interpreting comovements in the trade balance and the terms of trade abstract i examine the relation between the trade balance and the terms of trade in a two country dynamic stochastic exchange economy with complete markets along an equilibrium path for this economy the relation is governed by the substitutability between foreign and domestic goods i find in contrast to non stochastic analyses of the harberger laursen metzler effect that a positive association does not require persistent shocks or non constant rates of time preference this contrast highlights the role played by the structure of asset markets complete and otherwise in generating equilibrium comovements

investment specific shocks and external balances in a small open economy model we set up a standard small open economy business cycle model driven by govern ment spending shocks neutral productivity tfp shocks and investment specific shocks the model is calibrated to quarterly canadian data and its predicted moments and sample paths are compared with their canadian counterparts we find that the model captures the dynamics in investment and in the trade balance better than special cases of the model where either one of the productivity shocks is omitted more specifically the model matches the variance of the trade balance output ratio its correlation with output and its autocorrelation it also matches the output investment correlation jel classification f41 e32

the costs of hiring skilled workers the shape of adjustment costs in factor demand has been a matter of controversy for quiet some time while some researchers assume quadratic adjustment costs i e that it becomes increasingly expensive to recruit workers in a given time period others believe that there are economies of scale in recruitment surprisingly there is hardly any evidence so far on the shape of hiring costs based on microeconomic data in this paper we estimate the functional form of hiring costs in the theoretical framework of a generalized model of monopsony using both parametric and nonparametric estimation techniques we find strong evidence in favor of diseconomies of scale in recruiting skilled workers our results indicate that the labor market is monopsonistic

aggregate fluctuations with national and international returns to scale cyclical movements in aggregate output factor inputs and productivity are all positively correlated across countries this article proposes a model in which positive cross country correlations of these variables result from increasing returns to the world wide variety of intermediate goods even if technology shocks are purely country specific the model also accounts for the observed positive relationship between bilateral trade volume and international comovements positive comovements can also arise with constant returns to variety but only if technology shocks are themselves strongly correlated the combination of constant returns and common shocks however tends to generate procyclical fluctuations of the trade balance

risk unemployment and the stock market a rare event based explanation of labor market volatility what is the driving force behind the cyclical behavior of unemployment and vacancies what is the relation between job creation incentives of firms and stock market valuations we answer these questions in a model with time varying risk modeled as a small and variable probability of an economic disaster a high probability implies greater risk and lower future growth lowering the incentives of firms to invest in hiring during periods of high risk stock market valuations are low and unemployment rises the model thus explains volatility in equity and labor markets and the relation between the two first draft november 15 2014 kilic mkilic wharton upenn edu wachter jwachter wharton upenn edu we are grateful to andy abel gabriel chodorow reich max croce giuliano curatola zvi eckstein joao gomes urban jermann christian opp sang byung seo ctirad slavik mathieu taschereau dumouchel michael wachter nancy ran xu amir yaron and seminar participants at the wharton school at the trans atlantic doctoral conference at the western finance association meetings and at the safe asset pricing workshop for helpful comments

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

variable capital utilization and international business cycles this paper develops a two country international business cycle model with variable capital utilization using a standard depreciation in use technology variable capital utilization significantly reduces the required size of productivity shocks needed to replicate observed output volatility by 20 40 further the model generates positive comovement across countries in wages hours and investment while preserving empirically accurate predictions regarding the relative cross country correlations of output and consumption and the countercyclical behavior of net exports finally accounting for variable capital utilization reduces cross country correlation of true productivity shocks relative to that of the standard solow residual

institutional sources of boundary spanning structures the establishment of investor relations departments in the fortune 500 industrials the authors analyze the coercive and mimetic conditions leading to the establishment of investor relations departments among fortune 500 industrial firms during the 1984 1994 period the results show that antimanagement resolutions brought to a vote by social movement activists significantly contributed to the establishment of investor relations departments intense scrutiny by financial analysts also impelled firms to create such departments whereas social movement activists framed shareholder rights as a problem and compelled organizations to uphold them professional analysts subtly coerced organizations to signal their commitment to investor rights by creating boundary spanning structures that solution was transmitted through board interlocks to other organizations

analyzing the analysts career concerns and biased earnings forecasts this paper examines the career concerns of security analysts we relate long histories of their earnings forecasts to job separations we find that relatively accurate past forecasts lead to favorable career outcomes such as remaining at or moving up to a high status large prestigious brokerage house controlling for accuracy optimistic forecasts relative to the consensus increase the chances of favorable job separations job separations depend much less on accuracy for analysts who cover stocks that are underwritten by their brokerage houses such analysts are also much more likely to be rewarded for optimistic forecasts than other analysts furthermore job separations were much less sensitive to accuracy and somewhat more sensitive to optimism during the stock market mania of the late 1990s these findings suggest that the well documented analyst forecast optimism bias is likely due to incentives to promote stocks

growth and the international transmission of business cycles two country single good real business cycle models predict that the cross country correlation of output is smaller than the cross country correlations of consumption and productivity in contrast to the evidence in historical samples the objective of this paper is to reproduce the observed empirical evidence in a two country real business cycle model with endogenous growth central features of the model include a nonmarket sector and international externalities in production the model generates realistic cross country correlations for output consumption and productivity with standard parameter values copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

exploring the capital goods economy complex product systems in the uk over the past decade qualitative empirical research at the firm project and industry levels has improved our understanding of the characteristics and dynamics of innovation in the high technology high value capital goods or complex product systems cops which underpin modern industrial activity this paper describes the development of a new industrial classification system for cops which is able to estimate quantitative shares of production and value added accounted for by cops at the economy level it is also able to provide insights into the capital information technology and skill intensity of cops as well as employment contributions as an example the method is applied to one major industrial economy namely the uk through a comparison of cops with non cops industries the paper identifies some of the key factors which explain the different patterns of innovation between the two types of industrial activity although preliminary the analysis shows that cops based industries together represent a distinctive class of industrial activity based on the classification system provided further research is underway to examine cross country comparisons in both production and trade performance through time

international business cycles and the relative price of investment goods is the relative price of investment goods a good proxy for investment specific technology we model this relative price in a flexible price international economy with two fundamental shocks namely the total factor productivity tfp shock and the investment specific technology ist shock we show that the one to one correspondence between the ist shock and the relative price of investment goods breaks down in an international economy because of the short run correlation between the terms of trade and the relative price of investment goods the data congruent negative correlation between the investment rate and the relative price of investment goods thus does not necessarily reflect decline in investment frictions rise in ist as suggested by many studies a calibration experiment with the us data demonstrates that such an inverse relation between rate of investment and the relative price of investment goods basically reflects the positive effect of tfp on the terms of trade for a broad range of economies where the home bias in consumption exceeds investment and there is a sizable adjustment cost of investment est ce que le prix relatifs des biens d investissement est un bon indicateur du changement technique fonde sur l investissement on construit un modele du prix relatif des biens d investissement dans une economie internationale a prix flexibles soumis a deux chocs fondamentaux la productivite totale des facteurs tfp et le changement technique fonde sur l investissement ist on montre que la correspondance bijective entre le choc ist et les prix relatifs des biens d investissement disparait dans une economie internationale a cause de la correlation a court terme entre les termes d echange et les prix relatifs des biens d investissement la correlation negative entre le taux d investissement et les prix relatifs des biens d investissement qu on retrouve dans les donnees ne reflete donc pas necessairement un declin dans les frictions d investissement accroissement de ist comme certaines etudes le suggerent un effort de calibration a l aide de donnees americaines montre qu une telle relation entre le taux d investissement et le prix relatif des biens d investissement reflete l effet positif de la tfp sur les termes d echange pour un grand eventail d economies ou la preference pour les produits domestiques est plus grande dans les biens de consommation que dans les biens d investissement et qu il y a donc un ajustement considerable dans le cout de l investissement

the role of financial analysts in the strategy formation process of business firms increasingly financial analysts are influencing the strategy formation process of corporations but so far little attention has been paid to the complex processes of interaction and the corresponding strategic outcomes this article discusses these influences through different theoretical lenses strategic management finance and accounting theory and economic sociology institutional and systems theory based on case study evidence from three companies we describe how the interactions between financial analysts and business firms take place and formulate several propositions on the relationship between financial analysts and business firms as well as on its influence on the strategic outcome of business firms the results suggest that the influence of financial analysts is indeed significant but depends on a number of contextual factors such as the financial situation of the company or the need for capital practicing managers can learn how to handle a turbulent environment such as the financial analyst community and how they can change their planning processes to absorb as much information as possible

information content of equity analyst reports abstract we catalog the complete contents of institutional investor all american analyst reports and examine the market reaction to their release including the justifications supporting an analyst s opinion reduces and in some models eliminates the significance of earnings forecasts and recommendation revisions analysts both provide new information and interpret previously released information the information in a report is most important for downgrades target prices and the analyst s justifications are the only significant elements for reiterations no correlation exists between valuation methodology and either analyst accuracy or the market s reaction to a report our adjusted r 2 s are much larger than those of studies using only summary measures

the quantitative role of capital goods imports in us growth over the last 40 years an increasing share of u s aggregate e s investment expenditure has been allocated to capital goods imports while capital goods imports were only 3 5 percent of e s investment in 1967 by 2008 their share had risen tenfold to 36 percent the goal of this paper is to measure the contribution of capital goods imports to growth in u s output per hour using a simple growth accounting exercise we find that capital goods imports have contributed 20 to 30 percent to growth in u s output per hour between 1967 and 2008 more importantly we find that capital goods imports have been an increasing source of growth for the us economy the average contribution of capital goods imports to growth in u s output per hour has increased noticeably since 1967 this abstract was borrowed from another version of this item

the price of imported capital and consumption fluctuations in emerging economies abstract we study the role played by fluctuations in the price of imported capital in determining the behavior of consumption fluctuations in developing countries for this we decompose the price of imported capital into common and country specific components where the common component is the price of capital in the us empirically we document that in contrast to small industrialized countries consumption in developing countries responds more than output to unexpected changes in the price of capital in the us as such fluctuations in the price of capital in the us contribute to a high volatility of consumption relative to that of output in developing countries we then show that a small open economy real business cycle model driven by fluctuations in the price of imported capital can account for the responses of consumption and output to innovations of the price of capital in the us and for the high relative volatility of consumption observed in developing country finally confronting the model to the data we further find that fluctuations in the price of capital in the us contribute substantially to fluctuations of consumption in countries that display a low volatility of output and a large relative volatility of consumption

oil prices and the terms of trade abstract the combination of substantial terms of trade variability and unstable correlation patterns of trade prices with output and trade volumes has led some to suggest a break in the link between trade volumes and prices we find that oil accounts for much of the variation in the terms of trade over the last twenty five years and its quantitative role varies significantly over time and since our dynamic general equilibrium model predicts that the economy responds differently to oil supply shocks than to other shocks changes in their relative importance helps to account for the unstable correlations in the data

labor market volatility in the search and matching model the role of investment specific technology shocks abstract shocks to investment specific technology have been identified as a main source of u s aggregate output volatility in this paper we present a model with frictions in the labor market and explore the contribution of these shocks to the volatility of labor market variables namely unemployment vacancies tightness and the job finding rate thus our paper contributes to a recent body of literature assessing the ability of the search and matching model to account for the large volatility observed in labor market variables to this aim we solve a neoclassical economy with search and matching where neutral and investment specific technologies are subject to shocks the three key features of our model economy are i firms are large in the sense that they employ many workers ii adjusting capital and labor is costly iii wages are the outcome of an intra firm nash bargaining problem between the firm and its workers in our calibrated economy we find that shocks to investment specific technology explain 40 of the observed volatility in u s labor productivity moreover these shocks generate relative volatilities in vacancies and the workers job finding rate which match those observed in u s data relative volatilities in unemployment and labor market tightness are 55 and 75 of their empirical values respectively

analysts conflicts of interest and biases in earnings forecasts analysts earnings forecasts are influenced by their desire to win investment banking clients we hypothesize that the equity bull market of the 1990s along with the boom in investment banking business exacerbated analysts conflicts of interest and their incentives to strategically adjust forecasts to avoid earnings disappointments we document shifts in the distribution of earnings surprises and related changes in the market s response to surprises and forecast revisions the evidence for shifts is stronger for growth stocks where conflicts of interest are more pronounced however shifts are less notable for analysts without ties to investment banking and in international markets

do analysts generate trade for their firms evidence from the toronto stock exchange abstract it has generally been assumed that the potential commission revenue is an important determinant of a sell side analyst s decision of what firms to cover and what information to publicly release however because stock volume has not been disaggregated on a brokerage firm level uncertainty remains regarding the economic importance of the relation between analyst coverage and brokerage firm volume using a unique data set that identifies the broker s involved in each trade i find that brokerage volume is significantly higher in covered stocks than in uncovered stocks on average brokers increase their market share in covered stocks by 3 8 relative to uncovered stocks

factor adjustment costs a structural investigation abstract this paper assesses various capital and labor adjustment costs functions estimating a general equilibrium framework with bayesian methods using us aggregate data the estimation finds that the adjustment costs are convex in both capital and labor and allowing for their joint interaction is important the structural model enables us to identify the response of factor adjustment costs to exogenous disturbances and to establish that shocks to technology and the job separation rate are key drivers of adjustment costs the analysis shows that factor adjustment costs enable the model to explain fluctuations in the firm s market value in the data

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

international business cycles financial markets and household production abstract this paper investigates the properties of an international real business cycle model with household production we show that a model with disturbances to both market and household technologies reproduces the main regularities of the data and improves existing models in matching international consumption investment and output correlations without irrealistic assumptions on the structure of international financial markets sensitivity analysis shows the robustness of the results to alternative specifications of the stochastic processes for the disturbances and to variations of unmeasured parameters within a reasonable range

search unemployment and age abstract we examine a search and matching model of the labor market with overlapping generations of workers in this model we focus on the effects of the finite lifetime of workers as a result of finite lifetime very old workers with the same productivity as younger workers generally earn less a market solution with nash bargained wages is never optimal as old workers search too long compared to the efficient solution we also examine the effects of policy measures such as hiring subsidies or unemployment insurance on employment labor market institutions have a differential impact for different age groups

market entry and international propagation of business cycles abstract in this paper pro cyclical market entry acts as an international transmission mechanism for business cycle shocks in an imperfectly competitive dynamic equilibrium model an expansion in one open economy leads to additional business formation in a parallel large open economy through demand spillovers business formation causes a decline in markups leading to an expansion in employment production and investment in both economies the modeling of the entry decision is critical only when the entry game is modelled as sequential with incumbents enjoying a first mover advantage are markups sufficiently elastic to cause international comovement

explaining saving investment correlations national saving and investment rates are highly positively correlated in virtually all countries this is puzzling as it apparently implies a low degree of international capital mobility this paper shows that the observed positive correlation between national saving and investment rates arises naturally within a quantitatively restricted equilibrium model with perfect mobility of financial and physical capital the model is consistent with the fact that saving investment correlations are larger for larger countries but are still substantial for small countries further the model is consistent with the finding that current account deficits tend to be associated with investment booms copyright 1993 by american economic association

terms of trade shocks and optimal investment another look at the laursen metzler effect conventional analyses of the effect of terms of trade shocks provide a misleading view of their impact on investment and the current account because capital goods imports are excluded from the analytical framework the author argues that such an exclusion is both arbitrary and unrealistic the author reexamines the consequences of permanent and transitory changes in terms of trade in a rational expectations model of a small open economy with intertemporally optimizing agents and with trade in both consumption and capital goods in this framework the responses to a permanent terms of trade improvement in unambiguous the long run capital stock and thus investment must rise and the current account must deteriorate exactly the opposite of the laursen metzler effect a transitory improvement in the terms of trade raises saving but has an uncertain effect on investment so the impact on the current account is generally ambiguous and is shown to depend on three factors the import contents on consumption and investment the duration of the windfall and the degree of intertemporal substitutability in both consumption and investment

labor market search endogenous disasters and the equity premium puzzle abstract the present paper investigates i the endogenous disaster mechanism in a textbook search and matching model when calibrated with a constant flow value of unemployment that is close to average labor productivity and ii its contribution to solve the equity premium puzzle i offer a simple explanation for the core of the disaster mechanism the lower bound say xkink on the annuitized costs the firm incurs from investing in a match lies sufficiently close to the body of productivity s distribution if labor productivity drops close to or even below xkink for consecutive periods the firm s annuitized share in expected future productivity of a worker can either only barely or even no longer at all break even the annuitized lower bound of the costs the firm faces vacancies become unprofitable and the economy quickly enters a downward spiral the core of the mechanism relies critically on an unreasonably high and constant flow value of unemployment disasters disappear entirely for slightly smaller or procyclical values and the effects cannot be compensated by empirically plausible adjustments of the model s remaining parameters while the model can generate a sizeable equity premium combined with a small risk free rate if the flow value of unemployment is large and constant and if the coefficient of relative risk aversion and the elasticity of intertemporal substitution are both high premia again collapse by an order of magnitude in the versions of the model without disasters

evaluating the performance of the search and matching model abstract does the search and matching model fit aggregate u s labor market data while the model has become an important tool of macroeconomic analysis recent literature pointed to some significant failures in accounting for the data this paper aims to answer two questions i does the model fit the data and if so on what dimensions ii does the data fit the model i e what are the data which are relevant to be explained by the model the analysis shows that the model fits certain specifications of the data on many dimensions though not on all this includes capturing the high persistence and high volatility of most of the key variables the negative co variation of unemployment and vacancies and the behavior of the worker job finding rate a key role in this fit is played by the convexity of hiring costs and the stochastic properties of the separation rate the latter is a major component of the rate discounting the future value of the job worker match the paper offers a workable empirically grounded version of the model for the analysis of aggregate u s labor market dynamics

a theory of wages and labor demand with intra firm bargaining and matching frictions this article provides a model of labor market equilibrium with search and within firm strategic bargaining we yield explicit closed form solutions with heterogeneous labor inputs and capital the solution exhibits overemployment we show that higher relative bargaining power for some groups of workers may lead to overemployment relative to other groups with such other groups being underemployed instead if they have a lower relative bargaining power similarly the hold up problem between capitalists and employees does not necessarily lead to underinvestment in physical capital beyond the neo classical analysis firms are the field of several strategic interactions between capital owners and labor between marginal employees and incumbents and more generally between different groups with various bargaining positions within the firm it is usually considered that the bargaining power of workers entails an employment level that is lower than in a competitive labor market and any increase in the bargaining power of workers raises unemployment these results are true for a wide class of models and notably in the now standard framework to analyze unemployment namely search and matching models of pissarides 2000 however stole and zwiebel 1996a 1996b show that the above results are totally changed in the intra firm bargaining model where employees engage in individual wage negotiation with the firm in fact under the assumption that contract incompleteness does not enable either party to commit to future wages and employment decisions they show that intra firm bargaining yields no rent for employees and gives rise to overemployment compared to a competitive labor market the basic idea of stole and zwiebel is that a firm with a diminishing marginal productivity of labor can decrease the bargained wage which increases in the marginal productivity of labor by raising employment in stole and zwiebel s setting firms overemploy strategically up to the point where workers get their reservation wage

limited participation in international business cycle models a formal evaluation in this paper we study the role of limited asset market participation lamp for international business cycles we show that when limited participation is introduced into an otherwise standard model of international business cycles the performance of the model improves signi cantly especially in matching cross country correlations to perform formal evaluation of the models we develop a novel statistical procedure that adapts the test of vuong 1989 to dsge models and accounts for the possibility that models are misspeci ed based on this test we show that the improvements brought out by lamp are statistically signi cant leading a model with lamp to outperform a representative agent model furthermore when lamp is introduced a model with complete markets is found to do better than a model with no trade in nancial assets a well known favorite in the literature our results remain robust to the inclusion of investment speci c technical change

trade in capital goods and the volatility of net exports and the terms of trade abstract standard two country dynamic general equilibrium models grossly underpredict the volatility of net exports and the terms of trade we analyze whether trade in capital goods equipment can explain this failure trade in equipment accounts for about half of the trade balance of g7 countries and most of its fluctuations over the 1971 1990 period simulation results show that a standard model with trade in final goods generates a volatility of 0 10 for net exports and 0 52 for the terms of trade while the annual g7 median relative volatility are 0 60 and 2 18 models with trade in equipment however generate a volatility between 0 55 and 0 98 for net exports and between 1 23 and 3 24 for the terms of trade

on the job learning and news driven business cycles this paper proposes a new channel of on the job learning to explain the positive comovement between consumption and employment following good news about future productivity the new recruits can generate an additional stream of output production in all future periods and the firm s labor demand is thus characterized by the forward looking property therefore the firm is motivated to hire more new recruits in advance in response to good news about future productivity once the increase in labor demand is greater than the decrease in labor supply caused by the income effect the coincident rise in consumption and employment can be driven by the news shock when such a channel is paired with investment adjustment costs and the endogenous capacity utilization rate this paper provides a plausible explanation for simultaneous booms in current consumption investment output and employment to match the empirical evidence under the news shock

dynamics of the trade balance and the terms of trade the j curve the authors provide a theoretical interpretation of two features of international data the countercyclical movements in net exports and the tendency for the trade balance to be negatively correlated with current and future movements in terms of trade but positively correlated with past movements they document the same properties in a two country stochastic growth model in which trade fluctuations reflect in large part the dynamics of capital formation the authors find that their general equilibrium perspective is essential the relation between the trade balance and the terms of trade depends critically on the source of fluctuations copyright 1994 by american economic association

financial market reactions following technological discontinuities a non event study in two industries a large body of literature has explored the challenges of technological change for established firms much of this work has focused on factors internal to firms such as inertial routines or managers cognitive limitations that constrain incumbents development of new capabilities and response to new technologies but institutional pressures arising from financial markets and the securities analysts who mediate such markets likely also play a role in whether and how incumbent firms respond to technological change we know little about how financial markets and securities analysts react as an incumbent firm is faced with a radical technological discontinuity that threatens to substitute for the existing technology understanding such reactions is critical as they further influence whether and how incumbents respond to technological discontinuities in this article i explore securities analysts reactions to incumbent firms faced with technological discontinuities in two industries digital technology in photography and voice over internet protocol voip technology in wireline telecommunications i find that these discontinuities go largely unmentioned in analysts reports and appear to have little influence on analysts recommendations or stock prices even for several years the findings suggest further that analysts and investors continue to reward incumbents for cash flows arising from focusing on the existing business and technology despite the increasing certainty of technological obsolescence copyright 2008 oxford university press

heterogeneous preferences and equilibrium trading volume abstract the representative agent lucas model stresses aggregate risk and hence does not allow us to study the impact of agents heterogeneity on the dynamics of equilibrium trading volume in this paper we investigate under what conditions non informational heterogeneity i e differences in preferences and endowments leads to nontrivial trading volume in equilibrium we present a non informational no trade theorem that provides necessary and sufficient conditions for zero equilibrium trading volume in a continuous time lucas market model with heterogeneous agents multiple goods and multiple securities we explain in detail how no trade equilibria are related to autarky equilibria portfolio autarky equilibria and peculiar financial market equilibria which play an important role in the literature on international risk sharing

lost generations of firms and aggregate labor market dynamics abstract can the unprecedented lack of startups during the u s great recession have persistently negative effects while fewer firms hiring workers can mechanically reduce employment for many years this may be offset by feedback effects on lower wages slacker labor markets and higher profits an estimated model of firm dynamics and frictional labor markets suggests that such feedback effects are too weak to offset the direct impact of fewer startups had firm entry remained constant during the great recession output would have recovered 4 6 years earlier and unemployment would have been 0 5 percentage points lower even 10 years after the crisis

putty clay technology and stock market volatility abstract firms first order conditions imply that stock returns equal investment returns from the production technology much applied work uses the adjustment cost technology which implies that the realized return is high when the investment capital ratio is high this paper derives for an arbitrary stochastic discount factor the investment return implied by the putty clay technology the combination of capital heterogeneity and irreversibility creates a novel channel for return volatility the investment return is high when the ratio of investment to gross job creation is low empirically the putty clay feature helps account for u s stock market data

equilibrium labor turnover firm growth and unemployment this paper considers equilibrium quit turnover in a frictional labor market with costly hiring by firms where large firms employ many workers and face both aggregate and firm specific productivity shocks there is exogenous firm turnover as new small startups enter the market over time while some existing firms fail and exit individual firm growth rates are disperse and evolve stochastically the paper highlights how dynamic monopsony where firms trade off lower wages against higher endogenous employee quit rates yields excessive job to job quits such quits directly crowd out the reemployment prospects of the unemployed with finite firm productivity states stochastic equilibrium is fully tractable and can be computed using standard numerical techniques

stochastic growth in the united states and euro area this paper estimates using data from the united states and the euro area a two country stochastic growth model in which both neutral and investment specific technology shocks are nonstationary but cointegrated across economies the results point to large and persistent swings in productivity both favorable and adverse originating in the united states but not transmitted to the euro area more specifically the results suggest that while the euro area missed out on the period of rapid investment specific technological change enjoyed in the united states during the 1990s it also escaped the stagnation in neutral technological progress that plagued the united states in the 1970s

sequentiality versus simultaneity interrelated factor demand abstract firms may adjust capital and labor sequentially or simultaneously in this paper we develop a structural model of interrelated factor demand subject to nonconvex adjustment costs and estimated by simulated method of moments based on norwegian manufacturing industry plant level data parameter estimates reveal cost advantages for adjusting capital and making net changes in labor simultaneously factor demand models with fully specified interrelated adjustment costs structures perform best to describe the dynamic panel data

search and matching frictions and optimal monetary policy abstract a recent literature has merged the new keynesian and the search and matching frameworks which has allowed the former to analyze the joint dynamics of unemployment and inflation this paper analyzes optimal monetary policy in this kind of hybrid framework i show that zero inflation is optimal when all wages are nash bargained in every period and the economy s steady state is efficient in the more realistic case in which nominal wage bargaining is staggered a case against price stability arises in response to real shocks the central bank should use price inflation so as to avoid excessive unemployment volatility and excessive dispersion in hiring rates for a plausible calibration the welfare loss under the zero inflation policy is about three times as large as under the optimal policy

introducing financial frictions and unemployment into a small open economy model the current nancial crisis has made it abundantly clear that business cycle modeling no longer can abstract from nancial factors it is also becoming increasingly clear that the stylized modeling of labor markets without explicit unemployment that is the current standard approach has its limitations some questions which the dominating extant business cycle models are mute on but that we would like to answer are how important are nancial and labor market frictions for the business cycle dynamics of a

conflict of interest and the credibility of underwriter analyst recommendations brokerage analysts frequently comment on and sometimes recommend companies that their firms have recently taken public we show that stocks that underwriter analysts recommend perform more poorly than buy recommendations by unaffiliated brokers prior to at the time of and subsequent to the recommendation date we conclude that the recommendations by underwriter analysts show significant evidence of bias we show also that the market does not recognize the full extent of this bias the results suggest a potential conflict of interest inherent in the different functions that investment bankers perform

financialization of the global economy the instability of the world financial system starkly revealed in the recent debacle is not the only problem it poses its secularly increasing dominance over the real economy is in itself a phenomenon that needs examining the article traces the source of this increasing dominance not just to the increasingly leveraged and increasingly incomprehensible forms of intermediation between savers and those in the real economy who need credit and insurance but also to the increasingly universal doctrine that maximizing shareholder value is the sole raison d etre of the firm and the promotion by governments of an equity culture some of the social consequences of financialization are exacerbating inequalities greater insecurity misdirection of talent and the erosion of trust copyright 2008 oxford university press

international transmission of the business cycle in a multi sector model abstract standard multi country models do not replicate important features of the international transmission of business cycles predicting cross country correlations of output and consumption which are respectively too low and too high in this paper we modify the supply side of a two country model by adding multiple sectors and trade in intermediate goods the model generates a higher cross country correlation of output than standard one sector models it also predicts cross country correlations of employment and investment that are closer to the data we analyze the relative impact of multiple sectors trade in intermediate goods imperfect substitution between domestic and foreign goods home preference capital adjustment costs and capital depreciation in order to pinpoint the features which move the model s predictions closer to the data

trade in capital goods and investment specific technical change abstract this paper studies the role of trade in capital goods and investment specific technical change in the determination of the cross country correlation of output and the volatility of the terms of trade the cross country correlation of output for g7 countries ranges from 0 42 to 0 85 and the relative volatility of the terms of trade ranges from 1 24 to 6 06 the standard model with total factor productivity change and trade in final goods only generates an average cross country correlation of 0 05 and an average volatility of 0 68 models with trade in capital goods and investment specific technical change produce an average cross country correlation of 0 71 and an average volatility of 2 81

why has the u s economy become less correlated with the rest of the world in this paper we do two things first we document that over the last 40 years the u s business cycle has become less synchronized with the cycle in the rest of the world second we try to explain why this has happened we use a general equilibrium model as a tool to discriminate between two alternative explanations i a change in the nature of real shocks and ii an increase in u s financial integration with the rest of the world our results indicate that financial integration has played the major role in producing the observed changes in international co movement

the stock market and innovative capability in the new economy the optical networking industry the purpose of this paper is to analyze the impact of the stock market on the innovative capabilities of high technology companies that have been central to what in the last half of the 1990s came to be called the new economy the empirical focus is on equipment suppliers in optical networking an industry that integrates the bandwidth potential of fiber optics with the data communications potential of the internet the study covers the period from 1996 to 2003 during which the optical networking industry was first central to the new economy boom and then from 2001 ensnared by the bursting of the new economy bubble this paper shows how responding to the new economy business model brought into the industry by cisco systems three old economy companies nortel networks lucent technologies and alcatel sought to use their corporate stock as a currency to acquire technology companies and compensate talented people and thus accumulate innovative capability to understand the relation between the stock market and innovative capability in the cisco growth through acquisition and integration model and in the creative responses of the old economy companies to the cisco challenge we apply an analytical framework that links four functions of the stock market control combination compensation and cash with three social conditions of innovative enterprise strategic control the abilities and incentives of strategic decision makers to allocate resources to uncertain investments in innovative capabilities organizational integration the structure of incentives that motivates employees to apply their skills and efforts to collective learning processes and financial commitment the availability to the enterprise of resources to sustain cumulative learning processes until by accessing markets they can generate financial returns using this framework we show that the ways in which the old economy companies used their stock to accumulate innovative capability in the new economy boom of 1998 2000 made them more vulnerable to the stock market collapse and the slowdown in the optical networking industry in 2001 2003

herding among security analysts the paper shows that the buy or sell recommendations of security analysts have a signi cant positive in uence on the recommendations of the next two analysts this in uence can be traced to short lived information in the most recent revisions in contrast the in uence of the prevailing consensus is not stronger if the consensus accurately forecasts subsequent stock price movements this indicates consensus herding consistent with models in which analysts herd based on little information the consensus also has a stronger in uence when market conditions are favorable the resulting poorer information aggregation could cause bull markets to be intrinsically more fragilea e g bikhchandani et al j political economy 100 5 1992 992 1026 2000 elsevier science s a all rights reserved jel classixcation g11 g14 g24

evidence on the role of cash flow for investment abstract recent work in macroeconomics argues that imperfections in capital markets may lead to business cycle fluctuations by propagating relatively modest shocks evidence for such a mechanism also known as the financial accelerator consists largely of firm level studies showing that cash flow is an important predictor of investment but this evidence is often viewed with skepticism because cash flow is also a good indicator of investment opportunities in this paper we develop a framework for estimating the extent to which the predictive power of cash flow can be attributed to its role as a fundamental versus its role in alleviating credit frictions for firms with access to commercial paper and bond markets we find that the perfect capital markets model of investment can fully account for the role of cash flow for firms with only limited access to capital markets as indicated by lack of participation in public debt markets however investment appears to be excessively sensitive to fluctuations in cash flow these results thus clarify the role of cash flow in investment equations and provide support for the existence of a financial accelerator

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

labor and the market value of the firm what role does labor play in a firm s market value we explore this question using a production based asset pricing model with frictions in the adjustment of both capital and labor we posit that hiring of labor is akin to investment in capital and that the two interact with the interaction being a crucial determinant of the time series behavior of market value we use aggregate u s corporate sector data to estimate firms optimal hiring and investment decisions and the consequences for firms value the model generates a good fit of the data we decompose the estimated market value thereby quantifying the link between firms value and gross hiring flows employment gross investment flows and physical capital we find that a conventional specification quadratic adjustment costs for capital and no hiring costs performs poorly hiring and investment flows unlike employment and capital stocks are volatile and both are essential to account for market value volatility a key result is that firms value embodies the value of hiring and investment over and above the capital stock

trade interdependence and the international business cycle a stochastic general equilibrium model of the world economy is developed to analyze the contribution of trade interdependence to international business cycles we test some of the implications of the model using data from ten major industrial countries and a variety of detrending techniques to calculate the cyclical component of output we find that the significance of trade in the transmission of economic disturbances across countries is not robust to the choice of the detrending method in general the role of trade interdependence is moderate and seem to have been stronger in the period before 1973

securities analysts and incumbent response to radical technological change evidence from digital photography and internet telephony a large body of research has explored the factors that impede established firms responses to radical technological changes while it is widely acknowledged that managers face pressures from financial markets to choose strategies that maximize shareholder value little work in the technological change literature has considered the possible influences of public equity markets and the securities analysts who mediate them on incumbent firms challenged with technological change in this paper i begin to address the topic by empirically exploring how securities analysts react to the different strategies undertaken by incumbent firms faced with radical technological change i study the question in two settings the shift to digital technology in photography and the advent of voice over internet protocol voip technology in wireline telecommunications i find evidence that analysts are more attentive and positive toward incumbents strategies that extend and preserve the existing technology than toward strategies that respond directly to the new technology in these settings analysts largely ignore incumbents strategies that directly incorporate the new technology for several years following the discontinuity this study provides insights into the nature and direction of analysts reactions to firms strategies in the context of technological change and is a first step toward better understanding of the potential role of analysts and financial markets in incumbent adaptation

on the interaction of financial frictions and fixed capital adjustment costs evidence from a panel of german firms abstract this paper analyzes the interaction of financial frictions and non convex adjustment costs non convex adjustment costs imply that firm level investment is lumpy firms invest infrequently but each investment is large this allows financial variables to influence investment along two margins they can alter the size of the stock of capital a company wishes to hold in the long run or they can influence the frequency at which investment projects are undertaken the empirical analysis of this paper reveals that finance has nearly no long run influence on the stock of capital in a sample of german companies by contrast the influence of finance on investment decisions is substantial consequently finance primarily affects investment frequencies and financial factors and fundamental capital productivity strongly interact in the determination of investment

firm characteristics and analyst following abstract this paper examines the major determinants of the number of analysts following a firm a simple model of analyst following is proposed and several firm characteristics are suggested that are likely to influence the extent of a firm s analyst following by either affecting the aggregate demand for or supply of analyst services or both for the firm almost all of these characteristics are found to be strongly significant in affecting the extent of analyst following of firms and the empirical results generally accord well with economic intuition

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

security analysts career concerns and herding of earnings forecasts several theories of reputation and herding see e g scharfstein and stein 1990 suggest that herding among agents should vary with career concerns our goal in this paper is to document whether such a link exists in the labor market for security analysts specifically we look at the relationship between an analyst s job tenure a proxy for career concerns and various measures of stock earnings forecast performance we establish the following key results 1 older analysts are more likely to produce earnings forecasts of firms before younger ones 2 their forecasts also deviate more from the consensus forecast than their younger counterparts we argue that these results are consistent with some reputational models of herding we also establish a number of auxiliary findings regarding the relationship between forecast accuracy and frequency of forecast revisions with job tenure

the determinants of equilibrium unemployment the paper takes the search and matching model of the aggregate labor market to the data it tests the model s empirical validity and employs structural estimation to generate a characterization of the optimal behavior of firms and workers the model is applied to israeli data that are uniquely suited for this kind of empirical investigation the structural estimates are used to quantify the frictions embodied in the model including the costs of search the congestion and trading externality effects and the matching process a calibration simulation analysis then studies the effect of several key variables on equilibrium unemployment

sources and propagation of international output cycles common shocks or transmission abstract this paper studies the generation and transmission of international cycles in a multi country model with production and consumption interdependencies two sources of disturbance are considered and three channels of propagation are compared technology disturbances which are mildly correlated across countries are more successful than government expenditure disturbances in reproducing actual data the presence of a common component to the shocks and of production interdependencies appear to be crucial in quantitatively matching the properties of the data

consumer durables permanent terms of trade shocks and the recent us trade deficits abstract this paper employs an open economy real business cycle model to suggest that part of the 1980s us trade deficits may have been driven by permanent declines in consumer durable import prices we also show that most of the resulting decline in the trade balance is due to wealth effects not substitution effects

finance capital in chandlerian capitalism alfred chandler wrote a great deal on finance capital in the development of big business in making bold and provocative statements he provided scholars with a variety of stimulating ideas to a large extent however we still do not know whether chandler s assertions were correct ultimately the value of revisiting chandler s research on finance capital in the rise of us big business is to understand how much research needs to be done and the questions it needs to address copyright 2010 the author 2010 published by oxford university press on behalf of associazione icc all rights reserved oxford university press