trading volume and information revelation in stock markets i consider a market microstructure model in which the rates of public and private informa tion arrival are probabilistic the latter depends on the availability of private information that is stochastically changing over time in equilibrium traders estimate the availability of private information using past periods trading volume and use this information to adjust their strategies the time series properties include contemporaneous correlation between price variability and volume and autocorrelation in price variability similar to garch the model explains why trading volume contains useful information for predicting volatil ity and provides predictions on the limit and market order placement strategies of traders

generating real persistent effects of monetary shocks how much nominal rigidity do we really need abstract this paper attempts to assess whether money can generate persistent economic fluctuations in dynamic general equilibrium models of the business cycle we show that a small nominal friction in the goods market can make the response of output to monetary shocks large and persistent if it is amplified by real wage rigidity in the labor market we also argue that for plausible levels of real wage rigidity a small degree of nominal stickiness is sufficient for money to produce economic fluctuations as persistent as those observed in the data

estimating the intensity of choice in a dynamic mutual fund allocation decision abstract the paper analyzes the intensity of choice in an agent based financial optimization problem mean variance optimizing agents choose among mutual funds of similar styles but varying performance we specify a model for the allocation of new funds switching between funds and withdrawals and obtain statistically significant estimates of the intensity of choice parameter this estimate is also given economic interpretation through the underperformance of funds that use an active style we find that agents with relative risk aversion of 2 will move 1 of their funds from active to passive for an extra 34 basis points of return

the possibility of informationally efficient markets abstract a rational expectations equilibrium with positive demand for financial information does exist under fully revealing asset price contrary to a wide held conjecture whereas a continuum of investors is inconsistent with fully revealing equilibrium finitely many investors with average portfolios demand information in equilibrium if they can adjust portfolio size in an additive signal return model more information diminishes the expected excess return of a risky asset so that investors who only have a choice of portfolio composition or whose asset endowments strongly differ from the average portfolio are worse off under fully revealing price information market equilibria both with and without information acquisition are pareto efficient

the ir relevance of real wage rigidity in the new keynesian model with search frictions we explore the role of real wage dynamics in a new keynesian business cycle model with search and matching frictions in the labor market both job creation and destruction are endogenous we show that the model generates counterfactual inflation and labor market dynamics in particular it fails to generate a beveridge curve vacancies and unemployment are positively correlated introducing real wage rigidity leads to a negative correlation and increases the magnitude of labor market flows to more realistic values however inflation dynamics are only weakly affected by real wage rigidity this is because of the presence of labor market frictions which generate long run employment relationships the measure of real marginal cost that is relevant for inflation dynamics via the phillips curve contains a dynamic component that does not necessarily move with real wages

real rigidities and the non neutrality of money rigidities in real prices are not sufficient to create rigidities in nominal prices and real effects of nominal shocks and by themselves small frictions in nominal adjustment such as costs of changing prices create only small non neutralities but this paper shows that substantial nominal rigidity can arise from a combination of real rigidities and small nominal frictions the paper shows the connection between real and nominal rigidity given the presence of nominal frictions both in general and for two specific sources of real rigidity one arising from goods market imperfections and the other from labour market imperfections

vacancies unemployment and the phillips curve abstract the canonical new keynesian phillips curve has become a standard component of models designed for monetary policy analysis however in the basic new keynesian model there is no unemployment all variation in labor input occurs along the intensive hours margin and the driving variable for inflation depends on workers marginal rates of substitution between leisure and consumption in this paper we incorporate a theory of unemployment into the new keynesian theory of inflation and empirically test its implications for inflation dynamics we show how a traditional phillips curve linking inflation and unemployment can be derived and how the elasticity of inflation with respect to unemployment depends on structural characteristics of the labor market such as the matching technology that pairs vacancies with unemployed workers we estimate on us data the phillips curve generated by the model while we can reject the baseline new keynesian phillips curve in favor of the search frictions specification we show it is still too stylized to fully describe the dynamics of firms marginal costs

monetary policy and real wage cyclicality this article points to the potential role of monetary policy in affecting the degree of real wage cyclicality we show that the degree and direction of real wage cyclicality is determined by the interaction of i the returns to scale in production ii the nature of aggregate shocks and iii monetary policy given that production technology is fairly constant in the short run we suggest that variations in the real wage output covariance depend largely on the combination of the latter two identifying well documented monetary policy phases in six major organization for economic co operation and development oecd countries and accounting for both aggregate demand and supply shocks we provide empirical evidence to support our main theoretical claim

consumption externalities and monetary policy with limited asset market participation this article explores the interaction between consumption externalities and limited asset market participation lamp in the standard new keynesian model we assess the performance of simple taylor type interest rate rules with respect to a equilibrium determinacy b the model s ability to simultaneously generate output and inflation volatility similar to the pre volcker era and c the model s response to a technology shock we find that when individual preferences are affected by average household consumption aggregate consumption externality stronger externalities increase the range of lamp for which multiple equilibria arise even if the policy rule satisfies the taylor principle the interaction of lamp and externalities can generate vast inflation output relative volatility in line with the one observed in the data in the 1970s according to our analysis consumption externalities also affect the responses of endogenous variables to total factor productivity shocks jel e4 e5

market entry waves and volatility outbursts in stock markets abstract we develop a simple agent based financial market model in which speculators market entry decisions are subject to herding behavior and market risk in addition speculators orders depend on price trends market misalignments and fundamental news using a mix of analytical and numerical tools we show that a herding induced market entry wave may amplify excess demand triggering lasting volatility outbursts eventually however higher stock market risk reduces stock market participation and volatility decreases again simulations furthermore reveal that our approach is also able to produce bubbles and crashes excess volatility fat tailed return distributions and serially uncorrelated price changes moreover trading volume is persistent and correlated with volatility

efficiency wages and the business cycle puzzle abstract the main thrust of this work is to open the real business cycle rbc methodology to non walrasian considerations and reciprocally to submit some non walrasian models to the discipline of the rbc approach in doing so we provide a first rbc model with involuntary unemployment and a suboptimal equilibrium path we also demonstrate the promise and difficulty of resolving the business cycle puzzle by appealing to quantity rationing in the labor market

unemployment and productivity in the long run the role of macroeconomic volatility abstract this paper presents a new empirical regularity between the volatility of productivity growth and long run unemployment for a given level of long run productivity growth a theoretical framework based on asymmetric real wage rigidities is shown to have the potential to rationalize this finding the model tends to fit u s long run unemployment better than a specification based on long run productivity growth only especially during the great moderation and the great recession

macroeconomic fundamentals price discovery and volatility dynamics in emerging bond markets abstract this study characterizes volatility dynamics in external emerging bond markets and examines how prices and volatility respond to macroeconomic news as in mature bond markets surprises about macroeconomic conditions in emerging markets are found to affect both conditional returns and volatility of external bonds with the effects on volatility being more pronounced and longer lasting than those on prices yet the process of information absorption tends to be more drawn out than in mature bond markets global and regional macroeconomic news is at least as important as local news for both price and volatility dynamics

a dynamic structural model for stock return volatility and trading volume an examination is made of an adaptive beliefs model that is able to roughly reproduce the following features seen in the data 1 the autocorrelation functions of the volatility of returns and trading volume are positive with slowly decaying tails 2 the cross correlation function of volatility is approximately zero for squared returns with past and future volumes and is positive for squared returns with current volumes 3 abrupt changes in prices and returns occur that are hard to attach to news the last feature is obtained because the law of large numbers can fail in the large economy limit

a dynamic analysis of moving average rules abstract the use of various moving average ma rules remains popular with financial market practitioners these rules have recently become the focus of a number empirical studies but there have been very few studies of financial market models where some agents employ technical trading rules of the type used in practice in this paper we propose a dynamic financial market model in which demand for traded assets has both a fundamentalist and a chartist component the chartist demand is governed by the difference between current price and a long run ma both types of traders are boundedly rational in the sense that based on a fitness measure such as realized capital gains traders switch from a strategy with low fitness to the one with high fitness we characterize the stability and bifurcation properties of the underlying deterministic model via the reaction coefficient of the fundamentalists the extrapolation rate of the chartists and the lag length used for the ma by increasing the intensity of choice to switching strategies we then examine various rational routes to randomness for different ma rules the price dynamics of the ma rule are also examined and one of our main findings is that an increase of the window length of the ma rule can destabilize an otherwise stable system leading to more complicated even chaotic behaviour the analysis of the corresponding stochastic model is able to explain various market price phenomena including temporary bubbles sudden market crashes price resistance and price switching between different levels

job destruction and propagation of shocks this paper considers propagation of aggregate shocks in a dynamic general equilibrium model with labor market matching and endogenous job destruction cyclical fluctuations in the job destruction rate magnify the output effects of shocks as well as making them much more persistent interactions between capital adjustment and the job destruction rate play an important role in generating persistence propagation effects are shown to be quantitatively substantial when the model is calibrated using job flow data incorporating costly capital adjustment leads to significantly greater propagation

sensitivity of job destruction to vintage and tenure effects matching models with endogenous job destruction typically deliver excessively volatile job destruction and moderate volatility of vacancies in our model vintage and tenure eects promote the creation of new matches that are temporarily more productive while reducing the survival of temporarily less productive matches this cleansing eect pro duces a counter cyclical in ow into unemployment removes the strong response of job destruction to productivity shocks and generates a downward sloping beveridge curve as in the data the model also generates more volatility in vacancies the job nding rate and labour market tightness

testing for indeterminacy an application to u s monetary policy reply this paper considers a prototypical new keynesian model in which the equilibrium is undetermined if monetary policy is passive the likelihood based estimation of dynamic equilibrium models is extended to allow for indeterminacies and sunspot fluctuations we construct posterior weights for the determinacy and indeterminacy region of the parameter space and estimates for the propagation of fundamental and sunspot shocks according to the estimated model u s monetary policy post 1982 is consistent with determinacy whereas the pre volcker policy is not we find that before 1979 indeterminacy substantially altered the propagation of shocks

testing for non linear structure in an artificial financial market abstract we present a stochastic simulation model of a prototype financial market our market is populated by both noise traders and fundamentalist speculators the dynamics covers switches in the prevailing mood among noise traders optimistic or pessimistic as well as switches of agents between the noise trader and fundamentalist group in response to observed differences in profits the particular behavioral variant adopted by an agent also determines his decision to enter on the long or short side of the market short run imbalances between demand and supply lead to price adjustments by a market maker or auctioneer in the usual walrasian manner our interest in this paper is in exploring the behavior of the model when testing for the presence of chaos or non linearity in the simulated data as it turns out attempts to determine the fractal dimension of the underlying process give unsatisfactory results in that we experience a lack of convergence of the estimate explicit tests for non linearity and dependence the bds and kaplan tests also give very unstable results in that both acceptance and strong rejection of iidness can be found in different realizations of our model all in all this behavior is very similar to experience collected with empirical data and our results may point towards an explanation of why robustness of inference in this area is low however when testing for dependence in second moments and estimating garch models the results appear much more robust and the chosen garch specification closely resembles the typical outcome of empirical studies

foreign direct investment and exports a time series approach the impact of the accelerated internationalization of the last decade on the austrian economy is a controversial issue granger s concept of casuality is used to investigate one aspect of the internationalization of production the realtionship between foreign outward direct investment and exports using aggregate flow data from the austrian economy the stationarity of the time series is examined and cointegration tests for the adequacy of the multivariate time series approach are performed the estimation results suggest significant causality of austrian foreign outward direct investment and exports in both directions impulse response analysis and varience decomposition show a very slow dynamic response of both variables to exogenous shocks of the other it furthermnore indicates the possiblity of a positive effect of exogeneously increased foreign direct investment on exports and a negative effect of export shocks on foreign direct investment however significant long run effects are not established

investment matching and persistence in a modified cash in advance economy abstract we simulate and estimate a new keynesian search and matching model with sticky wages in which capital has to be financed with cash at least partially our objective is to assess the ability of this framework to account for the persistence of output and inflation observed in the data we find that our setup generates enough output and inflation persistence with standard stickiness parameters the key factor driving these results is the inclusion of investment in the cia constraint rather than any other nominal or real rigidity the model reproduces labor market dynamics after a positive increase in productivity hours fall nominal wages hardly react and real wages go up with some delay regarding money supply shocks we investigate the conditions under which our model specification generates the liquidity effect a fact which is absent in most sticky price models

sticky price models of the business cycle can the contract multiplier solve the persistence problem we construct a quantitative equilibrium model with firms setting prices in a staggered fashion and use it to ask whether monetary shocks can generate business cycle fluctuations these fluctuations include persistent movements in output along with the other defining features of business cycles like volatile investment and smooth consumption we assume that prices are exogenously sticky for a short time persistent output fluctuations require endogenous price stickiness in the sense that firms choose not to change prices much when they can do so we find that for a wide range of parameter values the amount of endogenous stickiness is small thus we find that in a standard quantitative model staggered price setting alone does not generate business cycle fluctuations

asset price and wealth dynamics in a financial market with heterogeneous agents abstract this paper considers a discrete time model of a financial market with one risky asset and one risk free asset where the asset price and wealth dynamics are determined by the interaction of two groups of agents fundamentalists and chartists in each period each group allocates its wealth between the risky asset and the safe asset according to myopic expected utility maximization but the two groups have heterogeneous beliefs about the price change over the next period the chartists are trend extrapolators while the fundamentalists expect that the price will return to the fundamental we assume that investors optimal demand for the risky asset depends on wealth as a result of crra utility a market maker is assumed to adjust the market price at the end of each trading period based on excess demand and on changes of the underlying reference price the model results in a nonlinear discrete time dynamical system with growing price and wealth processes but it is reduced to a stationary system in terms of asset returns and wealth shares of the two groups it is shown that the long run market dynamics are highly dependent on the parameters which characterize agents behaviour as well as on the initial condition moreover for wide ranges of the parameters a locally stable fundamental steady state coexists with a stable non fundamental steady state or with a stable closed orbit where only chartists survive in the long run such cases require the numerical and graphical investigation of the basins of attraction other dynamic scenarios include periodic orbits and more complex attractors where in general both types of agents survive in the long run with time varying wealth fractions

firm specific assets and the link between exchange rates and foreign direct investment foreign direct investment fdi theory and empirical studies have generated mixed support for a link between exchange rates and fdi this paper argues that exchange rate movements may affect acquisition fdi because acquisitions involve firm specific assets which can generate returns in currencies other than that used for purchase using data on japanese acquisitions in the united states across three digit sic industries from 1975 to 1992 maximum likelihood estimates from discrete dependent variable models support the hypothesis that real dollar depreciations make japanese acquisitions more likely in u s industries particularly those which more likely have firm specific assets copyright 1997 by american economic association

reconciling endogenous job destruction with labor market stylized facts the role of hiring costs abstract this note considers a real business cycle model with search and matching frictions as well as purely endogenous separations in line with the model of mortensen and pissarides 1994 in order to solve the shimer 2005 puzzle this puzzle shows the inconsistency of such a model to capture the high volatility of labor market variables unemployment vacancies and cyclical property beveridge curve job creation and destruction using hiring costs rather than vacancy posting cost in this setup allows to solve this puzzle

monetary policy stock prices and consumption externalities abstract we study interest rate rules responding to stock prices in a sticky price sticky wage new keynesian framework subject to consumption externalities for given wage rigidity such rules are beneficial to equilibrium determinacy if households preferences feature sufficiently strong keeping up with the joneses externalities

u s foreign direct investment in latin america and the caribbean a case of remittances and market size abstractthis article investigates the effect of remittances on u s foreign direct investment fdi flows to latin america and the caribbean lac it covers 26 countries for the period 1983 2010 the results show a positive and significant impact of remittances on u s fdi flows however this effect depends upon the level of gross domestic product gdp per capita of the host country on average the results show that increasing remittances by one standard deviation increases u s fdi flows by 0 44 percent a year also host country demand positively affects u s fdi flows which supports the market size hypothesis

portfolio choice and trading volume with loss averse investors this paper presents a model of portfolio choice and stock trading volume with lossaverse investors the demand function for risky assets is discontinuous and non monotonic as wealth rises beyond a threshold investors follow a generalized portfolio insurance strategy this behavior is consistent with the evidence in favor of the disposition effect in addition loss averse investors will not hold stocks unless the equity premium is quite high the elasticity of the aggregate demand curve changes substantially depending on the distribution of wealth across investors in an equilibrium setting the model generates positive correlation between trading volume and stock return volatility but suggests that this relationship should be non linear

stock market volatility and business cycle evidence from linear and nonlinear causality tests this paper investigates the relationship between stock market volatility and the business cycle in four major economies namely the us canada japan and the uk we employ both linear and nonlinear bivariate causality tests and we further conduct a multivariate analysis to explore possible spillover effects across countries our results suggest that there is a bidirectional causal relationship between stock market volatility and the business cycle within each country and additionally reveal that the recent financial crisis plays an important role in this context finally we identify a significant impact of the us on the remaining markets

some fiscal calculus what is the impact of fiscal policy on the econ omy how large are the multipliers of govern ment spending and tax cuts this old question has recently received considerable attention in par ticular in the context of the american recovery and reinvestment act arra of 2009 i contribute to answering that question by calculating fiscal multipliers in a baseline neo classical growth model with endogenous labor supply and fiscal policy allowing for govern ment spending transfers government debt and distortionary taxes on labor and capital income the policy experiments are conducted holding transfers consumption taxes and capital income taxes fixed i e changes in taxation require changes in the distortionary labor tax the model is simple and fairly standard as an additional contribution i provide the model in an elegant and tractable form starting from a fairly general formulation and pointing out the key functional form properties for characterizing the dynamics the formulation of the model here or versions

does vix or volume improve garch volatility forecasts abstractthis article considers whether the inclusion of two additional variables can improve volatility forecasts over a standard garch based model we consider three alternative ways of incorporating the volatility index vix and trading volume as exogenous variables within a selection of garch models we are particularly interested in whether these variables have additional incremental forecast power over and above the baseline garch specification our results suggest that both the vix and volume do provide some additional forecast power and this is generally improved when considering both of these series jointly in the model however while the results may be statistically significant the gain is marginal and the coefficient values small moreover in a horse race exercise vix does not outperform the garch approach in answering the question of whether vix produces better forecasts than the garch model then the answer is no but the informational content of vix cannot be ignored and should be incorp

the economics of foreign direct investment and trade with an application to the u s food processing industry this article investigates the determinants of foreign direct investment and its relationship to trade in the u s food industry a multinational corporation maximizes profits by choosing between production at home which is exported and production in a host country this introduces the possibility that foreign affiliate sales can substitute and or complement exports the empirical framework consists of a four equations system with foreign affiliate sales exports affiliate employment and fdi as endogenous variables the results confirm small substitution between foreign sales and exports and that the host country s protection policies affect the decision to invest abroad

hysteresis in a new keynesian model this paper examines hysteresis in which persistent unemployment takes on structural characteristics over time hysteresis is modeled as deterioration in labor market matching efficiency as the average duration of unemployment increases this is embedded in a simple new keynesian macro model a decline in labor market matching efficiency would be consistent with the observed rightward shift of the beveridge curve since the 2007 09 recession hysteresis is shown to lead to larger and more persistent responses of the unemployment rate and unemployment duration to productivity intertemporal preference and monetary shocks hysteresis also generates an increase in the natural rate of unemployment

revisiting the matching function abstract there is strong empirical evidence for cobb douglas matching functions we show in this paper that this widely found relation between matches on the one hand and unemployment and vacancies on the other hand can be the result of different underlying mechanisms obviously it can be generated by assuming a cobb douglas matching function less obvious the same relationship results from a vacancy free entry condition and idiosyncratic productivity shocks a positive aggregate productivity shock leads to more vacancy posting a shift of the idiosyncratic selection cutoff and thereby more hiring we calibrate a model with both mechanisms to administrative german labor market data and show that idiosyncratic productivity for new contacts is an important driver of the elasticity of the job finding rate with respect to the market tightness accounting for idiosyncratic productivity can explain the observed negative time trend in estimated matching efficiency and asymmetric business cycle responses to large aggregate shocks

revisiting the relationship between spot and futures oil prices evidence from quantile cointegrating regression article i nfo since most real decisions depend upon current market states or whether it is advantageous to the participants themselves this paper revisits the relationship between spot and futures oil prices of west texas intermediate covering 1986 to 2009 with an innovative approach named quantile cointegration different to previous perspectives we target the issues of cointegrating relationships causalities and market efficiency based on different market states under different maturities of oil futures in our empirical analysis except for market efficiency long run cointegrating relationships and causalities between spot and futures oil prices have significant differentials among futures maturities and the performances of spot oil markets furthermore the response of spot prices to shocks in 1 month futures oil prices is much steeper in high spot prices than in low spot prices this phenomenon is consistent with the prospect theory kahneman and tversky 1979 in that the value function is generally steeper for losses than for gains

a neoclassical model of the phillips curve relation this paper integrates the modern theory of unemployment with a limited participation model of money and asks whether such a framework can produce correlations like those associated with the phillips curve as well as realistic labor market dynamics the model incorporates both monetary and real shocks the response of the economy to monetary policy shocks is consistent with recent evidence about the impact of these shocks on the economy

expectations driven distortions in the foreign exchange market this paper explores the phenomenon of lasting deviations of the exchange rate from its fundamental value in the foreign exchange market motivated by empirical observations a chartists fundamentalists model is developed in which boundedly rational agents repeatedly choose between technical and fundamental trading rules to determine their speculative investment positions crucial for the dynamics is how the traders perceive the fundamental exchange rate this perception process is based on psychological evidence simulations give rise to bubbles but simultaneously display quite realistic exchange rate dynamics unit roots in the exchange rates fat tails for returns and volatility clustering

measurement of environmentally sensitive productivity growth in korean industries this study measures productivity growth using the metafrontier malmquist luenberger productivity growth index mml index method and decomposes the index the results are compared with those obtained from the conventional malmquist luenberger ml productivity growth index mml has two advantages compared with the ml index the former is able to consider undesirable output as a by product of production which accounts for producer group heterogeneities as a result it enables separation and estimation of changes in the technological gap between regional and global frontier technologies the proposed index is employed to measure productivity growth and decompose its components in 14 korean industrial sectors during the period between 1981 and 2007 for the purpose of detailed analysis of policy effects the study period was divided into three decades the results show that technology innovation can be regarded as a more important factor of productivity growth rather than efficiency change the chemical and petrochemical machinery and transport equipment industries are treated as global innovators in the whole period however the result differs according to decades it is found that the groups with higher energy efficient technology and profitability obtain a higher productivity growth rate in comparison with their low energy efficient technology industry counterparts policy implications of the empirical results are discussed

herding a synchronous updating and heterogeneity in memory in a cbs abstract this paper considers a simple continuous beliefs system cbs to investigate the effects on price dynamics of several behavioural assumptions i herd behaviour ii a synchronous updating of beliefs and iii heterogeneity in time horizons memory among agents the recently introduced concept of a cbs allows one to model the co evolution of prices and the beliefs distribution explicitly while keeping track of the unpredictable nature of individual preferences technical report cendef working paper 03 05 university of amsterdam tinbergen institute discussion paper 2003 073 1 as a benchmark model we take a simple cbs which in a market with many traders exhibits a random walk driven by news using the explicit nature of the dynamics of the cbs we show that the introduction of herding modifies the random walk to an arima 0 1 1 process which is observationally equivalent to a reduction of the number of market participants in terms of returns the model predicts ma 1 structure with a negative coefficient a synchronous updating leads to an ma 1 model for returns with garch 1 1 innovations and predicts a relation between the arch and garch coefficients heterogeneity in memory leads to long range dependence in returns in the empirical section we perform a modest reality check concerning the predicted sign of the ma coefficient and the relation between the arch and garch coefficients for exchange rate data

asymmetric herding as a source of asymmetric return volatility abstract as a considerable source of asymmetry in return volatility this paper introduces asymmetric herding and extends the continuous beliefs system to account for its asymmetry and derive the asymmetric herding parameters that are easily estimated by using a maximum likelihood method based on the garch type econometric model this paper presents new empirical evidence for asymmetry in the exchange rates volatility of major currencies against the us dollar which have bilateral nature interestingly the asymmetry of japanese yen is the opposite of that of others and the global financial crisis highlights the opposite asymmetry some of traditional hypotheses such as the leverage effect and the volatility feedback effect do not adequately explain these findings however a significant asymmetric herding effect is observed and appears to be time varying further the clear link between asymmetric herding and volatility strongly supports the hypothesis of the asymmetric herding effect

inventories inflation dynamics and the new keynesian phillips curve abstract we introduce inventories into an otherwise standard new keynesian model and study the implications for inflation dynamics inventory holdings are motivated as a means to generate sales for demand constrained firms we derive various representations of the new keynesian phillips curve with inventories and show that one of these specifications is observationally equivalent to the standard model with respect to the behavior of inflation when the model s cross equation restrictions are imposed however the driving variable in the new keynesian phillips curve real marginal cost is unobservable and has to be proxied by for instance real unit labor cost an alternative approach is to impute marginal cost by using the model s optimality conditions we show that the stock sales ratio is linked to marginal cost we also estimate these various specifications of the new keynesian phillips curve using gmm we find that the predictive power of the inventory specification at best approaches that of the standard model but does not improve upon it

nominal and real wage rigidities in new keynesian models a critical survey the labour market is receiving increasing attention in the new keynesian literature in this paper i critically survey this literature in order to highlight the role played by wage rigidities in the explanation of fluctuations caused by technology shocks to this aim i present a dynamic stochastic general equilibrium model with sticky prices nominal wage rigidities and hiring costs the comparison between this model and that of blanchard and gali highlights the non trivial differences which exist in the way nominal wage and real wage rigidities drive the economy s dynamics my conclusion is that models incorporating nominal wage rigidities and some degree of price stickiness provide a better account of macroeconomic dynamics than models with real wage rigidities copyright 2009 blackwell publishing ltd

the role of real wage rigidity and labor market frictions for inflation persistence we analyze the transmission mechanism of wages to inflation within a new keynesian business cycle model with wage rigidities and labor market frictions our main focus is on the channel of real wage rigidities on inflation persistence for which we find the specification of the wage bargaining process to be of crucial importance under the standard efficient nash bargaining the feedback of wage rigidities on inflation is ambiguous and depends on other labor market variables however under the alternative right to manage bargaining we find that more rigid wages translate directly into more persistent movements of aggregate inflation

trading frequency and volatility clustering abstract volatility clustering with autocorrelations of the hyperbolic decay rate is unquestionably one of the most important stylized facts of financial time series this paper presents a market microstructure model that is able to generate volatility clustering with hyperbolically decaying autocorrelations via traders with multiple trading frequencies using bayesian information updates in an incomplete market the model illustrates that signal extraction which is induced by multiple trading frequencies can increase the persistence of the volatility of returns furthermore we show that the volatility of the underlying time series of returns varies greatly with the number of traders in the market

does economic development impact the foreign direct investment trade relationship a gravity model approach the purpose of this study is to examine the relationship between foreign direct investment fdi and trade in a bilateral context that is home source country s exports and fdi to a host recipient country are analyzed using a gravity model approach the fdi trade relationship has been a centerpiece of the international economics literature over the past decade the home country s primary concern here is on the possible loss of employment due to more fdi than trade lipsey of late there have been concerns on knowledge spillovers and the erosion of technological leadership market failure due to capital outflows for a host country the focus is on the effects of fdi on economic growth and development and technology transfer prior theoretical studies have used mostly imperfect competition models to identify the fdi trade relationship helpman and krugman markusen and venables a majority of the empirical studies has used regression techniques with one period lagged trade and fdi as an argument in current trade or fdi equations barrell and pain gopinath pick and vasavada egger aggregate firmlevel data and industry product specific data have been used in many of these studies blonigen lipsey and ramstetter some have used cointegration methods to infer on the long run association between trade and fdi pfaffermayr however few fdi trade

the temporal development of strategy patterns in the u k insurance industry much writing in the field of strategic management remains an exercise in comparative statics cross sectional research designs are combined with the static metaphors of contingency thinking to analyse the fit between the positioning and resource base of the firm and its performance in differing environments however the inadequacies of this tradition are increasingly recognised even by scholars who have created it porter 1991 strategy can no longer be conceived through the static language of states or positions and must now be understood as an innovation contest where the bureaucratic and inflexible will not survive this paper takes up the challenge to explore the dynamics of industry and firm strategy development the empirical focus of the paper is the u k insurance industry in a period of upheaval between 1990 and 1996 by means of an innovative cross correlational time series analysis we are able to show the ebb and flow of strategic change in the industry and the patterns of initiation and imitation as certain firms lead areas of strategyand others follow these findings are interrogated and inter preted by drawing on and developing theoretical ideas from three literatures which historically have not talked to one another these are the literatures on innovation institutionalism and contextualism the empirical results show firms pursuing multiple strategies at one point in time and also altering the strategic agenda over time a cross correlational analysis of nine firms in the u k insurance industry reveals the existence of leaders and laggards in the development of a variety of strategic initiatives theoretically the paper examines the mixture of external conditions and internal context and processes which contribute to the development of early and later adopters of strategies in an industry over time

speculative behavior and the dynamics of interacting stock markets abstract we develop a simple agent based financial market model in which heterogeneous speculators apply technical and fundamental analysis to trade in two different stock markets speculators strategy market selections are repeated at each time step and depend on predisposition effects herding behavior and market circumstances simulations reveal that our model is able to explain a number of nontrivial statistical properties of and between international stock markets including bubbles and crashes fat tailed return distributions volatility clustering persistent trading volume coevolving stock prices and cross correlated volatilities against this background our model may be deemed to have been validated

factor movements and commodity trade as complements abstract several models are presented in which factor mobility leads to an increase in the volume of world trade the models share the common characteristic that the basis for trade is something other than differences in relative factor endowments these alternative bases for trade include returns to scale imperfect competition production and factor taxes and differences in production technology taken together the models suggest a more general idea the widely held notion that trade in goods and factors are substitutes is in fact a rather special result which is a general characteristic only of factor proportions models

modeling regional linkage of financial markets abstract with the development of globalization and regional economic integration regional markets linked with a common currency emerge in which investors from domestic market are allowed to trade in foreign markets empirical studies have evidenced extensively the existence of co movement of asset prices or cross correlation in market returns among these markets especially in global event however there is no theoretical model in literature that can provide economically plausible justifications for these stylized facts this research intends to fill up such a gap with a simplest possible nonlinear dynamic model based on the classical market maker framework of day and huang 1990 a two market ham model is developed which does not only prove in theory the existence of price co movement but also replicate in simulation this typical characteristic along with other well known stylized facts characterizing individual financial market moreover theoretical analysis suggests meaningful implications for market opening policy in particular in terms of financial stability a relatively small market may not benefit from market linkage and market opening is essentially a double edged sword

the relationship between co2 emissions and economic growth the case of korea with nonlinear evidence abstract using star models we investigate the nonlinear dynamic properties and the interdependence of co2 emissions and economic growth for korea the estimation results indicate that the growth rate of both co2 emissions and industrial production exhibit a significant nonlinear asymmetric dynamics while the linear granger causality test finds no causality in any direction the results of the nonlinear granger causality tests show a two way causality between co2 emissions and economic growth the strong mutual causation between co2 emissions and economic activities indicates that the economic impact from co2 mitigation is expected to be higher in korea this suggests that the appropriate energy and environmental policy be to mitigate co2 emissions while having less impact on the economy

fat tails and volatility clustering in experimental asset markets abstract this paper presents results from experimental asset markets with asymmetric fundamental information we observe leptokurtic returns and a slowly decaying autocorrelation function of absolute returns in contrast to results from heterogeneous agent models hams we find that noise has no significant influence on the emergence of fat tails instead we observe a significantly positive relationship between the degree of heterogeneity of fundamental information and absolute returns which suggests that heterogeneous fundamental information is the source of fat tails with respect to volatility clustering we discover an intra periodical pattern where absolute returns decrease after the arrival of new asymmetric fundamental information

short term pain for long term gain market deregulation and monetary policy in small open economies abstract this paper explores the effects of labor and product market reforms in a new keynesian small open economy model with labor market frictions and endogenous producer entry we show that it takes time for reforms to pay off typically at least a couple of years this is partly because the benefits materialize through firm entry and increased hiring both of which are gradual processes while any reform driven layoffs are immediate some reforms such as reductions in employment protection increase unemployment temporarily implementing a broad package of labor and product market reforms minimizes transition costs importantly reforms do not have noticeable deflationary effects suggesting that the inability of monetary policy to deliver large interest rate cuts in their aftermath either because of the zero bound on policy rates or because of the membership in a monetary union may not be a relevant obstacle to reform alternative simple monetary policy rules do not have a large effect on transition costs

the role of labor markets for euro area monetary policy in this paper we explore the role of labor markets for monetary policy in the euro area in a new keynesian model in which labor markets are characterized by search and matching frictions we first investigate to which extent a more flexible labor market would alter the business cycle behavior and the transmission of monetary policy we find that while a lower degree of wage rigidity makes monetary policy more effective i e a monetary policy shock transmits faster onto inflation the importance of other labor market rigidities for the transmission of shocks is rather limited second having estimated the model by bayesian techniques we analyze to which extent labor market shocks such as disturbances in the vacancy posting process shocks to the separation rate and variations in bargaining power are important determinants of business cycle fluctuations our results point primarily towards disturbances in the bargaining process as a significant contributor to inflation and output fluctuations in sum the paper supports current central bank practice which appears to put considerable effort into monitoring euro area wage dynamics and which appears to treat some of the other labor market information as less important for monetary policy

the phillips and beveridge curves revisited abstract this paper extends the labor market search model to account for monopolist intermediate good firms who face price adjustment costs we show quantitatively that embedding monetary shocks in this framework allows to mimic the phillips and beveridge curves

how strong is the macroeconomic case for downward real wage rigidity we explore the existence of downward real wage rigidity drwr at the industry level based on data from 19 oecd countries for the period 1973 1999 the results show that drwr compresses the distributions of industry wage changes overall as well as for specific geographical regions and time periods but there are not many real wage cuts that are prevented more important however drwr attenuates larger real wage cuts thus leading to higher real wages there is stronger evidence for downward nominal wage rigidity than for drwr real wage cuts are less prevalent in countries with strict employment protection legislation and high union density

optimal long run inflation with occasionally binding financial constraints abstract this paper studies the optimal long run inflation rate in a simple new keynesian model with occasionally binding collateral constraints that intermediate good firms face on hiring labor the paper finds that the optimal long run annual inflation rate is around 1 5 if the economy is hit by a total factor productivity tfp shock and nearly 2 5 if the economy is subject to a markup shock the shadow value of the collateral constraint is akin to an endogenous cost push shock differently from usual cost push shocks however this shock is asymmetric as it takes non negative values only since the mean of this asymmetric endogenous cost push shock is positive inflation is also positive on average in addition a binding collateral constraint resembles a time varying tax on labor which the monetary authority can smooth by setting a positive inflation rate more generally the basic result is related to standard ramsey theory in that optimal policy smoothes distortions over time

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

measuring business cycle time the business cycle analysis of arthur f burns and wesley c mitchell and the national bureau of economic research presumed that aggregate economic variables evolve on a time scale defined by business cycle turning points rather than by months or quarters do macroeconomic variables appear to evolve on an economic rather than a calendar time scale evidence presented here suggests that they do however the estimated economic time scales are only weakly related to business cycle time scales providing evidence against the view underlying traditional business cycle analysis copyright 1987 by university of chicago press

the new keynesian phillips curve and staggered price and wage determination in a model with firm specific labor we develop a dsge model with rm speci c labor where rm level wage bargaining and price setting are subject to calvo type staggering this is in general an intractable problem due to complicated intertemporal dependencies between price and wage decisions however the problem is signi cantly simpli ed if we in line with empirical evidence assume that prices can be changed whenever wages are we show that the price and wage setting relationships are substantially altered by the introduction of rm speci c labor speci cally the in ation response is substantially dampened whereas the wage in ation response is increased as compared to models with freely mobile labor these distinctive features of the model with rm speci c labor is supported by empirical evidence from a structural var

the price dynamics of common trading strategies a deterministic trading strategy can be regarded as a signal processing element that uses external information and past prices as inputs and incorporates them into future prices this paper uses a market maker based method of price formation to study the price dynamics induced by several commonly used financial trading strategies showing how they amplify noise induce structure in prices and cause phenomena such as excess and clustered volatility

monetary policy response to oil price shocks how should monetary authorities react to an oil price shock this paper shows that in a noncompetitive economy policies that perfectly stabilize prices entail large welfare costs hence explaining the reluctance of policymakers to enforce them the policy trade off is nontrivial because oil energy is an input to both production and consumption as welfare maximizing policies are hard to implement and communicate i derive a simple interest rate rule that depends only on observables but mimics the optimal plan in all dimensions the optimal rule is hard on core inflation but accommodates oil price changes

real wages and the business cycle the objectives of this review are threefold 1 to characterize the empirical literature on the cyclical behavior of real wages 2 to identify the sources of the differences in results across studies and 3 to enumerate key factors that determine the cyclicality of real wages given a host of measurement and methodological issues drawing firm conclusions is difficult but several generalizations can be made the estimated cyclicality of real wages depends crucially on the time period of analysis and the choice of whether to examine the production or the consumption wage composition effects play an important but complicated role as well

robust permanent income and pricing i suppose there exists an extremely powerful and if i may so speak malignant being whose whole endeavours are directed toward deceiving me rene descartes meditations ii 1

market efficiency and learning in an endogenously unstable environment abstract an informationally inefficiency market is produced without an exogenous source of noise in the price fundamental traders acquire private information directly through research regression traders employ a learning process to extract the private fundamental information from the public price the relative popularity between these two strategies evolves based on performance the model converges towards adoption of regression analysis to the point of creating instability endogenously producing a noisy price the lack of a revealing price in the coupled learning and population processes reflects the grossman and stiglitz amer econ rev 70 3 1980 393 impossibility of informationally efficient markets

optimal monetary policy and downward nominal wage rigidity in frictional labor markets empirical evidence suggests that nominal wages in the u s are downwardly rigid this paper studies the optimal long run inflation rate in a labor search and matching framework under the presence of downward nominal wage rigidity dnwr in this environment optimal monetary policy targets a positive inflation rate the annual long run inflation rate for the u s is around 2 percent positive inflation greases the wheels of the labor market by facilitating real wage adjustments and hence it eases job creation and prevents excessive increase in unemployment following recessionary shocks these findings are related to standard ramsey theory of wedge smoothing by following a positive inflation policy under sticky prices the monetary authority manages to reduce the volatility and the size of the intertemporal distortion significantly the intertemporal wedge is completely smoothed when prices are fully flexible since the optimal long run inflation rate predicted by this study is considerably higher than in otherwise neoclassical labor markets the nature of the labor market in which dnwr is studied can be relevant for policy recommendations

labor search and matching in macroeconomics abstract the labor search and matching model plays a growing role in macroeconomic analysis this paper provides a critical selective survey of the literature four fundamental questions are explored how are unemployment job vacancies and employment determined as equilibrium phenomena what determines worker flows and transition rates from one labor market state to another how are wages determined what role do labor market dynamics play in explaining business cycles and growth the survey describes the basic model reviews its theoretical extensions and discusses its empirical applications in macroeconomics the model has been developed against the background of difficulties with the use of the neo classical frictionless model of the labor market in macroeconomics its success includes the modelling of labor market outcomes as equilibrium phenomena the reasonable fit of the data and when inserted into business cycle models improved performance of more general macroeconomic models at the same time there is evidence against the nash solution used for wage setting and an active debate as to the ability of the model to account for some of the cyclical facts

search frictions real rigidities and inflation dynamics the standard new keynesian model suffers from the so called macro micro pricing conflict in order to match the dynamics of inflation implied by macroeconomic data the model needs to assume an average duration of price contracts which is much longer than what is observed in micro data here i show how departing from the standard model s assumption of a perfectly competitive labor market can help resolve the pricing conflict i do so by assuming search frictions in the labor market in this framework labor becomes firm specific and marginal cost curves become upward sloping this mechanism reduces the slope of the new keynesian phillips curve given a frequency of price adjustment conversely given an estimate of this slope my model implies shorter price durations than the standard model for a plausible calibration and for different slope values my model consistently delivers price durations that are roughly half of those implied by the standard model

payroll taxes social insurance and business cycles payroll taxes represent a major distortionary influence of governments on labor markets this paper examines the role of time varying payroll taxes and the social safety net for cyclical fluctuations in a nonmonetary economy with labor market frictions and unemployment insurance when the latter is only imperfectly related to search effort a balanced social insurance budget induces countercyclical payroll taxation renders gross wages more rigid over the cycle and strengthens the model s endogenous propagation mechanism for conventional calibrations the model generates a negatively sloped beveridge curve and countercyclical unemployment as well as substantial volatility and persistence of vacancies and unemployment

dynamic inconsistencies counterfactual implications of a class of rational expectations models a number of recent papers have developed dynamic macroeconomic models that incorporate rational expectations and optimizing foundations while the theoretical motivation behind these models is sound the dynamic implications of many of the specifications that assume rational expectations and optimizing behavior can be seriously at odds with the data for both inflation and real side variables exhibit gradual and hump shaped responses to real and monetary shocks for models that are intended for monetary policy analysis these dynamic shortcomings should be considered quite serious when monetary policy has only short run effects on real variables the inability to approximately capture the short run responses of inflation or real variables to policy shocks makes a model unsuitable for policy analysis this paper identifies a simple feature common to many dynamic specifications for prices and real variables that causes the problem the paper also discusses several potential solutions to the problem including alterations to the expectations assumption to the order of differencing implicit in the model and to the underlying behavioral assumptions this abstract was borrowed from another version of this item

a microsimulation of traders activity in the stock market the role of heterogeneity agents interactions and trade frictions we propose a model with heterogeneous interacting traders which can explain some of the stylized facts of stock market returns in the model synchronization effects which generate large fluctuations in returns can arise purely from communication and imitation among traders the key element in the model is the introduction of a trade friction which by responding to price movements creates a feedback mechanism on future trading and generates volatility clustering the model also reproduces the empirically observed positive cross correlation between volatility and trading volume

exchange rate effects on the relationship between fdi and trade in the u s food processing industry the effect of exchange rates on international trade and more specifically on agricultural trade flows has been documented by several studies most studies agree that an appreciation depreciation in the value of the u s dollar hurts helps u s agricultural exports an appreciation of the u s dollar raises the cost of u s products to foreign buyers and reduces their purchases 2 although neglected early on the effect of exchange rate risk as measured by its volatility on trade flows was also found to be negative arize pick parallel to this literature were the devel

job finding and separation rates in the oecd abstract we provide a set of comparable estimates of average monthly job finding and separation rates for over 20 oecd countries that can be used for the cross country analysis of labor markets