explaining business cycles in small open economies abstract this paper analyzes the role of world price shocks fluctuations in the prices of capital intermediate and primary goods and in the world real interest rate in the generation and propagation of business cycles in small open developing countries i construct a stochastic dynamic multi sector small open economy model the model is a variant of the specific factors model and reflects the major structural characteristics of developing economies i utilize variance decomposition methods to quantitatively evaluate the impact of world price shocks the results indicate that world price shocks account for a significant fraction of business cycle variability in developing countries

similarities and convergence in g 7 cycles this paper examines the properties of g 7 cycles using a multicountry bayesian panel var model with time variations unit specific dynamics and cross country interdependences we demonstrate the presence of a significant world cycle and show that country specific indicators play a much smaller role we detect di erences across business cycle phases but apart from an increase in synchronicity in the late 1990s find little evidence of major structural changes we also find no evidence of the existence of an euro area specific cycle or of its emergence in the 1990s

trying to explain home bias in equities and consumption investors hold a substantially larger proportion of their wealth portfolios in domestic assets than standard portfolio theory would suggest a phenomenon called equity home bias in the absence of this bias investors would optimally diversify domestic output risk using foreign equities therefore consumption growth rates would tend to co move across countries even when output growth rates do not empirically however consumption growth rates tend to have a lower correlation across countries than do output growth rates a phenomenon i call consumption home bias in this paper i discuss these two biases and their potential relationship as suggested by the literature

trade finance specialization and synchronization i investigate the determinants of business cycle synchronization across regions the linkages between trade in goods financial openness specialization and business cycle synchronization are evaluated in the context of a system of simultaneous equations the main results are as follows i specialization patterns have a sizable effect on business cycles most of this effect is independent of trade or financial policy but directly reflects differences in gdp per capita ii a variety of measures of financial integration suggest that economic regions with strong financial links are significantly more synchronized even though they also tend to be more specialized iii the estimated role of trade is closer to that implied by existing models once intra industry trade is held constant the results obtain in a variety of data sets measurement strategies and specifications they relate to a recent strand of international business cycle models with incomplete markets and transport costs and on the empir

multistage financing of technical start up companies in silicon valley abstract financing remains an issue that entrepreneurs face long after their initial financing has been obtained in technical companies that face changing customers competitors and technology the need to finance new products to replace earlier products can be of vital importance to growth and survival venture capital firms that invest in technical companies also recognize the need for subsequent financing to maintain growth and thus protect the initial investment this research explored both the venture capitalist s and the entrepreneur s viewpoints the principal questions asked in the research were 1 how are subsequent rounds of investment considered and made by venture capitalists and 2 what problems occur in the entrepreneur s search for subsequent funding a combination of in depth interviews and mailed questionnaires was used in the research to obtain responses from a sample of venture capitalists and entrepreneurs in silicon valley this approach produced observations on the venture capitalists methods of making risk return trade offs and on the reasons why entrepreneurs face problems in obtaining funding for second new products specifically it was found that venture capital firms reduce the risk associated with funding young companies by showing preferences for certain stages of financing or for funding single versus multiple round investments these preferences appear to be idiosyncratic and entrepreneurs must be careful to deal with venture capitalists whose tendencies are consistent with the entrepreneurs goals it was also found that a major problem faced by entrepreneurs seeking funding for second products is the effort required for the search this effort takes away from their ability to perform day to day management activities at a crucial time in the growth of the firm implications are drawn for improving the effectiveness of entrepreneurs and venture capitalists efforts as well as for future research

determinants of required return in venture capital investments a five country study abstract using two complementary theoretical perspectives we develop hypotheses regarding the determinants of the return required by venture capitalists and test them on a sample of over 200 venture capital companies vccs located in five countries consistent with resource based theory we find that early stage specialists require a significantly higher return than other vccs when investing in later stage ventures consistent with financial theory we find that acquisition buyout specialists require a significantly lower return than other vccs when investing in expansion companies furthermore in comparison to specialists highly stage diversified vccs require a significantly higher return for early stage investments independent vccs require a higher rate of return than captive or public vccs in general higher required returns are associated with vccs who provide more intensity of involvement have shorter expected holding period of the investment and being located in the us or uk in comparison to those in france belgium and the netherlands

venture capital in transition a monte carlo simulation of changes in investment patterns abstract this article examines the nature of the investment process which has historically generated high returns for venture capital funds and the impact on fund returns of perceived changes in management practice and the structure of the industry the article outlines some policy implications for fund managers investors and the general management of corporations the authors have investigated the investment process and the changes in the nature of the process through the use of a monte carlo simulation model information gathered from interviews with fund managers and the available published data on venture fund performance including proprietary surveys was used to develop and calibrate the model the model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s the model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low zero average return the model readily permits the exploration of the impact of management and industry practices on fund returns the conditions identified by the authors which led to high rates of return on the part of venture capital funds include 1 1 multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund 2 2 objective evaluation of venture performance with the clear distinguishing of winners from losers 3 3 parlaying funds or having the confidence to commit further funds to ventures identified as winners 4 4 persistence of returns from one round to the next which implies that valuable information is gained from previous rounds of investment in the same venture 5 5 long term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to take over or raise portfolio returns taken together these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns the article also explores the consequences of what some believe is happening in the industry a trend toward holding investments for shorter periods increased competition both for investments and later in the product market arena and a growing lack of loyalty between investors and investees all of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners given the structure of fees and the distribution of investment returns generally realized a reasonable to extraordinary return the article outlines a number of management and investment policy implications for investors and fund managers

the decoupling of emerging economies theoretical and empirical puzzle with the growing importance of the emerging economies ees in the international scene a lively debate has begun on whether the national economic cycles are converging or the cycles of ees and advanced economies aes are becoming disconnected the so called hypothesis of decoupling of ees from the aes given the important practical implications that decoupling could have for example on the definition of national and international economic policies and on business strategies aimed at investment diversification and risk management the question kindles not only the interest of academics but also policymakers and practitioners are very interested in the issue the decoupling question has been long debated in different circles and from different points of view this survey aims to retrace the steps of this debate and to provide some suggestions for future empirical researches

trend and cyclical decoupling new estimates based on spectral causality tests and wavelet correlations the issue of decoupling of emerging market economies emes especially in the asian region from the developments in advanced economies has become a subject of lively debate in recent years basically decoupling seems to comprise three sub hypotheses i growth spillovers from advanced countries to emes decreasing progressively in importance ii business cycles in emes becoming less synchronized with those of the advanced world and iii strengthening of growth spillovers and cyclical synchronization among the emes as a group the received literature fails to distinguish adequately between the trend and cyclical aspects of the decoupling relationship we resort to two frequency domain methods nonstationary spectral causality testing and wavelet correlations which seem to offer a neat separation of trend and cyclical decoupling based on a sample of seven emes from the asian region including the two large emes china and india we uncover strong evidence favouring both trend and cyclical decoupling

exporting recessions international links and the business cycle abstract empirical evidence of decoupling typically focuses on declining business cycle correlations at low frequencies at higher frequencies business cycles strongly co move during recessions but are largely independent during non recessionary periods

inflation targeting and business cycle synchronization abstract inflation targeting seems to have a small but positive effect on the synchronization of business cycles countries that target inflation seem to have cycles that move slightly more closely with foreign cycles thus the advent of inflation targeting does not explain the decoupling of global business cycles for two reasons indeed business cycles have not in fact become less synchronized across countries

emerging economies in the 2000s real decoupling and financial recoupling the paper documents an intriguing development in the emerging world in the 2000s a decoupling from the business cycle of advanced countries combined with the strengthening of the co movements in the main emerging market assets that predates the synchronized sell off during the crisis in addition the paper tests the hypothesis that financial globalization to the extent that it creates a common global investor base for emerging markets could lead to a tighter asset correlation despite the weaker economic ties while an examination of the impact of alternative financial globalization proxies does not yield conclusive results a closer look at global emerging market equity and bond funds shows that the latter indeed foster financial recoupling during downturns reflecting the fact that they trade near their respective benchmarks and respond to withdrawals by liquidating holdings across the board

some hypotheses about risk in venture capital investing abstract venture capital investing differs in important respects from investment decisions involving the securities of fortune 500 companies or decisions to purchase established companies which are generally made in accord with widely recognized financial models investing in new ventures involves a high level of uncertainty as well as a high risk of failure venture capital investing is characterized by high variability in the outcomes of new ventures and in the performance of venture capital portfolios venture capital investing decisions are complicated by a general lack of quantifiable financial and market data for early stage ventures and investment decisions remain hostage to unanticipated competitors market shifts and financial cycles some observers have suggested that venture capital investment decisions are primarily subjective assessments while the question of risk in venture capital investing has been addressed on an ad hoc basis in several empirical studies there has been little effort to develop a theoretical framework of risk perceptions and risk reduction strategies despite differences in investor experience investment preferences and tolerance for risk venture capital managers share many common perceptions of the risks involved in investing in new ventures and the distribution of those risks over the venture capital funded phase of development venture capital managers also utilize many common behaviors and strategies in adapting to these risks these perceptions and reactions to risk in investing and strategies for controlling risk can in theory be used to construct a behavioral framework that can predict how venture capital managers will behave in choosing between various investment opportunities in order to minimize risk and to maximize potential returns in an attempt to begin to identify various elements of such a behavioral framework of venture capital reactions to risk the authors have drawn upon psychological risk theory of decision making under uncertainty including classic expected utility theory later modifications to that theory by kahneman and tversky 1979 and coombs and huang s 1970 portfolio approach to risk that are applicable to venture capital investing these expected behaviors to risk have been used in conjunction with empirical studies of venture capital investment and portfolio outcomes distributions of investments within portfolios and venture capitalist perceptions of risk to propose nine hypotheses about how venture capital managers behave in making investment decisions these hypotheses include differences in variation and magnitude of returns for early stage versus later stage ventures explanations of how risk distributions change over the stagewise development of new ventures differences in the behavior of aggressive versus conservative investors in screening investment prospects and strategies utilizing a lower ideal level of risk to reduce the chances of achieving negative or sub normal final portfolio returns

a stable international monetary system emerges inflation targeting is bretton woods reversed a stable international monetary system has emerged since the early 1990s a large number of industrial and a growing number of developing countries now have domestic inflation targets administered by independent and transparent central banks these countries place few restrictions on capital mobility and allow their exchange rates to float the domestic focus of monetary policy in these countries does not have any obvious international cost inflation targeters have lower exchange rate volatility and less frequent sudden stops of capital flows than similar countries that do not target inflation inflation targeting countries also do not have current accounts or international reserves that look different from other countries this system was not planned and does not rely on international coordination there is no role for a center country the imf or gold it is durable in contrast to other monetary regimes no country has been forced to abandon an inflation targeting regime succinctly it is the diametric opposite of the post war system bretton woods reversed

transportation costs and international trade in the second era of globalization while the precise causes of postwar trade growth are not well understood declines in transport costs top the lists of usual suspects however there is remarkably little systematic evidence documenting the decline this paper brings to bear an eclectic mix of data in order to provide a detailed accounting of the time series pattern of shipping costs the ad valorem impact of ocean shipping costs is not much lower today than in the 1950s with technological advances largely trumped by adverse cost shocks in contrast air shipping costs have dropped an order of magnitude and airborne trade has grown rapidly as a result as a result international trade has also experienced a significant rise in speed

the terms of trade the real exchange rate and economic fluctuations this paper examines the relationship between terms of trade and business cycles using a three sector intertemporal equilibrium model and a large multicountry database results show that terms of trade shocks account for nearly one half of actual gdp variability the model explains weak correlations between net exports and terms of trade the harberger laursen and metzler effect and produces large and weakly correlated deviations from purchasing power parity and real interest rate parity terms of trade shocks cause real appreciations and positive interest differentials although productivity shocks have opposite effects the puzzle that welfare gains of international asset trading are negligible is left unresolved copyright 1995 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the economics of dowry and brideprice payments between families at the time of marriage existed during the history of most developed countries and are currently pervasive in many areas of the developing world these payments can be substantial enough to affect the welfare of women and a society s distribution of wealth recent estimates document transfers per marriage amounting to six times the annual household income in south asia rao 1993 and four times in sub saharan africa dekker and hoogeveen 2002 this paper first establishes some basic facts about the prevalence and magnitude of marriage payments it then discusses how such patterns vary across countries depending upon economic conditions societal structures institutions and family characteristics such payments have also evolved within societies over time for example in some periods such payments have risen sharply in some cases payments have shifted from the grooms sides to the brides and vice versa also property rights over such payments have sometimes shifted between marrying partners and parental generations economists who have only recently begun to work on the topic have focused on explaining these facts the second part of the paper addresses this economic literature though considerable insight into many of the facts has been gained many of the existing economic explanations are weakly convincing and many puzzles remain one crucial difficulty is that solid data in this field have been extremely rare the descriptions of marriage payments in this paper are synthesized from a patchwork of studies across periods places and even epochs and there are doubtless numerous cases which remain undocumented thus the paper

currency unions and international integration this paper characterizes the integration patterns of international currency unions such as the cfa franc zone we empirically explore different features of currency unions and compare them to countries with sovereign monies by examining the criteria for mundellos concept of an optimum currency area we find that members of currency unions are more integrated than countries with their own currencies for instance we find that currency union members have more trade and less volatile real exchange rates than countries with their own monies business cycles are more highly synchronized across currency union countries than across countries with sovereign monies

the myth of decoupling the decoupling hypothesis is the idea that business cycles in emerging market economies have become more independent from business cycles in advanced economies in recent years decoupling essentially amounts to a structural break in the degree of business cycle interdependence between the two groups of economies and it can be tested as such we develop an innovative measure of business cycle interdependence based on the euclidean distance available at the annual frequency which allows for a proper test for a structural break in a graphical setup we also make use of a standard econometric test both approaches point to the same conclusion there has been no decoupling in recent years if anything the degree of business cycle interdependence has become stronger

clubmed cyclical fluctuations in the mediterranean basin we investigate the similarities of macroeconomic fluctuations in the mediterranean basin and their convergence a model with three geo political indicators covering the west the east and the mena portions of the mediterranean characterizes well the historical experience since the early 1980 convergence and divergence coexist in the region and are reversible except for the west domestic cyclical fluctuations are still due to national and idiosyncratic causes the outlook for the next few years looks rosier for the mena and the east blocks than for the west

international spillovers in macrofinancial linkages and the decoupling phenomenon abstract this paper contributes to the debate on the decoupling of emerging economies ees from advanced economies aes by measuring how the resilience of ees to external shocks i e shocks spreading from aes has changed over time and whether ees are relatively more vulnerable to real or financial external shocks a time varying panel var model with factorisation of the coefficients was used to perform counterfactual experiments over a period of about 30 years for a large sample of countries allowing for time varying coefficients permitted the decoupling phenomenon to be examined as a slow moving evolution process over a long time rather than as a structural break at a specific moment the factorisation of coefficients allowed a large dynamic panel to be managed with interdependences across many countries consequently the experiment was more realistic in terms of evaluating the response of ees to shocks hitting the aes within a global framework the resilience of ees has improved over time however this increasing resilience was discontinuous over the approximately 30 year sample period tracing a wave path in the whole sample period the ees were relatively more vulnerable to credit shocks than to real ones this greater vulnerability increased over time and peaked in the last 5 years of the sample period