on expectation and volatility of daily oil price changes returns we modify dummy variables indicating the day of an opec announcement to reflect a certain pattern of impact on return expectation and volatility a combination of regression and garch models can then differentiate between pre and post announcement effects and distinguish between the three kinds of opec decisions we find evidence for a post announcement effect on expectation which is negative in the case of a cut decision and positive in case of an increase or maintain decision while there is a positive pre announcement effect on volatility which is strongest in the case of a cut decision

does tax competition really promote growth abstract this paper considers the relationship between tax competition and growth in an endogenous growth model where there are stochastic shocks to productivity and capital taxes fund a public good which may be for final consumption or an infrastructure input absent stochastic shocks decentralized tax setting two or more jurisdictions maximizes the rate of growth as the constant returns to scale present with endogenous growth implies extreme tax competition stochastic shocks imply that households face a portfolio choice problem which dampens down tax competition and may raise taxes above the centralized level growth can be lower with decentralization our results also predict a negative relationship between output volatility and growth with decentralization

endogenous market thinness and stock price volatility thin equity markets cannot accommodate temporary bulges of buy or sell orders without large price movements the resulting volatility can induce risk averse transactors who face transaction costs to desert these markets thus thinness and the related price volatility may become joint self perpetuating features of an equity market irrespective of the volatility of asset fundamentals if however appropriate incentive schemes are adopted to encourage entry by additional investors this vicious circle can be broken eventually shifting the market to a selfsustaining superior equilibrium characterized by a higher number of transactors lower price volatility and larger supply of the asset a number of empirical studies cohen et al 1976 telser and higimbotham 1977 pagano 1986 tauchen and pitts 1983 have found that thin speculative markets are ceteris paribus more volatile than deep ones a plausible explanation for this finding is that thin markets are generally characterized by small numbers of transactors per unit time and thus their prices are more sensitive to the impact of individual traders demand shocks conversely in deep markets transactors are so many that the uncorrelated demand shocks experienced by individual traders tend to offset each other and leave market prices largely unaffected while this suggests a rationale for the observed relationship between market size and price volatility it does so by taking market size as the exogenous factor however the volatility of a speculative market may feed back on its size in the sense that the high liquidation risk implied by very volatile prices can induce potential entrants to keep out of the market this paper shows that in a stock market with transaction costs this interaction between thinness and volatility can produce multiple steady state equilibria some characterized by low trade and high volatility and others by high trade and low volatility whether the market will settle in one equilibrium or another depends entirely on the expectations held by economic agents sections 2 and 3 the existence of these multiple bootstrap equilibria can be explained heuristically as follows each additional trader generates a positive externality for other actual or potential traders by decreasing the riskiness of the stock lower risk in turn tends to attract more investors with the effect of raising stock prices and inducing corporations to issue additional equity we thus have a feedback loop between market size and price volatility where market size is measured both along the dimension of the number of traders and along that of the total stock of equities if however investors face transactions costs in the stock market this positive feedback may fail to be operative if the volume of trade is expected to be small investors with relatively high transaction costs will abstain from trading thus the market

exchange rate determination and asset prices in a stochastic small open economy abstract this paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents the stochastic processes describing the rate of monetary growth government expenditure private production and the foreign price level are taken to be exogenous determining all asset risks and returns and the equilibrium stochastic process describing the domestic inflation rate and the exchange rate the model is used to examine the effects of the means and variances of policy shocks on the equilibrium and the determinants of the foreign exchange risk premium

on the fluctuations in consumption and market returns in the presence of labor and human capital an equilibrium analysis abstract we examine the effects of human capital on consumption stock market and other fluctuations in a general equilibrium continuous time model a representative consumer worker investor derives utility from consumption and leisure a representative firm demands labor as the sole input to a stochastic production technology driven by general possibly nonmultiplicative shocks for cobb douglas utility and multiplicative shocks labor is nonstochastic and consumption and stock market volatility are equated as under no human capital deviations from this are analyzed for logarithmic utility and constant elasticity of substitution production technology cases are identified where the presence of labor causes consumption to be smoother than the stock market

communication by central bank committee members different strategies same effectiveness the paper assesses the communication strategies of the federal reserve the bank of england and the european central bank and their effectiveness we find that the effectiveness of communication is not independent from the decision making process the paper shows that the federal reserve has been pursuing a highly individualistic communication strategy amid a collegial approach to decision making while the bank of england is using a collegial communication strategy and highly individualistic decision making the european central bank ecb has chosen a collegial approach both in its communication and in its decision making assessing these strategies we find that predictability of policy decisions and the responsiveness of financial markets to communication are equally good for the federal reserve and the ecb this suggests that there may not be a single best approach to designing a central bank communication strategy

constant increasing and decreasing risk aversion with many commodities the arrow 1971 pratt 1964 theory of risk aversion has achieved important successes in the study of economic responses to risk this theory applies to a special class of cases in which the von neumann morgenstern expected utility hypothesis is used to explain these responses under this hypothesis individuals who maximize the expected utility of different utility functions will in general make different choices in the face of uncertainty for the purpose of predicting which of two different utility functions will lead to locally more risk averse economic behaviour the essential feature of these functions is their associated arrow pratt absolute risk aversion measures in fact the local comparisons can be extended to global comparisons if the arrow pratt absolute measures are uniformly comparable the arrow pratt measure of absolute risk aversion and a closely related measure of relative risk aversion also play crucial roles in the investigation of changes induced by wealth increases in the risk taking behaviour of a single expected utility maximizing individual this study has resulted in a satisfactory theory of increasing decreasing and constant absolute and relative risk aversion the special cases to which the arrow pratt theory is directly applicable are those in which the utility functions in question are functions of a single variable e g wealth unfortunately the models required to explain many economic decisions employ a version of the expected utility hypothesis in which the argument of the utility function is a multidimensional vector one example arises in the study of the consumption savings decision another occurs in the analysis of the combined consumption savings portfolio decision a final example is obtained in the investigation of demand for goods of uncertain quality the papers of kihlstrom mirman 1974 and diamond stiglitz 1974 have suggested a partial generalization of the arrow pratt theory of absolute risk aversion this

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

how do opec news and structural breaks impact returns and volatility in crude oil markets further evidence from a long memory process abstract since its formation opec through its conference decisions has been a major player in the world oil markets the purpose of this paper is to examine the impacts of opec s different news announcements on the conditional expectations and volatility of crude oil markets in the presence of long memory and structural changes to do so we first discern opec s oil production behavior in response to its cut maintain and increase decisions then by applying the arma garch class models to the two global benchmarks wti and brent over the period may 1987 through december 2012 we find strong evidence of long memory the empirical evidence also shows that opec s announcements especially the cut and the maintain decisions have a significant effect on both returns and volatility of the crude oil markets particularly that of the wti moreover we explore the possibility of structural breaks in the crude oil prices and detect five six breakpoints for the wti brent oil markets the presence of structural breaks reduces the persistence of volatility accounting for opec s scheduled news announcements in the presence of structural changes reduces the degree of volatility persistence and enhances the understanding of this volatility in the oil markets these results have several implications for policy makers oil traders and other participants in the crude oil markets

opec announcements and their effects on crude oil prices we investigate evidence on the effects of opec announcements on world oil prices by examining announcements from both official conferences and ministerial meetings on major international crudes including the key benchmarks and several other heavy and light grades with data from 1982 to 2008 we use event study methodology and find differentiation in the magnitude and significance of market responses to opec quota decisions under different price bands we also find some weak evidence of differentiation between light and heavy crude grades

capital income taxation and risk taking in a small open economy abstract how do capital income taxes affect household portfolio choice and growth we approach this question within the context of a stochastic model of a small open economy in which taxes on income from domestic capital equity and foreign bonds affect household portfolio choice welfare and the growth rate of the economy the theoretical and numerical analysis demonstrates the important role that risk plays in determining the mean and variability of growth as well as the conditions under which a higher tax rate can be welfare improving to shed more light on the complex theoretical interaction between taxes and risk taking we estimate a reduced form multinomial probit model of household portfolio choice using the method of simulated moments the empirical evidence is in stark contrast to the conventional wisdom we find that higher taxes make it less likely that the household will hold risky assets

fiscal policy inflation and the accumulation of risky capital the effect of government policies on the level of investment and inflation has become a major concern of policy makers in a number of industrial countries proposals to raise the level of business investment have included overall tax cuts tax incentives to spur investment and a reduction in the level of government spending this paper presents a theoretical apparatus to explore the relationships between fiscal policy government debt inflation and capital accumulation it develops a one sector growth model embodying a stochastic production function and government fiscal policy atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon fiscal policy by affecting asset yields affects the composition of portfolios the price of government bonds and the accumulation of capital the model is used to answer three general questions 1 does the level of government expenditure affect the rate of capital accumulation and inflation in steady state 2 does the mode of government finance when the choice is between an income tax and deficit finance affect these magnitudes 3 what is the effect of uncertainty in the productivity of capital on growth the analysis relates to several areas of literature 1 the analysis of the relationship between capital accumulation and debt 2 the theory of the demand for government debt 3 considerations of the effect of income taxation on risk bearing and 4 the analysis of capital accumulation under uncertainty 1 the effects on output and the capital stock of the government s expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory the literature on the burden of the debt as developed by modigliani 1961 diamond 1965 and phelps and shell 1969 for example implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth the theory of money and growth as represented by tobin 1965 and sidrauski 1967b also implies that government debt displaces capital but specifically recognizes the role of capital gains on government debt

evaluating risky consumption paths the role of intertemporal substitutability abstract in dynamic stochastic welfare comparisons a failure clearly to distinguish between risk aversion and intertemporal substitutability can result in misleading assessments of the impact of risk aversion on the welfare costs of consumption risk changes the problem arises in any setting in which uncertainty is propagated over time notably but not exclusively in economies with stochastic consumption trends regardless of the preference setup adopted an increase in risk aversion amplifies the per period costs of risks the weights consumers use to cumulate the per period costs of risks with persistent effects should however depend on intertemporal substitutability as well as on risk aversion under time separable expected utility preferences an increase in the period utility function s curvature therefore alters the welfare effect of risk for reasons that are in part unrelated to risk aversion to illustrate these points i reconsider lucas s estimate of the cost of consumption instability for the postwar united states

the spirit of capitalism asset pricing and growth in a small open economy abstract conventional models of economic behavior have failed to account for a number of observed empirical regularities in macroeconomics and international economics this may be due to preference specifications in conventional models in this paper we consider preferences with the spirit of capitalism the desire to accumulate wealth as a way of acquiring status we analyze a number of potential effects of international catching up and the spirit of capitalism on savings growth portfolio allocation and asset pricing moreover we obtain a multi factor capital asset pricing model capm our results show that status concerns have non trivial effects on savings growth portfolio allocation asset prices and the foreign exchange risk premium

optimal government finance policy and exchange rate management in a stochastically growing open economy abstract optimal monetary policy is analyzed in a stochastic small open economy consisting of risk averse representative agents the analysis shows how optimal monetary policy should be directed toward an optimal interest rate target this target which maximizes the intertemporal utility of the representative agent is determined by balancing off the marginal gains of a higher interest rate on increased growth and the future consumption it generates against the marginal losses stemming from a reduction in the holdings of real money balances the paper shows how an appropriately set monetary growth rate eliminates the need for continuous intervention in the exchange market

hedging in incomplete markets with hara utility in the context of merton s original problem of optimal consumption and portfolio choice in continuous time this paper solves an extension in which the investor is endowed with a stochastic income that cannot be replicated by trading the available securities the problem is treated by demonstrating using analytic and in particular viscosity solutions techniques that the value function of the stochastic control problem is a smooth solution of the associated hamilton jacobi bellman hjb equation the optimal policy is shown to exist and given in a feedback form from the optimality conditions in the hjb equation at zero wealth a fixed fraction of income is consumed for large wealth the original merton policy is approached we also give a sufficient condition for wealth under the optimal policy to remain strictly positive

the influence of industry downturns on the propensity of product versus process innovation this article sheds light on how industry fluctuations affect firms propensity to innovate we test two seemingly conflicting arguments that suggest how firms are more or less inclined to engage in innovation activities during industry fluctuations by studying a panel of 622 italian manufacturing firms during the period 1995 2003 we show how differentiating between product and process innovation may help reconcile the theory of opportunity cost of innovation with the cash flow effect argument we find that industry downturns are related to product and process innovation in different ways firms tend to invest in product innovation rather than process innovation in downturns the findings have implications for both theory showing when the opportunity cost of innovation dominates and research design showing the importance of both the input and output measures in innovation studies and how they might influence the results

retirement pensions and ageing we study the effects of demographic shocks and changes in the pension system on the macroeconomic performance of an advanced small open economy facing a given world interest rate we construct an overlapping generations model which includes a realistic description of the mortality process individual agents choose their optimal retirement age taking into account the time and age profiles of wages taxes and the public pension system the early retirement provision in most pension systems acts as a trap inducing most workers to retire well before the normal retirement age simulations show that pension reform must be drastic for it to have any effects on the retirement behaviour of workers

the effects of expected and unexpected volatility on long run growth evidence from 18 developed economies 1 introductionalthough there is disagreement about the magnitude many economists agree that business cycles have negative consequences for welfare in the short run by causing output to deviate from potential as a result most policymakers regard reducing volatility as a desirable goal however there is disagreement about the long run consequences of business cycles some models suggest that business cycle volatility should reduce long run growth in these models increased volatility increases risk reduces investment and slows the growth rate of output in addition volatility may reduce the diffusion rate of new technology which might reduce the long run growth rate hence business cycles have negative short run consequences by causing output to deviate from the trend and negative long run consequences by slowing the long run growth rate if these models are accurate then the welfare consequences of business cycles are more severe than previously thought an alternative view of the growth volatility relationship suggests that there may be a long run benefit to business cycles in these models increased volatility stimulates inventive activity which increases the long run growth rate reduced volatility will be beneficial in the short run but if reduced volatility decreases the long run growth rate then there are costs to stabilization as a result policymakers would face a trade off between business cycle volatility and long run growth in addition it is possible that the long run costs of stabilization policy might exceed the short run benefits this article sheds new light on the growth volatility relationship first this article focuses on two types of volatility expected volatility and unexpected volatility this allows a more thorough test of the two general hypotheses linking growth to volatility second this article empirically examines the relationship between growth and volatility for 18 industrialized nations over a 110 year period therefore the analysis avoids the problem of short time span of data this article proceeds as follows section 2 clarifies the relationship between the competing hypotheses as well as between expected and unexpected volatility section 3 analyzes the growth volatility relationship without making the distinction between expected and unexpected volatility section 4 uses generalized method of moments gmm and ordinary least squares ols along with panel data to estimate the effects of expected and unexpected volatility on growth section 5 concludes with suggestions for further research 2 the growth volatility relationshipthe view that business cycle volatility reduces the long run growth rate focuses on risk bernanke 1983 ramey and ramey 1991 and pindyck 1991 argue that volatility creates risk about future demand and that firms are unlikely to invest in new plants and equipment if they are unsure about the demand for their product the greater the volatility in output the more uncertain future demand becomes the greater the risk and the less likely firms are to invest this negative relationship between volatility and investment might lead to a negative relationship between growth and volatility increased volatility decreases investment which then slows the growth rates of the capital stock and output the effect would be especially pronounced if new technology is embodied in new capital goods ramey and ramey 1995 and macri and sinha 2000 have found results consistent with this view of the growth volatility relationship using aggregate data this view emphasizes the risks associated with unexpected changes in output when firms cannot accurately forecast the demand for their goods they reduce capital expenditures which reduces growth the view that business cycles might increase long run growth focuses on the opportunity cost of productivity enhancing activities peas bean 1990 and saint paul 1993 view firms as solving an intertemporal profit maximizing problem in which producing goods provides profits today but engaging in peas produces profits only in the distant future

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

labor supply flexibility and portfolio choice in a life cycle model abstract this paper examines the effect of the labor leisure choice on portfolio and consumption decisions over an individual s life cycle the model incorporates the fact that individuals may have considerable flexibility in varying their work effort including their choice of when to retire given this flexibility the individual simultaneously determines optimal levels of current consumption labor effort and an optimal financial investment strategy at each point in his life cycle we show that labor and investment choices are intimately related the ability to vary labor supply ex post induces the individual to assume greater risks in his investment portfolio ex ante

do opec announcements influence oil prices abstract this paper investigates the effect of opec production decisions increase cut maintain on both wti and brent crude oil prices between q1 1991 and q1 2015 by employing the event study methodology and by using two indices as benchmarks bci and s p gsci we employ an egarch model to take into account the high volatility of oil prices and some stylized facts characterizing this volatility we find that the impact of opec s announcements on oil prices i evolves over time and among decisions ii is more significant for production cut and maintain iii is different for wti and brent prices and iv is sensitive to the benchmark index moreover opec s decisions depend on the exploration and extraction cost of more expensive unconventional oil resources

endogenous growth and the procyclical behaviour of productivity abstract in this paper a model with endogenous growth is used to explain the procyclical behaviour of productivity periods when the marginal return to goods production is high are associated with low levels of human capital formation and other investment like activities in particular the model successfully explains the surges in productivity exhibited in the uk during wartime and the apparently permanent effect of the level of defence spending on the growth of total factor productivity

feasibility and transversality conditions for models of portfolio choice with non expected utility in continuous time abstract this note explores the feasibility and transversality conditions for the continuous time consumption portfolio problem with generalized isoelastic gie preferences unlike the case of time separable preferences the transversality condition usually is neither necessary nor sufficient for the feasibility condition to be satisfied furthermore ordinally equivalent representations of gie preferences produce different transversality conditions

securities markets with increasing numbers of traders abstract i show that the entry of new traders into a perfectly competitive securities market that is initially in competitive equilibrium leads to a series of equilibria each of which is pareto superior to the previous one thus all participants in the market gain from the entry of additional traders both existing participants and new entrants gain this provides an alternative formalization of the idea that depth or liquidity in a market is beneficial to all the result occurs although the entry of a new participant may in principle alter market prices in a way that is unfavorable to existing participants the proof is based on the classical welfare properties of competitive equilibria and on the fact that competitive equilibria are contained in the core and does not use assumptions about market imperfections or imperfect information

adjustment costs and investment in a stochastic endogenous growth model abstract this paper introduces costly investment into a stochastic equilibrium macro model investment is determined by an endogenously determined tobin q that depends upon the structural parameters of the economy the model permits a sequence of economies allowing for an increasing role of government to be studied the effects of both a structural change taking the form of a higher variance of productivity shocks and fiscal policy on the equilibrium is analyzed paying particular attention to the impact on the growth rate and its variability the role of the tobin q in determining the response of the mean growth rate and its variance is emphasized

production technologies in stochastic continuous time models abstract properties of dynamic stochastic general equilibrium models can be revealed by either using numerical solutions or qualitative analysis very precise and intuition building results are obtained by working with models which provide closed form solutions closed form solutions are known for a large class of models some of which however have some undesirable features such as potentially negative output this paper offers closed form solutions for models which are just as tractable but do not suffer from these shortcomings

cross country evidence on the link between volatility and growth this paper presents empirical evidence against the standard dichotomy in macroeconomics that separates growth from the volatility of economic fluctuations in a sample of ninety two countries as well as a sample of oecd countries the authors find that countries with higher volatility have lower growth the addition of standard control variables strengthens the negative relationship the authors also find that government spending induced volatility is negatively associated with growth even after controlling for both time and country fixed effects copyright 1995 by american economic association

random competitive exchange price distributions and gains from trade abstract this paper studies the behavior of a competitive exchange under uncertain preferences and random indivisible endowments we obtain explicit closed form results for the price distribution and expected gains from trade both for case where the market is thin and the number of traders is low and for the asymptotic case where the number of traders tends to infinity we demonstrate that increasing the number of traders reduces price variability and increases the expected gains from trade and that increasing the variability of traders reservation prices increases price variability as well as the expected asymptotic gains from trade