optimal investment in learning curve technologies we study optimal investment in technologies characterized by the learning curve there are two investment patterns depending on the shape of the learning curve if the learning process is slow firms invest relatively late and on a larger scale if the curve is steep firms invest earlier and on a smaller scale we further demonstrate that learning investment differs greatly from investment in technologies without learning effects learning investments generate substantial initial losses and are very sensitive to downside risk we show that the most susceptible to losses and risk are technologies with intermediate speed of learning

real time density forecasts from bayesian vector autoregressions with stochastic volatility central banks and other forecasters are increasingly interested in various aspects of density forecasts however recent sharp changes in macroeconomic volatility including the great moderation and the more recent sharp rise in volatility associated with increased variation in energy prices and the deep global recession pose significant challenges to density forecasting accordingly this paper examines with real time data density forecasts of u s gdp growth unemployment inflation and the federal funds rate from bayesian vector autoregression bvar models with stochastic volatility the results indicate that adding stochastic volatility to bvars materially improves the real time accuracy of density forecasts this article has supplementary material online

energy prices and economic growth in pakistan a macro econometric analysis abstract the paper empirically examines the impact of energy prices on economic growth in pakistan using various channel variables for this purpose a macroeconometric model is estimated using gmm estimation technique using quarterly data for the period 1991 2011 the results indicate that the overall effect of energy prices on growth is negative confirming results from existing empirical literature for pakistan however our methodology allows us to go beyond previous research and describe what drives this overall result we find evidence that high energy price decreases real interest rate investment and stock prices it also decreases the real value of local currency high energy price puts pressure on government expenditures and increases unemployment in the country the results reveal that energy price positively affects output growth through its impact on real interest rate and government consumption while it negatively affects output growth through investment stock prices real exchange rate and unemployment the results show that most of the effect of energy price on economic growth is captured by stock prices real exchange rate government consumption and unemployment in turn real interest rate and investment captures a small effect of energy price on economic growth the study highlights that to improve economic growth policy makers in pakistan should design appropriate policies to control energy prices and to plan energy conservative policies that will motivate to explore alternative energy sources to meet high energy demand in pakistan

the yield factor and the learning curve in semiconductor production the role of the yield factor and the learning curve is estimated at the firm level the estimated learning curves for the different generations of semiconductor memory chips are clustered around the 72 per cent type the results are consistent with the persistence of leadership hypothesis an incumbent firm has an advantage over a new entrant in adopting a new technology because it can move quicker down the learning curve

the learning curve and the yield factor the case of korea s semiconductor industry this article attempts to find out how the korean economy has grown so rapidly in a short time span of less than 30 years for that purpose it focuses on the development of the korean semiconductor industry more specifically the memory chip segment of the industry as a case in point to test the hypothesis that the learning curve effects have been significant in the memory chip industry yield factor the ratio of sellable chips to total chips in a wafer in semiconductor production is used as a measure of the learning progression that is by tracing how the yield factor for each generation of memory chips has increased one is able to see how well the korean chip makers have exploited the learning effects this article improves the learning by doing modelling by introducing a richer set of yield data and the unit of analysis employed throughout the article is at the firm level which is not common in the literature dealing with east asian development as well as the economics of technology thus enha

multivariate stochastic volatility via wishart processes financial models for asset and derivatives pricing risk management portfolio optimization and asset allocation rely on volatility forecasts time varying volatility models such as generalized autoregressive conditional heteroscedasticity and stochastic volatility svol have been successful in improving forecasts over constant volatility models we develop a new multivariate svol framework for modeling financial data that assumes covariance matrices stochastically varying through a wishart process in our formulation scalar variances naturally extend to covariance matrices rather than to vectors of variances as in traditional svol models model fitting is performed using markov chain monte carlo simulation from the posterior distribution because of the model s complexity an efficiently designed gibbs sampler is described that produces inferences with a manageable amount of computation our approach is illustrated on a multivariate time series of monthly industry portfolio returns a test of the ec

the economics of predation what drives pricing when there is learning by doing predatory pricing a deliberate strategy of pricing aggressively in order to eliminate competitors is one of the more contentious areas of antitrust policy and its existence and efficacy are widely debated the purpose of this paper is to formally characterize predatory pricing in a modern industry dynamics framework that endogenizes competitive advantage and industry structure our framework encompasses important phenomena such as learning by doing network effects switching costs dynamic demand and certain types of adjustment costs due to its prominent role in legal cases involving alleged predation we examine learning by doing in more detail we first show that predation like behavior arises routinely in our learning by doing model equilibria involving predation like behavior typically coexist with equilibria involving much less aggressive pricing to disentangle predatory pricing from mere competition for efficiency on a learning curve we next decompose the equilibrium pricing condition and develop alternative characterizations of a firm s predatory pricing incentives we finally measure the impact of these incentives on industry structure conduct and performance we show that forcing a firm to ignore the predatory incentives in setting its price can have a large impact and that this impact stems from eliminating equilibria with predation like behavior along with the predation like behavior however a fair amount of competition for the market is eliminated

oil price shocks and real gdp growth empirical evidence for some oecd countries this study assesses empirically the effects of oil price shocks on the real economic activity of the main industrialized countries multivariate var analysis is carried out using both linear and non linear models the latter category includes three approaches employed in the literature namely the asymmetric scaled and net specifications evidence of a non linear impact of oil prices on real gdp is found in particular oil price increases are found to have an impact on gdp growth of a larger magnitude than that of oil price declines with the latter being statistically insignificant in most cases among oil importing countries oil price increases are found to have a negative impact on economic activity in all cases but japan moreover the effect of oil shocks on gdp growth differs between the two oil exporting countries in the sample with the uk being negatively affected by an oil price increase and norway benefiting from it

economics and the self organisation approach alfred marshall revisited the economics of alfred marshall is reassessed in the light of new developments in the natural sciences whereby a nonequilibrium thermodynamic approach is adopted to analyze self organization in dissipative structures it is argued that there is a clear correspondence between marshall s treatment of time irreversibility and this modern approach particularly when the latter is set in an informational context thus his principles is viewed as a very useful starting point in adapting the self organization approach for application in economics the main features of such a post marshallian approach to economics are discussed and compared with the mechanical approach of neoclassicism copyright 1993 by royal economic society

sequential product innovation and industry revolution a certain sequence of innovations in a vertically differentiated good is considered two firms are engaged in a series of bidding games to acquire the infinitely lived patents to these managerial diseconomies restrict firms to producing a single good which is chosen optimally from the set of patents owned by the firm product market equilibrium is bertrand two theorems provide 1 a sufficient condition for the current leader to be overthrown action reaction and 2 a necessary and sufficient condition for persistent dominance an illustrative example shows that sequences satisfying these conditions can always be constructed copyright 1987 by royal economic society

bayesian dynamic factor models and portfolio allocation we discuss the development of dynamic factor models for multivariate financial time series and the incorporation of stochastic volatility components for latent factor processes bayesian inference and computation is developed and explored in a study of the dynamic factor structure of daily spot exchange rates for a selection of international currencies the models are direct generalizations of univariate stochastic volatility models and represent specific varieties of models recently discussed in the growing multivariate stochastic volatility literature we discuss model fitting based on retrospective data and sequential analysis for forward filtering and short term forecasting analyses are compared with results from the much simpler method of dynamic variance matrix discounting that for over a decade has been a standard approach in applied financial econometrics we study these models in analysis forecasting and sequential portfolio allocation for a selected set of international exchange rate retur

an econometric model of serial correlation and illiquidity in hedge fund returns the returns to hedge funds and other alternative investments are often highly serially correlated in sharp contrast to the returns of more traditional investment vehicles such as long only equity portfolios and mutual funds in this paper we explore several sources of such serial correlation and show that the most likely explanation is illiquidity exposure i e investments in securities that are not actively traded and for which market prices are not always readily available for portfolios of illiquid securities reported returns will tend to be smoother than true economic returns which will understate volatility and increase risk adjusted performance measures such as the sharpe ratio we propose an econometric model of illiquidity exposure and develop estimators for the smoothing prole as well as a smoothing adjusted sharpe ratio for a sample of 908 hedge funds drawn from the tass database we show that our estimated smoothing coecien ts vary considerably across hedge fund style categories and may be a useful proxy for quantifying illiquidity exposure

forecasting the semiconductor industry cycles by bootstrap prediction intervals in recent years there has been a recognition that point forecasts of the semiconductor industry sales may often be of limited value there is substantial interest for a policy maker or an individual investor in knowing the degree of uncertainty that attaches to the point forecast before deciding whether to increase production of semiconductors or purchase a particular share from the semiconductor stock market in this article i first obtain the bootstrap prediction intervals of the global semiconductor industry cycles by a vector autoregressive var model using monthly us data consisting of four macroeconomic and seven industry level variables with 92 observations the 24 step ahead out of sample forecasts from various var setups are used for comparison the empirical result shows that the proposed 11 variable var model with the appropriate lag length captures the cyclical behaviour of the industry and outperforms other var models in terms of both point forecast and prediction interval

learning by doing organizational forgetting and industry dynamics learning by doing and organizational forgetting have been shown to be important in a variety of industrial settings this paper provides a general model of dynamic competition that accounts for these economic fundamentals and shows how they shape industry structure and dynamics previously obtained results regarding the dominance properties of flrms pricing behavior no longer hold in this more general setting we show that forgetting does not simply negate learning rather learning and forgetting are distinct economic forces in particular a model with learning and forgetting can give rise to aggressive pricing behavior market dominance and multiple equilibria whereas a model with learning alone cannot

macroeconomic forecasting performance under alternative specifications of time varying volatility summary this paper compares alternative models of time varying volatility on the basis of the accuracy of real time point and density forecasts of key macroeconomic time series for the usa we consider bayesian autoregressive and vector autoregressive models that incorporate some form of time varying volatility precisely random walk stochastic volatility stochastic volatility following a stationary ar process stochastic volatility coupled with fat tails garch and mixture of innovation models the results show that the ar and var specifications with conventional stochastic volatility dominate other volatility specifications in terms of point forecasting to some degree and density forecasting to a greater degree copyright 2014 john wiley sons ltd

oil price fluctuations and u s dollar exchange rates adding oil prices to the monetary model of exchange rates we find that oil prices significantly explain movements in the value of the u s dollar usd against major currencies from the 1970s to 2008 our long run and forecasting results are remarkably consistent with an oil exchange rate relationship increases in real oil prices lead to a significant depreciation of the usd against net oil exporter currencies such as canada mexico and russia on the other hand the currencies of oil importers such as japan depreciate relative to the usd when the real oil price goes up

are oil shocks inflationary asymmetric and nonlinear specifications versus changes in regime this paper identifies a structural break in core u s inflation phillips curves such that oil prices contributed substantially before 1981 but since that time pass through has been negligible this characterization is robust to a variety of re specifications and fits the data better than asymmetric and nonlinear oil price alternatives evidence does not support the hypotheses that declining energy intensity or deregulation of energy producing and consuming industries played an important role monetary policy did not itself become less accommodative of oil shocks but may have helped create a regime where inflation is less sensitive to price shocks more generally

energy security and renewable energy policy analysis of pakistan abstract sustainable energy supply is an important factor for continued economic growth of any society pakistan is among those developing countries which are facing severe shortages of energy now a days the current and past governments in the country have designed various energy policies to fulfill energy demands but could not fill the demand supply gap there has been a shortage of about 5000 mw of electrical supply during summer 2016 a policy for development of renewable energy was framed in 2006 which was aimed to supply sustainable energy to all consumers including those households which have not been supplied electricity and natural gas in rural and far flung areas the policy was extended for implementation in 2011 and is still in use the basis of this policy rests on energy security and self sufficiency social equity and economic benefits this study aims at analyzing renewable energy policy of pakistan and examining and finding the ways to secure energy supplies in future using leap four scenarios business as usual green pakistan nuclear and optimization have been developed to assess the validity of the energy plans the study concludes that green pakistan scenario employing renewable energy technologies having minimum operation and externality costs is the most suitable option in future

the evolution of market structure when there is a sequence of innovations the paper explores the question of how market structure evolves when there is a sequence of opportunities to innovate does one firm extend its technological superiority to become increasingly dominant or does technological leadership constantly change hands in a process of actionreaction a simple duopoly model is proposed in which the answer to this question depends upon the nature of product market behaviour in that model highly competitive product market behaviour leads to increasing dominance whereas cournot behaviour may lead to action reaction

energy efficiency assessment of fixed asset investment projects a case study of a shenzhen combined cycle power plant abstract the assessment of fixed asset investment projects of energy conservation is based on a scientific and systematic approach to analyze the energy production consumption and management and helps to analyze whether the use of energy is in line with the national and local industrial policies and whether the project design meets china s energy saving design outlines and industry standards the level of energy consumption is compared to the domestic and international advanced levels regarding the project energy use and process analysis in all aspects of energy production and energy consumption taking technically feasible economically reasonable and environmentally and socially responsible measures and effective and rational use of energy to reduce consumption and losses and to stop waste while investigating if the project has a certain advanced and rational use of energy this study provides a full consideration of whether there is a scientific and rational use of energy to avoid low level repetition construction to avoid blind expansion trends and to promote the upgrading of industrial structure this paper takes as an example a gas turbine power plant in shenzhen as an assessment case study of the potential energy savings the project is expected to have an annual power supply of 37 89 10 8 kw h and an annual heat supply of 5 43 10 4 gj the consumption of power generation in tons of coal equivalent units is expected to reach 208 g per kw h the comprehensive annual average thermal efficiency is 77 16 and the average heat to power ratio is 40 65 these technical indicators are thought to be one of the best compared to similar level projects in the country

managing learning resources for consecutive product generations abstract in this paper we study how a firm should allocate its learning resources when it is concurrently producing two consecutive generations of one product we define learning resources as scarce firm specific resources that a firm allocates towards the improvement of the cost quality or timeliness of its existing products and processes we use empirically tested models for demand substitution and learning curves to formulate this problem and we present our results as propositions with regard to the optimal time at which a firm should direct all its learning resources to the newer product generation depending on the substitution rate of the two product generations the learning rate and the level of cross learning results indicate that learning resources should be managed through a firm wide coordination process that will spread rather than concentrate learning resources not in static but in a dynamic way to ensure continued high returns from these learning resources

persistence of leadership in product innovation in a firm model of vertical product differentiation three distinct patterns of market shares emerge as an equilibrium outcome reflecting three distinct strategies in respect of timing of the introduction of new products the main novelty relative to the existing literature on vertical product differentiation lies in the incorporation of learning by doing this assumption generates stability of market share patterns over a sequence of product innovations copyright 1992 by blackwell publishing ltd

can markov switching models predict excess foreign exchange returns abstract this paper merges the literature on technical trading rules with the literature on markov switching to develop economically useful trading rules the markov models out of sample excess returns modestly exceed those of standard technical rules and are profitable over the most recent subsample a portfolio of markov and standard technical rules outperforms either set individually on a risk adjusted basis the markov rules high excess returns contrast with mixed performance on statistical tests of forecast accuracy there is no clear source for the trends but permitting the mean to depend on higher moments of the exchange rate distribution modestly increases returns

oil and the macroeconomy since the 1970s economists have long been intrigued by empirical evidence that suggests that oil price shocks may be closely related to macroeconomic performance this interest dates back to the 1970s the 1970s were a period of growing dependence on imported oil unprecedented disruptions in the global oil market and poor macroeconomic performance in the united states thus it was natural to suspect a causal relationship from oil prices to u s macroeconomic aggregates since then a large body of work has accumulated that purports to establish this link on theoretical grounds and to provide empirical evidence in its support we do not attempt a comprehensive survey of this literature but rather provide an idiosyncratic synthesis of what we view as the key issues in this debate and the insights gained over the last 30 years the timing seems right for such an account although the experience of the 1970s continues to play an important role in discussions of the link between oil and the macroeconomy there have been a number of new oil price shocks since the 1970s notably the 1986 collapse of oil prices and the 2000 boom in oil prices as well as the oil price increases associated with the 1990 1991 gulf war and the 2003 iraq war given this richer case history we are arguably in a better position than two decades ago to distinguish the idiosyncratic features of each oil crisis from the systematic effects increases in oil prices have been held responsible for recessions periods of excessive inflation reduced productivity and lower economic growth in this paper we review the arguments supporting such views first we highlight some of the conceptual difficulties in assigning a central role to oil price shocks in explaining

testing dynamic oligopolistic interaction evidence from the semiconductor industry abstract the objective of this paper is to test whether firms in the dynamic random access memory dram industry take the intertemporal strategic effect of their contemporaneous output decision on their rivals future output decision into account or whether they precommit themselves to a production plan learning by doing and spillovers are present in this industry and introduce an intertemporal component to firms strategies a simplified version of jarmin s rand j econ 250 1994 441 dynamic oligopolistic model is applied to firm level data demand and pricing relations for five dram generations are estimated the empirical results show that firms behave strategically and price cost margins are likely overestimated in a precommitment specification

the learning curve in the production of semiconductor memory chips the relevance of the learning curve in the production of semiconductor memory chips is examined it is shown that the learning curve differs across quite similar products such as distinct types of memory chips on the other hand the learning curve does not show significant variation over successive generations of the same type of memory chip it is then shown thatthe interpretation given to the heterogeneity of learning by the effects across chip types and especially the importance of economies of scale is consistent with some stylized facts from the industry

relative price variability real shocks and the stock market in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions the evidence shows that the negative stock returninflation relations proxy for the adverse effects of relative price variability on economic activity particularly during the seventies when the u s experienced oil supply shocks hence it appears that inflation spuriously affects the stock market in two ways the aggregate output link of fama 1981 and the supply shocks reflected in relative price variability a number of papers have attempted to explain the anomalous negative relations between stock returns and inflation witnessed in the post war period one hypothesis that has held up well in light of empirical evidence suggests that the negative relation between stock returns and unexpected inflation simply reflects the more fundamental positive relation between stock returns and future real variables see e g fama 1981 geske and roll 1983 and kaul 1987 1989 in this paper we investigate the effects of relative price variability on output and the stock market and gauge the extent to which inflation proxies for relative price variability in stock return inflation regressions first relative price variability can have detrimental effects on output and employment see e g friedman 1977 and barro 1976 second absolute relative price confusion models of the lucas 1973 type suggest that monetary shocks can induce a positive relation between inflation and relative price variability see e g cukierman 1983 hence the negative stock return inflation relations could simply be a reflection of the negative effects of relative price variability on the stock market we use data for the 1947 1985 period to test the various links of our hypothesis the results indicate that relative price variability is positively related to both expected and unexpected inflation measures relative price variability also has a significant negative effect on output and the stock market more importantly

learning and process improvement during production ramp up abstract rapid product lifecycles and high development costs pressure manufacturing firms to cut not only their development times time to market but also the time to reach full capacity utilization time to volume the period between completion of development and full capacity utilization is known as production ramp up during that time the new production process is ill understood which causes low yields and low production rates this paper analyzes the interactions among capacity utilization yields and process improvement learning we model learning in the form of deliberate experiments which reduce capacity in the short run this creates a trade off between experiments and production high selling prices during ramp up raise the opportunity cost of experiments yet early learning is more valuable than later learning we formalize the resulting intertemporal trade off between the short term opportunity cost of capacity and the long term value of learning as a dynamic program the paper also examines the tradeoff between production speed and yield quality where faster production rates lead to more defects finally we show what happens if managers misunderstand the sources of learning

the learning curve and pricing in the chemical processing industries data on 37 chemical products are used to test a number of hypotheses about the learning curve and industrial price behavior the results document a strong and consistent learning effect learning is found to be a function of cumulated industry output and cumulated investment rather than calendar time standard economies of scale appear significant but small in magnitude relative to the learning effect variations in the slope of the learning curve are linked to differences in r d expenditures and capital intensity market concentration is found to be a strong influence on price flexibility and the timing of learningrelated price changes

a dynamic multivariate heavy tailed model for time varying volatilities and correlations we propose a new class of observation driven time varying parameter models for dynamic volatilities and correlations to handle time series from heavy tailed distributions the model adopts generalized autoregressive score dynamics to obtain a time varying covariance matrix of the multivariate student t distribution the key novelty of our proposed model concerns the weighting of lagged squared innovations for the estimation of future correlations and volatilities when we account for heavy tails of distributions we obtain estimates that are more robust to large innovations we provide an empirical illustration for a panel of daily equity returns

incorporating experience curves in appliance standards analysis the technical analyses in support of u s energy conservation standards for residential appliances and commercial equipment have typically assumed that manufacturing costs and retail prices remain constant during the projected 30 year analysis period there is however considerable evidence that this assumption does not reflect real market prices costs and prices generally fall in relation to cumulative production a phenomenon known as experience and modeled by a fairly robust empirical experience curve using price data from the bureau of labor statistics and shipment data obtained as part of the standards analysis process we present u s experience curves for room air conditioners clothes dryers central air conditioners furnaces and refrigerators and freezers these allow us to develop more representative appliance price projections than the assumption based approach of constant prices these experience curves were incorporated into recent energy conservation standards for these products the impact on the national modeling can be significant often increasing the net present value of potential standard levels in the analysis in some cases a previously cost negative potential standard level demonstrates a benefit when incorporating experience these results imply that past energy conservation standards analyses may have undervalued the economic benefits of potential standard levels

the evolution of new industries and the determinants of market structure several empirical regularities concerning firm growth rates and industry firm size distributions have been developed by studying primarily mature industries the primary purpose of this article is to bring together and extend empirical regularities on the evolution of new industries and to use these regularities to gain further insight into the forces governing industry evolution to explain these regularities a model is constructed which emphasizes how factors governing the early evolution of industries may shape their market structure at maturity it stresses how chance events and exogenous factors that influence the number of potential entrants to the industry the growth rate of incumbents and the ease of imitation of industry leaders will influence the ultimate number and size distribution of firms in the industry

a stochastic volatility model with markov switching this article presents a new way of modeling time varying volatility we generalize the usual stochastic volatility models to encompass regime switching properties the unobserved state variables are governed by a first order markov process bayesian estimators are constructed by gibbs sampling high medium and low volatility states are identified for the standard and poor s 500 weekly return data persistence in volatility is explained by the persistence in the low and the medium volatility states the high volatility regime is able to capture the 1987 crash and overlap considerably with four u s economic recession periods

estimation of direct and indirect impact of oil price on growth abstract using a new methodology this paper measures the direct and indirect effects of oil prices on gdp growth of 12 economies because of the indirect effect which is transmitted through a trade matrix even the net oil exporters like indonesia and malaysia cannot escape the negative influence of high oil prices

a bayesian markov switching correlation model for contagion analysis on exchange rate markets this article develops a new markov switching vector autoregressive var model with stochastic correlation for contagion analysis on financial markets the correlation and the log volatility dynamics are driven by two independent markov chains thus allowing for different effects such as volatility spill overs and correlation shifts with various degrees of intensity we outline a suitable bayesian inference procedure based on markov chain monte carlo algorithms we then apply the model to some major and asian pacific cross rates against the u s dollar and find strong evidence supporting the existence of contagion effects and correlation drops during crises closely in line with the stylized facts outlined in the contagion literature a comparison of this model with its closest competitors such as a time varying parameter var reveals that our model has a better predictive ability supplementary materials for this article are available online

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

the gaussian mixture dynamic conditional correlation model parameter estimation value at risk calculation and portfolio selection a multivariate generalized autoregressive conditional heteroscedasticity model with dynamic conditional correlations is proposed in which the individual conditional volatilities follow exponential generalized autoregressive conditional heteroscedasticity models and the standardized innovations follow a mixture of gaussian distributions inference on the model parameters and prediction of future volatilities are addressed by both maximum likelihood and bayesian estimation methods estimation of the value at risk of a given portfolio and selection of optimal portfolios under the proposed specification are addressed the good performance of the proposed methodology is illustrated via monte carlo experiments and the analysis of the daily closing prices of the dow jones and nasdaq indexes

some contagion some interdependence more pitfalls in tests of financial contagion this paper develops a test of contagion in financial markets based on bivariate correlation analysis which generalizes existing tests and applies it to the international effects of the hong kong stock market crisis of october 1997 contagion is defined as a structural break in the international transmission of financial shocks for plausible values of the variance of country specific shocks in hong kong our test finds evidence of contagion for 5 countries out of a sample of 17 this is in sharp contrast with the findings of recent literature according to which there is no contagion only interdependence we show that this strong result in the literature is due to arbitrary and unrealistic restrictions on the variance of country specific shocks

preemption and rent equalization in the adoption of new technology we study the adoption of a new technology to illustrate the effects of preemption in games of timing we show that the threat of preemption equalizes rents in a duopoly but that this result does not extend to the general oligopoly game if the gain to preemption is sufficiently small then the optimal symmetric outcome which involves late adoption is an equilibrium this contrasts with reinganum s result that in precommitment equilibria there must be diffusion we develop a new and richer formalism for modeling games of timing which permits a continuoustime representation of the limit of discrete time mixed strategy equilibria

modifying customer expectations of price decreases for a durable product we study the introductory signalling strategy for a durable product that faces optimistic expectations among customers about price declines over time the firm introducing the product knows that experiential learning is low for the product however customers being uncertain about the extent of experiential learning assign a nonzero probability that the firm s new product will enjoy a high cost reduction with cumulative experience the optimistic expectations of customers reduce their willingness to pay a high price at the product s introduction while predisposing them to buying later the challenge facing the low experience firm is to choose an introductory strategy that will credibly convey the low experience curve effect to customers we use the sequential equilibrium concept in a game theoretic framework to identify the firm s signalling strategy we identify the unique separating equilibrium of the game after refining the set of separating equilibria we demonstrate that a high introductory price credibly signals the low experiential learning to customers we also show that signalling causes an artificial learning curve effect

identifying the impacts of human capital on carbon emissions in pakistan abstract at present carbon emissions reduction is a very important challenge all over the world improvement of human capital helps to reduce carbon emissions this paper studies the long and short term effects of human capital on carbon emissions in pakistan from 1971 to 2014 we employ an autoregressive distributed lag model and the vector error correction model to analyze the co integration and direction of causalities between human capital and carbon emissions respectively results show that a significant long term relationship exists between human capital and carbon emissions improvement of human capital will reduce carbon emissions without decreasing economic growth granger causality test results describe the bidirectional causality that exists between human capital and carbon emissions in the long term and no causality in the short term human capital and economic growth have feedback effects in the long term and no effect in the short term the results of this study show that improvement in human capital through education will help carbon emissions reduction in the long term this study will help policymakers devise a comprehensive strategy to reduce carbon emissions through improvement of human capital

oil prices and economic activity an asymmetric cointegration approach the aim of this paper is to study the long term relationship between oil prices and economic activity proxied by gdp to account for asymmetries existing in the links between the two variables we propose an approach based on asymmetric cointegration our empirical analysis concerns the u s economy but also the g7 europe and euro area economies results indicate that while standard cointegration is rejected there is evidence for asymmetric cointegration between oil prices and gdp

investment and financing decisions with learning curve technology abstract the learning curve has a significant impact on production cost hence corporate profit in a number of industries while the learning curve is well recognized in the economics literature and its effect on operating costs and production decisions widely studied its effect on corporate investment has been largely unexplored to our knowledge there is one paper that examines this issue but it is limited to unlevered firms we therefore examine a levered firm s optimal investment and financing choices when using learning curve technology the main findings are as follows the effect of leverage on the investment decision depends on the level of debt using the optimal debt level will result in earlier and larger investment thus leverage has a positive effect on investment overall and the difference between levered and unlevered firm is an increasing function of learning speed the optimal leverage ratio without a borrowing constraint is an increasing function of learning speed with a borrowing constraint the investment decision is similar to the unconstrained borrowing case but the leverage ratio is initially increasing and subsequently decreasing in learning speed moreover it is a decreasing function over a wider range for a more stringent borrowing constraint for decreasing returns to scale technology and for a less volatile product market

investigating the semiconductor industry cycles the aim of this article is to investigate the links between semiconductor sales and various macroeconomic financial industrial variables including inventories equipment orders or semiconductor sector stock index statistical properties of these variables are studied both short run and long run interactions are analysed on the short run our results indicate that relationships often imply feedbacks through the implementation of cointegration analysis we separately identify both sales value and investments in the semiconductor market an impulse response analysis confirms the relevance of our choice of data and stability tests demonstrate that the parameters remain constant during the entire sample the vector error correction models vecms offer a representation respecting cycle theories and market actor analyses