r d investments under endogenous cluster formation abstract we provide an innovative theory based explanation for the positive relationship between firms r d intensity and their degree of r d cooperation we show that when oligopolistic firms decide on long term r d investment before forming research clusters among competitors investment incentives are increased by the desire to become a member of an attractive cluster this can result in over investment compared to the welfare optimum and compared to a scenario where research clusters are ex ante fixed thereby as a theoretical contribution we fully characterize the equilibria of the unanimity game on cluster formation with heterogeneous firms

cost reduction competition and industry performance in many markets firms compete over time by expending resources with the purpose of reducing their costs sometimes the cost reducing investments operate directly on costs in many instances they take the form of developing new products that deliver what customers need more cheaply therefore product development can have the same ultimate effect as direct cost reduction in fact if one thinks of the product as the services it delivers to the customer in the way that lancaster pioneered then product development often is just cost reduction

the effect of entry on r d networks we investigate the effect of potential entry on the formation and stability of r d networks considering farsighted firms we show that the presence of a potential entrant often alters the incentives of incumbent firms to establish an r d link in particular incumbent firms may choose to form an otherwise undesirable r d collaboration in order to deter the entry of a new firm moreover an incumbent firm may refrain from establishing an otherwise desirable r d collaboration expecting to form a more profitable r d link with the entrant finally potential entry may lead an inefficient incumbent to exit the market we also perform a welfare analysisand show that market and societal incentives are often misaligned

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

influencing the influencers a theory of strategic diffusion the growth of the internet and assorted technologies has made it possible to collect and process detailed information on social networks this article investigates how firms and governments can harness the power of social networks to promote their goals we show that the optimal use of social networks leads to higher sales and greater profits however an increase in the level and dispersion of social interaction can increase or decrease the optimal influence strategy and profits of the player depending on the content of the interaction optimal influence strategies will target individuals with low or high connections depending on the content of interaction finally the returns to investing in market research on social networks are greater in more unequal networks

the price of innovation new estimates of drug development costs the research and development costs of 68 randomly selected new drugs were obtained from a survey of 10 pharmaceutical firms these data were used to estimate the average pre tax cost of new drug development the costs of compounds abandoned during testing were linked to the costs of compounds that obtained marketing approval the estimated average out of pocket cost per new drug is us 403 million 2000 dollars capitalizing out of pocket costs to the point of marketing approval at a real discount rate of 11 yields a total pre approval cost estimate of us 802 million 2000 dollars when compared to the results of an earlier study with a similar methodology total capitalized costs were shown to have increased at an annual rate of 7 4 above general price inflation 2003 elsevier science b v all rights reserved

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

a cautionary note in using patterns of shocks to determine optimal exchange rate policy an exploration of nepalese and indian exchange rate relations 1964 1994 nepal and india are developing countries in asia whose hard peg has existed for almost forty years as well as no restriction on capital mobility between both countries however empirical results suggest that nepal and india do not face symmetric patterns of shocks and are thus not suitable for a fixed exchange rate under this criteria one possible explanation may be that the monetary authority plays some role in the short run to reduce the cost of the exchange rate regime this suggests that some caution should be used in basing optimal exchange rate policy on this single criteria

networks of collaboration in oligopoly abstract in an oligopoly prior to competing in the market firms have an opportunity to form pair wise collaborative links with other firms these pair wise links involve a commitment of resources and lead to lower costs of production of the collaborating firms we study the incentives of firms to form links and the architecture of the resulting collaboration network we find that incentives to form links are intimately related to the nature of market competition our analysis also suggests that collaborations are used by firms to generate competitive advantage and that strategically stable networks are often asymmetric with some firms having many links while others have few links or are isolated specifically we show that networks with the dominant group architecture stars and inter linked stars are stable we also present some results on the architecture of socially efficient networks

permanent and transitory movements in labor income an explanation for excess smoothness in consumption many have argued that if labor income is difference stationary the permanent income hypothesis predicts that consumption should be relatively volatile in u s aggregate data labor income is well characterized as having a unit root however consumption turns out to be relatively smooth this anomaly is known as deaton s paradox i resolve deaton s paradox by providing decompositions of labor income into permanent and transitory components these preserve the univariate dynamic properties of labor income however when agents distinguish permanent and transitory movements in their labor income as the rational expectations hypothesis asserts they should the permanent income hypothesis correctly predicts the observed smoothness in consumption

estimating shocks and impulse response functions this paper examines the issue of how to identify the shocks in a cointegrated var when the following assumptions are made the variables can be classified as endogenous or exogenous there are as many cointegrating relations as endogenous variables the cointegrating vectors are identified and they contain at least one exogenous variable it is shown that with these assumptions it is possible to identify the shocks without the use of further restrictions on the covariance matrix of the disturbances or the short run dynamics if the long run parameters are known the whole model can be estimated by ols the analysis is extended to allow the var to have both stationary and non stationary variables an illustration of the method is provided using the traditional benchmark var model involving us data on output prices interest rates and money a liquidity effect is not found using this var methodology

macro economic shocks the erm and tri polarity the authors use the comparative behavior of real output growth and inflation behavior of members and nonmembers of the exchange rate mechanism erm to analyze the importance of erm membership on macroeconomic performance an econometric procedure for identifying temporary and permanent shocks to output is proposed and executed the results confirm that the erm has acted as a vehicle for macropolicy coordination between members the authors also investigate several issues relating to the hypothesis of global economic tri polarity between the united states germany and japan copyright 1995 by mit press

the nature of shocks in europe and in germany demand and supply shocks in the participating countries this paper addresses that question empirically using a bivariate var identification of the underlying orthogonal demand and supply shocks is achieved using only long run restrictions data for 16 european countries

the slope of the yield curve and real economic activity tracing the transmission mechanism abstract the slope of the yield curve in the us and the uk is strongly associated with the temporary rather than the permanent components of real economic activity suggesting that the yield curve affects economic activity primarily through the demand side

financial fragility and distress propagation in a network of regions we investigate how the financial fragility in the real economy is affected by the average level of interdependence among agents across different regions of the economy to this end we develop a parsimonious agent based model of firms and banks organized in geographic regions the model is built on the framework of an existing class of models for business fluctuations the goal of our exercise is to clarify the effect on systemic failures of the interplay between network interconnectedness and financial acceleration in particular we investigate the probability of individual and systemic failures with varying levels of interconnectedness we find that in the absence of financial acceleration connectivity makes the system more resilient in contrast in the presence of financial acceleration the probability of both individual and systemic failures are minimized at intermediate level of diversification

real exchange rates within and between currency areas how far away is emu the renewed quest for a european monetary union raises the question is europe ready for a common currency we compare the conditional variance and the persistence of real exchange rate shocks within the german monetary union and between germany and eight european countries to assess the viability of a monetary union in europe the results suggest a europe of two speeds a core union among germany her smaller neighbors and france would be viable today further reduction of real exchange rate variability is needed in contrast between these countries and denmark italy and the united kingdom alternatively monetary union should be postponed until further adjustment has occurred such a waiting period would neither require nor benefit much from further tightening of the current ems copyright 1994 by mit press

openness imperfect exchange rate pass through and monetary policy abstract this paper analyses the implications of imperfect exchange rate pass through for optimal monetary policy in a linearised open economy dynamic general equilibrium model calibrated to euro area data imperfect exchange rate pass through is modelled by assuming sticky import price behaviour the degree of domestic and import price stickiness is estimated by reproducing the empirical identified impulse response of a monetary policy and exchange rate shock conditional on the response of output net trade and the exchange rate it is shown that a central bank that wants to minimise the resource costs of staggered price setting will aim at minimising a weighted average of domestic and import price inflation

survival look ahead bias and the persistence in hedge fund performance we analyze the performance persistence in hedge funds taking into account look ahead bias multi period sampling bias we model liquidation of hedge funds by analyzing how it depends upon historical performance next we use a weighting procedure that eliminates look ahead bias in measures for performance persistence in contrast to earlier results for mutual funds the impact of look ahead bias is exacerbated for hedge funds due to their greater level of total risk at the four quarter horizon look ahead bias can be as much as 3 8 depending upon the decile of the distribution we find positive persistence in hedge fund quarterly returns after correcting for investment style the empirical pattern at the annual level is also consistent with positive persistence but its statistical significance is weak

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

core and periphery in the european monetary union bayoumi and eichengreen 25 years later bayoumi and eichengreen 1993 establish a emu core periphery pattern using 1963 1988 data we use same methodology sample window length 1989 2015 and a novel over identifying restriction test to ask whether the emu strengthened or weakened the core periphery pattern our results suggest the latter

the dynamic effects of aggregate demand and supply disturbances we interpret fluctuations in gnp and unemployment as due to two types of disturbances disturbances that have a permanent effect on output and disturbances that do not we interpret the first as supply disturbances the second as demand disturbances demand disturbances have a hump shaped mirror image effect on output and unemployment the effect of supply disturbances on output increases steadily over time peaking after two years and reaching a plateau after five years

exchange intervention policy in a multiple country world abstract intervention policy is examined in a three country model employment and output in each country depend upon the domestic currency value of a natural basket of currencies called the sally each country will find it desirable to intervene to stabilize its sally rate if capital movements are more volatile than trade flows this is a natural generalization of well known small country results however in this general equilibrium setting it is clear that such a policy can destabilize employment in another country and lead to retaliation currency unions are also examined and found to have similar spillover problems

a political economic critique on the theory of optimum currency areas and the implications for east asia in recent years dynamic debate has arisen as to the desirability and feasibility of creating a monetary union in east asia while the debate has relied heavily on the theory of optimum currency areas this theory has weaknesses in explaining the actual formation of monetary unions at this point political economy analysis appears to demonstrate stronger explanatory power this paper provides a systematic review of the main developments in the literature on optimum currency area theory and in the political economy literature on monetary union in addition it addresses the feasibility of an east asian monetary union by applying the findings in these two academic strands to the region it finds that even though formation of an east asian monetary union may be to some extent feasible from an economic perspective the region s political situation does not appear favourable for the creation of one

did the euro common currency increase or decrease business cycle synchronization for its member countries we use two variants of markov switching models to assess changes in output synchronization since the creation of the euro out of eight eurozone countries investigated only one the netherlands has synchronization increased since euro adoption supporting the endogenous optimal currency area argument of frankel and rose however in three other cases business cycle synchronization actually fell since the euro s creation thus the endogeneity of the optimal currency area criteria can go both ways adopting a common currency may increase synchronization for nations ready for a common currency but it can lower synchronization for nations that are far from synchronized before monetary unification

the permanent effects of fiscal consolidations abstract the global financial crisis has permanently lowered the path of gdp in all advanced economies at the same time and in response to rising government debt levels many of these countries have been engaging in fiscal consolidations that have had a negative impact on growth rates we empirically explore the connections between these two facts by extending to longer horizons the methodology of blanchard and leigh 2013 regarding fiscal policy multipliers our results provide support for the presence of strong hysteresis effects of fiscal policy the large size of the effects points in the direction of self defeating fiscal consolidations as suggested by delong and summers 2012 attempts to reduce debt via fiscal consolidations have very likely resulted in a higher debt to gdp ratio through their long term negative impact on output

unemployment dynamics across oecd countries abstract the european community and the us have experienced vastly different unemployment dynamics over the last two decades this paper investigates whether these differences are due to exposure to different shocks or reacting differently to the same shocks with the premise of a search theoretic framework and a structural var methodology the paper robustly identifies aggregate versus reallocative shocks with the exception of spain where most of the dynamics seem to be driven by reallocation it is found that most differences in unemployment dynamics arise because of differences in responses to shocks in particular the us labour market is quicker to adjust than the european community this implies that eec economies might be dynamically sclerotic even if the size of the steady state labour market flows give the impression that european labour markets are quite active various identifying assumptions additional labour supply shocks and different variables are used yet the results appear robust

vector rational error correction abstract systems of forward looking linear decision rules can be formulated as vector rational error correction models the closed form solution of the restricted error corrections is derived and a full information estimator is suggested the error correction format indicates that the assumptions of convex adjustment costs and rational expectations impose different types of a priori restrictions on the dynamic structure of the error corrections an empirical model of the producer decision rule for capital investment illustrates that the data rejects dynamic restrictions imposed by a standard model of adjustment costs but supports a more general description of convex frictions

r d networks we develop a model of strategic networks that captures two distinctive features of interfirm collaboration bilateral agreements and nonexclusive relationships our analysis highlights the relationship between market competition firms incentives to invest in r d and the architecture of collaboration networks in the absence of firm rivalry the complete network where each firm collaborates with all others is uniquely stable industry profit maximizing and efficient by contrast under strong market rivalry the complete network is stable but intermediate levels of collaboration and asymmetric networks are more attractive from a collective viewpoint this suggests that competing firms may have excessive incentives to form collaborative links

output and unemployment dynamics in the united states 1950 1985 for us data over 1950 1985 the stochastic components of gnp growth and the unemployment rate appear to be stationary and there is substantial feedback between these variables the unconditional mean rate of unemployment in a joint model thus provides a natural benchmark in discussions of the business cycle a bivariate var model is used to describe output unemployment dynamics to estimate the degree of persistence of output innovations and to decompose output into trend and cycle the bivariate results are interpreted using a restricted var and it is shown that a closely related cyclical measure can be obtained directly from the okun s law equation

core and periphery in networks abstract we study a model of network formation where the benefits from connections exhibit decreasing returns and decay with network distance we show that the unique equilibrium network is a periphery sponsored star where one player the center maintains no links and earns a high payoff while all other players maintain a single link to the center and earn lower payoffs both the star architecture and payoff inequality are preserved in an extension of the model where agents can make transfers and bargain over the formation of links under the condition that the surplus of connections increases in the size of agents neighborhoods our model thus generates two common features of social and economic networks 1 a core periphery structure 2 positive correlation between network centrality and payoffs

policy convergence the exchange rate mechanism and the misalignment of exchange rates some tests of purchasing power parity and generalized purchasing power parity the paper focuses on the convergence issues and the long run credibility of the european monetary system ems and more specifically on the evaluation of the effectiveness of the exchange rate mechanism erm in generating a stabilizing effect on real exchange rates across member countries for this purpose we execute some tests of long run purchasing power parity ppp for an erm group and a non erm group of countries using both the engle and granger procedure and the more powerful johansen cointegration technique we also execute a test of generalized ppp exploiting an idea developed by enders and hurn testing for ppp in a multicountry setting may be a useful methodology to identify the optimal currency area suggested by the data generation process on the basis of the reported homogeneity of real exchange rate behaviour of the countries considered

modelling portfolio capital flows in a global framework multilateral implications of capital controls abstract in the aftermath of the global financial crisis many emerging market countries resorted to capital controls to tackle the excessive surge of capital inflows a number of recent research papers have suggested that the imposition of controls may have imposed negative externalities on other countries by deflecting flows our aim in the research reported in this paper is to assess the efficacy of capital controls and potential deflection effects on other countries by constructing a comprehensive global econometric model which captures the dynamic interactions of capital flows with domestic and global fundamentals the results suggest that capital controls are effective for some countries in the short run but have no lasting effects moreover there is only limited evidence of deflection effects for a small number of emerging market countries

trends and cycles in macroeconomic time series two structural time series models for annual observations are constructed in terms of trend cycle and irregular components the models are then estimated via the kalman filter using data on five u s macroeconomic time series the results provide some interesting insights into the dynamic structure of the series particularly with respect to cyclical behavior at the same time they illustrate the development of a model selection strategy for structural time series models

private equity performance what do we know we study the performance of nearly 1400 u s buyout and venture capital funds using a new dataset from burgiss we find better buyout fund performance than has previously been documented performance consistently has exceeded that of public markets outperformance versus the s p 500 averages 20 to 27 over a fund s life and more than 3 annually venture capital funds outperformed public equities in the 1990s but underperformed in the 2000s our conclusions are robust to various indices and risk controls performance in cambridge associates and preqin is qualitatively similar to that in burgiss but is lower in thomson venture economics

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

benefits from mutual restraint in a multilateral monetary union summary we show that monetary union can enhance price stability for its member countries even if none of them has a long history of stable prices and independent monetary policy as is the case in a number of monetary union initiatives among developing countries the positive effect obtains because the opportunistic objectives of one country s policy makers are kept in check at the union level by other members with disparate objectives we calibrate the model to evaluate the proposed monetary union in the east african community the empirical results show that the mutual restraint on monetary policy is an important determinant of the expected benefit from an eac monetary union

the response of asset prices to monetary policy shocks stronger than thought standard macroeconomic theory predicts rapid responses of asset prices to monetary policy shocks small scale vector autoregressions vars however often find sluggish and insignificant impact effects using the same high frequency instrument to identify monetary policy shocks we show that a large scale dynamic factor model finds overall stronger and quicker asset price reactions compared to a benchmark var both on euro area and us data our results suggest that incorporating a sufficiently large information set is crucial to estimate monetary policy effects

the economics of private equity funds this article analyzes the economics of the private equity industry using a novel model and dataset we obtain data from a large investor in private equity funds with detailed records on 238 funds raised between 1993 and 2006 we build a model to estimate the expected revenue to managers as a function of their investor contracts and we test how this estimated revenue varies across the characteristics of our sample funds among our sample funds about two thirds of expected revenue comes from fixed revenue components that are not sensitive to performance we find sharp differences between venture capital vc and buyout bo funds bo managers build on their prior experience by increasing the size of their funds faster than vc managers do this leads to significantly higher revenue per partner and per professional in later bo funds the results suggest that the bo business is more scalable than the vc business and that past success has a differential impact on the terms of their future funds jel g10 g20 g24

international asset allocation with time varying investment opportunities this paper analyses the international equity holdings of a large panel of uk pension funds we find considerable evidence of market timing activity as illustrated by the funds decision to scale back their investments in the us stock market during the 1990s to explain this we model portfolio weight dynamics as a function of time varying conditional moments we find that a substantial part of the evolution in portfolio weights is explained by time varying conditional expected returns volatilities and covariances with domestic equity returns consequently controlling for the effect of state variables that track time variations in investment opportunities significantly affects estimates of returns from international market timing our estimates suggest that the portfolio movements that were orthogonal to such state variables accounted for a net loss of 0 2 per cent per annum for the average fund

a traditional interpretation of macroeconomic fluctuations under the traditional interpretation of macroeconomic fluctuations aggregate demand shocks move output and prices in the same direction while aggregate supply shocks move output and prices in opposite directions this paper examines the joint behavior of u s output unemployment prices wages and nominal money and asks whether it is consistent with this interpretation the answer is a qualified yes

international macroeconomic fluctuations and the current account intertemporal models of the current account generally assume that global shocks do not affect the current account we use this assumption to identify global and country specific shocks in a bivariate var we test the quality of the identification using evidence from g7 data in accordance with the theory we observe a link between the global shock and a measure of the world real interest rate we also find that long term output growth is driven by global factors in most countries that country specific shocks are less persistent in smaller economies and generally less volatile than global shocks

permanent and transitory components in macroeconomic fluctuations fluctuations in real gnp have traditionally been viewed as transitory deviations from a deterministic time trend the purpose of this paper is to review some of the recent developments that have led to a new view of output fluctuations and then to provide some additional evidence using post war quarterly data it is hard to reject the view that real gnp is as persistent as a random walk with drift we also consider the hypothesis that the recent finding of persistence are due to the failure to distinguish the business cycle from other fluctuations in real gnp we use the measured unemployment rate to decompose output fluctuations we find no evidence for the view that business cycle fluctuations are more quickly trend reverting this abstract was borrowed from another version of this item

money and output viewed through a rolling window abstract we examine the extent to which fluctuations in the money stock anticipate or granger cause fluctuations in real output using a variety of rolling window and increasing window estimation techniques various models are considered using simple sum as well as divisia measures of m 1 and m 2 income prices and both the t bill rate and the commercial paper rate findings indicate that the relation between income money prices and interest rates is stable as long as sufficient data are used and that there is cointegration among the variables considered although cointegration spaces become very difficult to estimate precisely when smaller windows of data are used further both m 1 and m 2 are shown to be important predictors of income for the entire period from 1960 2 1996 3 based on modified versions of what we term the most damaging specifications from friedman and kuttner 1993 and thoma 1994 our new evidence is based in part on a rather novel model selection approach to examining the relationship between money and income 1998 elsevier science b v all rights reserved

firm heterogeneity and the pattern of r d collaborations we consider an oligopoly setting in which firms form pairwise collaborative links in rd 2 some firms have more innovative capabilities than others these two situations provide clear insights about how firms heterogeneity affects both equilibrium and efficient networks we also show that the most valuable collaborative links do not always appear in equilibrium and a public policy that increases the value of the most valuable links may lead to a loss of social welfare

venture capital funds flow performance relationship and performance persistence this paper finds that venture capital funds that are expected to be backed by more skilled investors show no performance persistence but a significant flow performance relationship in contrast funds that are expected to be backed by less skilled investors show performance predictability and have a non significant flow performance relationship these results suggest that only skilled investors use all available information to adjust their capital allocation and as a result eliminate performance predictability as argued theoretically by berk and green 2004 results also show that kaplan and schoar 2005 overstate the persistence in fund performance by not using an ex ante measure of the performance of earlier funds whether or not an ex ante measure is used however the persistence is largely due to unsophisticated investors when investors are sophisticated the performance of earlier funds sequence and fund size do not help predict the performance of the focal fund

anti coordination and social interactions abstract this paper studies the first model of social interactions with anti coordination agents have fixed partners with whom they play a common bilateral game of anti coordination like the chicken game partnerships are represented as links of a network the paper asks how do social interactions interplay with the incentives to anti coordinate how does the social network affect individual choices in equilibrium the analysis shows that network effects are much stronger than when partners play a coordination game the network notably affects how agents respond when a strategy becomes more advantageous in the standard benchmark of complete interactions more agents play the strategy this result does not generally hold when the network is incomplete on bipartite networks agents choices are unaffected while on core periphery networks less agents may play the strategy

the public market equivalent and private equity performance the authors show that the public market equivalent approach is equivalent to assessing the performance of private equity pe investments using rubinstein s dynamic version of the capm they developed two insights 1 one need not compute betas of pe investments and any changes in pe cash flow betas due to changes in financial leverage operating leverage or the nature of the business are automatically taken into account 2 the public market index used in evaluations should be the one that best approximates the wealth portfolio of the investor considering the pe investment opportunity

analysis of us real gnp and unemployment interactions abstract instead of the more common unemployment rate the time series data of the level of us unemployment is used together with us real gnp and later also with the us money stock to identify a bivariate and trivariate structural model the model is then used to examine the interaction of the unemployment level with the real gnp in the business cycle frequencies the commonly perceived okun s law is shown to disappear in the trivariate model

a strategic model of social and economic networks we study the stability and efficiency of social and economic networks when self interested individuals can form or sever links first for two stylized models we characterize the stable and efficient networks there does not always exist a stable network that is efficient next we show that this tension persists generally to assure that there exists a stable network that is efficient one is forced to allocate resources to nodes that are not responsible for any of the production we characterize one such allocation rule the equal split rule and another rule that arises naturally from bargaining of the players

skill and luck in private equity performance we evaluate the performance of private equity pe funds using a variance decomposition model to separate skill from luck we find a large amount of long term persistence and skilled pe firms outperform by 7 to 8 annually but this performance is noisy with a large amount of luck so top quartile performance does not necessarily imply top quartile skills making it difficult for investors lps to identify skilled pe firms buyout bo firms show the largest skill differences implying the greatest long term persistence venture capital vc performance is the most noisy making good vc firms hardest to identify and implying the smallest amount of investable persistence

evaluating monetary policy options we present a procedure for evaluating ex ante the effects of alternative paths of a monetary policy tool the federal funds rate in our illustrations on output and the price level within a variant of a widely used vector autoregressive model of the u s economy this exercise is a supplement to or even an alternative to analysis that relies on a particular structural model illustrations of the method are provided by evaluating the effects of changes in the funds rate target additionally the taylor rule is used to generate target funds rates for different target inflation rates and the effects of these are evaluated one of the critical elements in the formulation of monetary policy is the evaluation of the effects of alternative paths of the policy instrument on the macroeconomy for example in federal open market committee fomc meetings estimates of the effects of alternative paths of the federal funds rate are presented to policymakers as an input into the policy process for a discussion see meulendyke 1998 the effects of the alternative paths are evaluated within the context of a structural model of the economy the latest version of the structural model used at the board of governors is described in brayton et al 1997 in this article we present a procedure for evaluating ex ante the effects of alternative paths of a monetary policy tool the federal funds rate in our illustrations on output and the price level we demonstrate this procedure employing a variant of a widely used vector autoregressive var model of the u s economy this exercise can be viewed as a supplement to or even an alternative to analysis that relies on a particular structural model given the lack of general agreement on the appropriate structural model evaluation of the effects of changes in the policy instrument within a variety of different types of models is appropriate the discussion of the proposed procedure is in the spirit of recent work by leeper and sims 1994 who following earlier work by sims 1982 1987 distinguish between normal policymaking and regime changes for purposes of illustration we employ a var model comprised of the same variables used by christiano eichenbaum and evans hereafter cee 1994 1996 and bernanke and mihov hereafter bm 1998 we show how to evaluate and compare the current policy path with normal policy alternatives such as typically sized changes in the federal funds target we stress that this model is used only for illustrative purposes our methodology applies to any generic structural model and thus can easily

an empirical analysis of real exchange rate movements in the euro this study uses a long run structural vector autoregressive svar approach to identify the sources of real exchange rate fluctuations in the euro the empirical results indicate that real shocks play a dominant role in explaining the real exchange rate fluctuations in the euro this implies that the best approach for policymakers toward improving the competitiveness of the eu is to focus on improvements in the real economy such as improvements in efficiency technologies and productivity

the efficiency and stability of r d networks we investigate the efficiency and stability of r d networks in a model with network dependent indirect spillovers we show that the efficient network structure critically depends on the marginal cost of r d collaborations when the marginal cost is low the complete graph is efficient while high marginal costs imply that the efficient network is asymmetric and has a nested structure regarding the stability of network structures we show the existence of both symmetric and asymmetric equilibria the efficient network is stable for small industry size and small cost in contrast for large industry size there is a wide region of cost in which the efficient network is not stable this implies a divergence between efficiency and stability in large industries

hours per capita and productivity evidence from correlated unobserved components models recent studies debate the effect of a permanent productivity shock on hours per capita within a structural var context this paper examines the issue using a correlated unobserved components uc framework the estimates show that permanent shocks to productivity are negatively correlated with transitory shocks to hours this result is robust for non stationary or levels stationary specifications of hours model comparisons indicate that the data do not favor imposing var type restrictions on the uc models copyright 2008 john wiley sons ltd

internal r d expenditures and external technology sourcing abstract the paper examines the two way relationship between external r d activities and internal r d expenditures on a cross section of flemish r d active companies the analysis extends the classical explanatory variables like size diversification ownership structure and technological opportunities to include the impact of various external sourcing strategies r d cooperation and to a lesser extent r d contracted out are found to have a significant positive effect on internal r d but only if the companies have absorptive capacity in the form of a full time staffed r d department at the same time firms are found to be more frequently engaged in r d cooperation the more they spend on internal r d

econometrics and business cycle empirics business cycle empirics have long been a central arena for the debate about the roles of economic theory and econometrics in modelling economic time series data some famous historical examples are moore i9i4 keynes i939 and koopmans i947 sources for potential disagreements include that the entire economic system is involved and unobservable stochastic forces seem more than usually prominent in determining the outcome not only do these constitute two aspects about which it is hard to theorise they are equally difficult to model empirically there are both positive arguments for and negative arguments against according a dominant role to either theory or evidence not least because it is unclear what constitutes admissible instances of either in the absence of the other we first review what precludes a purely theoretical approach what prevents a purely empirical approach and hence why an interactive approach is imperative even so both the relative importance of the two ingredients and their substantive contents are likely to remain at issue first concerning the economy considerable empirical evidence suggests that it is a dynamic non linear high dimensional and evolving entity so studying it is difficult society and social systems alter over time laws change and technological innovations occur so establishing any invariants of an economic system is not easy such difficulties adversely afflict both theory and empirical modelling secondly concerning the observations time series data in economics are heterogeneous non stationary time dependent and interdependent so it is difficult to acquire knowledge from the available empirical information again such factors also make it hard to theorise about the properties of the underlying system a more direct critique of the empirical enterprise is that samples are short and highly aggregated economic magnitudes are inaccurately measured are subject to considerable revision and important variables are not measured or are unobservable so inferences are both imprecise and tentative combined with the simultaneity non constancy and high dimensionality of economic data a purely empirical approach seems to many to be precluded other criticisms of econometric approaches include worries about data mining pretest biases a lack of genuine identifiability and collinearity sometimes combined with a belief that theory can compensate an overemphasis on a

bayesian counterfactual analysis of the sources of the great moderation we use counterfactual experiments to investigate the sources of the large volatility reduction in us real gdp growth in the 1980s contrary to an existing literature that conducts counterfactual experiments based on classical estimation and point estimates we consider bayesian analysis that provides a straightforward measure of estimation uncertainty for the counterfactual quantity of interest using blanchard and quah s 1989 structural var model of output growth and the unemployment rate we find strong statistical support for the idea that a counterfactual change in the size of structural shocks alone with no corresponding change in the propagation of these shocks would have produced the same overall volatility reduction as what actually occurred looking deeper we find evidence that a counterfactual change in the size of aggregate supply shocks alone would have generated a larger volatility reduction than a counterfactual change in the size of aggregate demand shocks alone we show that these results are consistent with a standard monetary var for which counterfactual analysis also suggests the importance of shocks in generating the volatility reduction but with the counterfactual change in monetary shocks alone generating a small reduction in volatility copyright 2007 john wiley sons ltd

a literature survey on proposed african monetary unions this study provides a survey of recent advances in the literature on proposed african monetary unions the survey comprises about 60 empirical papers published during the past fifteen years four main strands are discussed individually and collectively notably the proposed west african monetary zone wamz east african monetary union eamu southern african monetary union samu and african monetary union amu we observe a number of issues with establishing the feasibility and or desirability of potential monetary unions inter alia variations in choice of variables empirical strategies sampled countries and considered periodicities we address this ambiguity by reviewing studies with scenarios that are consistent with hegelian dialectics and establish selective expansion as the predominant mode of monetary integration some proponents make cases for strong pegs and institutions as viable alternatives to currency unions using cluster analysis disaggregating panels into sub samples and distinguishing shocks from responses in the examination of business cycle synchronisation provide more subtle policy implications we caution that for inquiries using the same theoretical underpinnings variables and methods just by modifying the scope context and periodicity may only contribute to increasing the number of conflicting findings authors should place more emphasis on new perspectives and approaches based on caveats of and lessons from the european monetary union emu and cfa zones

large datasets factor augmented and factor only vector autoregressive models and the economic consequences of mrs thatcher we investigate methods of capturing the salient characteristics of very large datasets in an investigation of uk and us macroeconomic policy using factor augmented var favar models we also estimate structural factor only var fovar models and examine the impact of aggregate demand and aggregate supply in a further empirical application we find that while there is some evidence of increased macroeconomic flexibility in the usa as well as the uk since the late 1980s the speed of macroeconomic adjustment is more marked in the uk economy post 1987 possibly reflecting the uk labour market reforms of the thatcher government in the 1980s

european monetary union a cointegration analysis this paper employs systems based cointegration techniques developed by johansen 1988 1995 to determine which european union countries would form a successful economic and monetary union emu based on long run behavior of the nominal convergence criteria laid down in the maastricht treaty the original 12 european union countries are analyzed together nominal exchange rates real exchange rates longterm interest rates and government budget deficits are each analyzed for co movements among the 12 countries and various subgroups of them the results suggest that not all of the 12 original countries of the european union could possibly form a successful emu over time unless several countries made significant adjustments

towards european monetary union without the ems towards emu without the ems paul de grauwe this paper examines the causes of the breakdown of the ems arguing that ems credibility has always been impaired by recessions this has relevance both for the future of monetary union in europe and for the path by which it might be attained i argue that in comparison with the erm the present more flexible exchange rate arrangements will ease not exacerbate some of the technical problems in making the transition to emu i then analyse the political economy of monetary union and identify the main stumbling blocks that remain finally i set out a specific proposal that takes advantage of the new opportunities to move forward towards emu

the southern african development community suitable for a monetary union abstract this paper investigates whether a monetary union is desirable among the countries of the southern african development community sadc we employ a generalised auto regressive conditional heteroscedasticity garch model to consider the share of the variation in real exchange rates rers vis a vis south africa that can be explained by the divergence in monetary and fiscal policies the results show that monetary integration would substantially eliminate real exchange rate variation due to different monetary policies for some members the study concludes that a monetary union that embraces all sadc members would amass large costs relative to the benefits and hence would not be desirable

is the proposed east african monetary union an optimal currency area a structural vector autoregression analysis summary this paper empirically assesses the suitability of the east african ea countries for a regional monetary union by testing for symmetry of the underlying structural shocks the results indicate that supply and demand shocks are generally asymmetric which does not lend strong support for forming a currency union in the ea region at the moment however the speed and magnitude of adjustment to shocks is similar across the countries therefore further integration of the economies might lead to more favorable conditions for a monetary union although evidence in favor of linking an ea currency to an external anchor is weak such support seems to favor the euro