research development and firm growth empirical evidence from european top r d spending firms abstract following recent literature we present a model of endogenous firm growth with r d investment as one of the main mechanisms of growth our study evidences a positive effect of r d intensity on the sales growth by using ols quantile regressions and gmm system estimators for a sample of 754 european firms for the 2003 2007 period we also find this association is more intense in high growth firms and is especially significant when referring to high technology sectors this paper gives empirical support to those recommendations from policy makers and business leaders for maintaining the r d expenditures especially in high technology sectors even when facing a recession

application of real options analysis for pharmaceutical r d project valuation empirical results from a survey real options analysis was often recommended as an emerging valuation technique for high risk investment projects former inter sectoral surveys have drawn an ambivalent picture of real options usage in general in addition there is a lack of sector specific investigations in the following article the results of an in depth analysis of collected empirical data regarding the application of this new tool in the pharmaceutical sector is presented by capturing the internal view from the pharmaceutical companies themselves and the external view from the health care departments of financial service firms r d stage specific modi of application reasons for reluctance in the employment of real options and their assumed future prospects are elucidated

the inexorable and mysterious tradeoff between inflation and unemployment this paper discusses the short run tradeoff between inflation and unemployment although this tradeoff remains a necessary building block of business cycle theory economists have yet to provide a completely satisfactory explanation for it according to the consensus view among central bankers and monetary economists a contractionary monetary shock raises unemployment at least temporarily and leads to a delayed and gradual fall in inflation standard dynamic models of price adjustment however cannot explain this pattern of responses reconciling the consensus view about the effects of monetary policy with models of price adjustment remains an outstanding puzzle for business cycle theorists several years ago i gave myself a peculiar assignment i decided to try to summarise all of economics in ten simply stated principles the purpose of this task was to introduce students to the economic way of thinking in the first chapter of my textbook principles of economics i figured if god could boil all of moral philosophy down to ten commandments i should be able to do much the same with economic science most of the ten principles i chose were microeconomic and hard to argue with they involved the importance of tradeoffs marginal analysis the benefits of trade market efficiency market failure and so on i allocated the last three principles to macroeconomics the first of these was a country s standard of living depends on its ability to produce goods and services which i viewed as the foundation of all growth theory the second was prices rise when the government prints too much money which i took to be the essence of classical monetary theory the last of my ten principles is the subject of today s lecture society faces a short run tradeoff between inflation and unemployment perhaps not surprisingly this statement turned out to be controversial when my publisher sent out the manuscript for review a few readers objected

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

price and wage inflation persistence across countries and monetary regimes abstract we augmented a macro model with intrinsic inflation inertia assuming that prices farer in the past are more likely to be reset we estimated the model for seven industrialized economies to compare their price wage structures and to explore the potential nexus between changes the price wage structure and changes in policy stances we find evidence for duration dependent price adjustments in all the country of the sample although positively sloped after few periods price hazard functions often become flat as in calvo based models instead wage hazard shapes are in line with taylor contracts with the exceptions of france and the united kingdom country comparison shows that price and wage stickiness are correlated regarding monetary policy stances no systematic effect is found observed changes are explained by country specific factors e g market reforms

invariant risk attitudes concepts of constant absolute risk aversion and constant relative risk aversion have proved useful in the analysis of choice under uncertainty but are quite restrictive particularly when they are imposed jointly a generalization of constant risk aversion referred to as invariant risk aversion is developed invariant risk aversion is closely related to the possibility of representing preferences over state contingent income vectors in terms of two parameters the mean and a linearly homogeneous translation invariant index of riskiness the best known index with such properties is the standard deviation the properties of the capital asset pricing model usually expressed in terms of the mean and standard deviation may be extended to the case of general invariant preferences c 2003 elsevier inc all rights reserved

empirical evidence on inflation expectations in the new keynesian phillips curve abstract we review the main identification strategies and empirical evidence on the role of expectations in the new keynesian phillips curve paying particular attention to the issue of weak identi

decreasing risk aversion and mean variance analysis on formule un ensemble de postulats d aversion pour le risque absolu decroissant et on montre que seules les fonctionnelles d utilite moyenne variance peuvent les satisfaire

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

the phillips curve under state dependent pricing abstract we derive a phillips curve equation from the dynamic stochastic general equilibrium dsge model with state dependent pricing developed by dotsey et al 1999 state dependent pricing and the general equilibrium dynamics of money and output quarterly journal of economics 114 655 690 this state dependent phillips curve encompasses the new keynesian phillips curve nkpc based on calvo type price setting as a special case we analyze the effect of the state dependent terms that is the variations in the distributions of price vintages on inflation persistence and we examine whether the hybrid nkpc that is the nkpc extended by a lagged inflation term can adequately describe inflation dynamics generated in a calibrated state dependent pricing economy

the inflation persistence of staggered contracts one of the criticisms routinely advanced against models with staggered contracts is their inability to generate inflation persistence this paper finds that staggered contracts a la taylor are in fact capable of reproducing the inflation persistence implied by u s data following fuhrer and moore i capture the moments that the model needs to replicate by using the correlograms from a small vector autoregression var i estimate the contract parameters using the method of maximum likelihood the correlogram of inflation for the contract model is very close to the correlogram from the var by the same metric taylor contracts fare poorly in reproducing the comovements of inflation and output

menu costs and phillips curves this paper develops a model of a monetary economy in which individual firms are subject to idiosyncratic productivity shocks as well as general inflation sellers can change price only by incurring a real menu cost we calibrate this cost and the variance and autocorrelation of the idiosyncratic shock using a new u s data set of individual prices due to klenow and kryvtsov the prediction of the calibrated model for the effects of high inflation on the frequency of price changes accords well with international evidence from various studies the model is also used to conduct numerical experiments on the economy s response to various shocks in none of the simulations we conducted did monetary shocks induce large or persistent real responses

selection and monetary non neutrality in time dependent pricing models for a given frequency of price adjustment monetary non neutrality is smaller if older prices are disproportionately more likely to change selection for the age of prices provides a complete characterization of price setting frictions in time dependent models selection for older prices is weaker and non neutralities are larger if the hazard function of price adjustment is less strongly increasing selection is weaker if there is heterogeneity in price stickiness finally selection is weaker if durations of price spells are more variable in particular the taylor 1979 model exhibits maximal selection for older prices whereas the calvo 1983 model exhibits no selection

r d and internal finance a panel study of small firms in high tech industries since joseph schumpeter economists have argued that internal finance should be an important determinant of r d expenditures yet almost without exception previous empirical studies have not found evidence of such a relation using newly available data the authors investigate this puzzle with a panel of 179 small firms in high tech industries under each estimation strategy they employ the authors find an economically large and statistically significant relationship between r d investment and internal finance their results are consistent with the view that because of capital market imperfections the flow of internal finance is the principal determinant of the rate at which small high tech firms acquire technology through r d copyright 1994 by mit press

sectoral patterns of technical change towards a taxonomy and a theory abstract the purpose of the paper is to describe and explain sectoral patterns of technical change as revealed by data on about 2000 significant innovations in britain since 1945 most technological knowledge turns out not to be information that is generally applicable and easily reproducible but specific to firms and applications cumulative in development and varied amongst sectors in source and direction innovating firms principally in electronics and chemicals are relatively big and they develop innovations over a wide range of specific product groups within their principal sector but relatively few outside firms principally in mechanical and instrument engineering are relatively small and specialised and they exist in symbiosis with large firms in scale intensive sectors like metal manufacture and vehicles who make a significant contribution to their own process technology in textile firms on the other hand most process innovations come from suppliers these characteristics and variations can be classified in a three part taxonomy based on firms 1 supplier dominated 2 production intensive 3 science based they can be explained by sources of technology requirements of users and possibilities for appropriation this explanation has implications for our understanding of the sources and directions of technical change firms diversification behaviour the dynamic relationship between technology and industrial structure and the formation of technological skills and advantages at the level of the firm the region and the country

real options logic revisited the performance effects of alternative resource allocation regimes we delineate three dimensions of resource allocation behavior that allow us to distinguish between real options logic and alternative resource allocation regimes sequencing low initial commitment and reallocation we then measure these in a product innovation context to test for the performance effect of real options logic vis a vis its alternatives sequencing which distinguishes dynamic allocation regimes more generally is associated with higher new product sales low initial commitment and reallocation do not show individual direct effects on new product sales however when assessed as a match we find that the fit between low initial commitment and reallocation yes yes no no increases performance significantly after controlling for such fit as well as sequencing we find no significant performance difference between real options logic and other regimes our findings imply that insufficient identification of real options logic picks up confounding effects which may provide an explanation for the inconclusive results in prior studies of real options and performance in addition to bounding the concept more precisely we contribute to theory by situating real options logic within the broader set of allocation regimes conducive to innovation performance in uncertain competitive markets

sectoral and aggregate inflation dynamics in the euro area this paper synthesises the implications of recent statistical evidence regarding inflation persistence in the euro area for aggregate data the degree of inflation persistence appears to be very high for sample periods spanning multiple decades but falls dramatically once we allow for time variation in the mean level of inflation furthermore the timing of these breaks in mean generally coincides with observed shifts in the monetary policy regime finally sectoral inflation series exhibit much less persistence than aggregate inflation mainly because of the influence of transitory sector specific shocks jel e31 c22 c43

is inflation sticky abstract new keynesian sticky price models predict that monetary policy can affect real variables however they also predict that inflation can be reduced without depressing output or employment in fact bringing down inflation is costly presenting a challenge to the new keynesian model two departures from the new keynesian model predict costly disinflation one assumes sticky inflation rather than sticky prices while the other assumes less than perfectly rational expectations taking into account information from surveys of inflation expectations i find the evidence suggests that inflation is not sticky and that inflation expectations are less than perfectly rational

the un importance of forward looking behavior in price specifications the seminal work of edmund s phelps 1978 john b taylor 1980 and guillermo a calvo 1983 developed forward looking models of price determination that imparted inertia to the price level these models incorporate expectations of future prices and excess demand by imposing constraints typically lag lead symmetry constraints that force future variables to enter the specification in this paper the author tests the empirical significance of future prices in specifications like those of taylor he finds that expectations of future prices are empirically unimportant in explaining price and inflation behavior however the dynamics of a model that includes a purely backward looking inflation specification differ substantially and not altogether pleasingly from those with a forward looking specification copyright 1997 by ohio state university press

what exactly are technological regimes intra industry heterogeneity in the organization of innovation activities this empirical study analyzes the patterns of innovation within and across industries using firm level survey data from finland and denmark the theoretical starting point is evolutionary theory with its premise that firms in different technological regimes pursue different paths to innovation similar modes of behaviour are found in the two datasets and they closely correspond to those found in earlier studies contrary to prevailing assumptions however the results show that industries are not at all uniform in terms of how firms innovate in almost all four or five digit nace industries three or more different modes of innovation can be identified this suggests that firms strategic differentiation or local search activities overcome pressures in the technological environment towards homogenous behaviour at least in the short term

persistent heterogeneity of r d intensities within sectors evidence and policy implications abstract do firms in the same sector converge towards the same r d intensities previous research has often assumed this to be true a closer examination using microdata from the eu industrial r d investment scoreboard for the years 2000 2015 shows considerable heterogeneity in r d intensities among firms in the same sector and that this heterogeneity persists over time statistical tests of convergence show that the variation in r d intensities does not decrease over time i e no convergence although firms with an r d intensity below the industry average do seem to catch up with the leaders i e evidence of convergence overall firms in the same industry do not converge to a common r d intensity policy implications are discussed

calvo vs rotemberg in a trend inflation world an empirical investigation this paper estimates and compares new keynesian dsge monetary models of the business cycle derived under two dierent pricing schemes calvo 1983 and rotemberg 1982 under a positive trend in ation rate our empirical ndings i support trend in ation as an empirically relevant feature of the u s great moderation ii provide evidence in favor of the statistical superiority of the calvo setting iii support the absence of price indexation under the calvo mechanism only the superiority of the calvo model against rotemberg is due to the restrictions imposed by such a pricing scheme on the aggregate demand equation the determinacy regions implied by the two estimated models indicate relevant dierences in the implementable simple policy rules

intrinsic inflation persistence empirical evidence suggests that inflation determination is not purely forward looking but models of price setting have struggled to rationalize this finding without directly assuming backward looking pricing rules for firms this paper shows that intrinsic inflation persistence can be explained with no deviation from optimizing forward looking behaviour if prices that have remained fixed for longer are more likely to be changed than those set recently a relationship between the probability of price adjustment and the duration of a price spell is shown to imply a simple hybrid phillips curve including lagged and expected inflation which is estimated using macroeconomic data

two moment decision models and expected utility maximization two moment decision models are consistent with expected utility maximization only if the choice set or the agent s preferences are restricted this paper identifies a restriction which is sufficient to ensure this consistency and confirms that it holds in many economic models the implications for economic analysis are then derived two different approaches to representing an agent s preferences over strategies yielding random payoffs are in wide use under the mean standard deviation ms approach the agent is assumed to rank the alternatives according to the value of some function defined over the first two moments of the random payoff while the expected utility eu criterion assumes that the expected value of some utility function defined over payoffs is used instead the fact that there are these two competing approaches has generated a considerable literature some authors are concerned with the advantages and disadvantages of each while others deal with conditions under which the potentially different approaches would yield the same results or at least approximately so space does not

a theory of subjective compound lotteries abstract we develop a savage type model of choice under uncertainty in which agents identify uncertain prospects with subjective compound lotteries our theory permits issue preference that is agents may not be indifferent among gambles that yield the same probability distribution if they depend on different issues hence we establish subjective foundations for the anscombe aumann framework and other models with two different types of probabilities we define second order risk as risk that resolves in the first stage of the compound lottery and show that uncertainty aversion implies aversion to second order risk which implies issue preference and behavior consistent with the ellsberg paradox

interpreting inflation persistence comments on the conference on quantitative evidence on price determination the past decade has seen important advances in the analysis of price setting behavior most notably in my view a great deal of effort has been directed at the development of models that on the one hand have an explicit behavioral interpretation the models are clear about who sets prices what they seek to achieve when choosing prices and to what constraints they are subject when making the decision and at the same time can be parameterized so as to be compared in detail to inflation data this has allowed these models to be incorporated into complete dsge models of business fluctuations and of the monetary transmission mechanism that can be econometrically estimated this raises the prospect that it should soon be possible to base policy analysis on models that are both quantitatively realistic and plausibly invariant under the kinds of changes in policy that the analyst may wish to contemplate some argue that these two desiderata remain in considerable tension with one another that one cannot insist upon optimizing foundations at least under the current state of knowledge without substantial sacrifice of quantitative realism it is somewhat unfair however to present the quest for a model with optimizing foundations as a retreat from full insistence upon empirical realism given the fact that models with clear behavioral interpretations can be checked against a wider range of types of empirical evidence which should ultimately allow greater confidence in the realism of the specification that can withstand such scrutiny for example the exhaustive recent study of evidence on price setting in the euro area undertaken by the eurosystem s inflation persistence network compares alternative models in the light of three distinct

ambiguity models and the machina paradoxes daniel ellsberg 1961 constructed counterexamples to show the limitations of leonard j savage s 1954 subjective expected utility seu ellsberg s examples involved a comparison between objective uncertainty risk in which probabilities are known and subjective uncertainty in which they are not the prevailing prefer ence for objective over subjective uncertainty known as ambiguity aversion raised an important paradox for economic theory since ellsberg s classical work many models have been developed to generalize seu in order to accommodate the pref erence for objective over subjective uncertainty in the same manner as ellsberg mark j machina 2009 proposed two examples that falsify one of the seu generalizations david schmeidler s 1989 choquet expected utility ceu this article shows that the impact of machina s examples is not restricted to the model initially targeted his examples pose difficulties not only for ceu but also for the four other most popular and widely used models of ambiguity averse preferences namely maxmin expected utility itzhak gilboa and schmeidler 1989 variational preferences fabio maccheroni massimo marinacci and aldo rustichini 2006 a maxmin paolo ghirardato maccheroni and marinacci 2004 and the smooth model of ambiguity aversion peter klibanoff marinacci and sujoy mukerji 2005 consequently the implications for economics are more pro found than initially thought we also discuss marciano siniscalchi s 2009 vector expected utility veu model which can account for the typical ambiguity averse preferences in machina s examples finally we examine how our results are related to the uncertainty aver sion axiom which is assumed in virtually all commonly used decision models under ambiguity in particular we argue that machina s examples demonstrate that the uncertainty aversion axiom can be overly restrictive in some circumstances the article proceeds as follows section i presents the four models of ambiguity averse preferences which are alternatives to ceu and which are examined in this paper in section ii and iii the implications of machina s examples for these models are presented section iv discusses alternative models and the uncertainty aversion axiom

pricing decisions in an experimental dynamic stochastic general equilibrium economy we construct experimental economies populated with human subjects with a structure based on a nonlinear version of the new keynesian dynamic stochastic general equilibrium dsge model we analyze the behavior of firms pricing decisions in four different experimental economies we consider how well the experimental data conform to a number of accepted empirical stylized facts pricing patterns mostly conform to these patterns most price changes are positive and inflation is strongly correlated with average magnitude but not the frequency of price changes prices are affected negatively by the productivity shock and positively by the output gap lagged real interest rate has a negative effect on prices unless human subjects choose the interest rate or firms sell perfect substitutes in the output market there is inertia in price setting firms integrate wage increases into their prices and there is evidence of adaptive behavior in price setting in our laboratory economy the hazard function for price changes however is upward sloping in contrast to most empirical studies

borders and nominal exchange rates in risk sharing models of risk sharing predict that relative consumption growth rates are positively related to changes in real exchange rates we investigate this hypothesis using a new multicountry and multiregional data set within countries we find evidence for risk sharing episodes of high relative regional consumption growth are associated with regional real exchange rate depreciation across countries however the association is reversed relative consumption and real exchange rates are negatively correlated we define this reversal as a border effect we find the border effect and show that it accounts for over half of the deviations from full risk sharing since cross border real exchange rates involve different currencies it is natural to ask how much of the border effect is accounted for by movements in exchange rates our measures indicate that a large part of the border effect comes from nominal exchange rate fluctuations we develop a simple open economy model that is consistent with the importance of nominal exchange rate variability in accounting for deviations from cross country risk sharing

patent protection market uncertainty and r d investment the real options investment theory shows that greater uncertainty about market revenues reduces current r d investment by increasing the value of waiting this paper presents empirical evidence that patent protection mitigates the effect market uncertainty on r d investment

five facts about prices a reevaluation of menu cost models are price decreases 3 the frequency of price increases covaries strongly with inflation whereas the frequency of price decreases and the size of price increases and price decreases do not 4 the frequency of price change is highly seasonal it is highest in the first quarter and then declines 5 we find no evidence of upwardsloping hazard functions of price changes for individual products we show that the first second and third facts are consistent with a benchmark menu cost model whereas the fourth and fifth facts are not

the voyage of the beagle into innovation explorations on heterogeneity selection and sectors the aim of the paper is to assess heterogeneity of the innovation process using exploratory factor analysis on micro data from the third community innovation survey in 13 countries we identify four patterns that can be interpreted as research user external and production ingredients of innovation all too often it is assumed that how firm innovate can be represented by differences across sectors and or countries to put this proposition under scrutiny we partition variability of the factors scores into components identified by these higher levels sectors and countries matter to a certain extent but far more of the variance is given by heterogeneity among firms within both of them however groups of firms produced by cluster analysis account for much higher share of the variance which indicates that the most relevant stratification of the data cuts across the established sectoral and national boundaries we discuss implications of these findings for understanding of selection in evolutionary economics and for the literature on innovation systems

a theory of yardstick competition in the typical regulatory scheme a franchised monopoly has little incentive to reduce costs this article proposes a mechanism in which the price the regulatedfirm receives depends on the costs of identical firms in equilibrium each firm chooses a socially efficient level of cost reduction the mechanism generalizes to cover heterogeneous firms with observable differences medicare s prospective reimbursement of hospitals by using diagnostically related groups is a scheme very similar to the one outlined here

intrinsic persistence of wage inflation in new keynesian models of the business cycles we derive and estimate a new keynesian wage phillips curve that accounts for intrinsic inertia in line with microevidence on wage setting we consider a wage setting model featuring an upward sloping hazard function based on the notion that the probability of resetting a wage depends on the time elapsed since the last reset our wage phillips curve embeds also backward terms we test the hazard function slope using generalized method of moment estimation then placing our equation in a small scale new keynesian model we investigate its dynamic properties using bayesian estimation model comparison shows that our model outperforms commonly used alternative methods to introduce persistence

pricing models a bayesian dsge approach for the u s economy this paper compares and estimates three pricing mechanisms in the context of a small dsge model of the u s economy we interpret our results as favoring the pricing mechanism presented in wolman 1999 wolman model over the new keynesian model with indexation gali and gertler 1999 smets and wouters 2004a and the sticky information model of mankiw and reis 2002 the key factor that explains the performance of the wolman model is that the data reject the key assumption of the new keynesian model that the firm s probability of price change is constant over time and independent of the contract s vintage our results also show that incorporating indexation in the new keynesian model represents a poor expedient in matching the autocorrelation function of the inflation process over the last 20 years

staggered price contracts and inflation persistence some general results despite their popularity as theoretical tools for illustrating the effects of nominal rigidities some have questioned whether models based on staggered price contracts with rational expectations can match the persistence of the empirical inflation process this article presents some general results about this class of models it is shown that these models do not have a problem matching high autocorrelations for inflation however they fail to explain a key feature of reducedform phillips curve regressions the positive dependence of inflation on its own lags it is shown that staggered price contracting models instead predict that the coefficients on these lag terms should be negative

a dynamic economy with costly price adjustments this paper studies a general equilibrium model of a dynamic economy with menu costs each firm s productivity is exposed to idiosyncratic and aggregate productivity shocks around a trend and the money supply to monetary shocks around a trend all consumption pricing and production decisions are based on optimizing behavior there exists a staggered markov perfect equilibrium with prices determined by a two sided s s markup strategy the paper analyzes the optimal markup strategy and investigates the dynamics of the price index and the aggregate output the welfare consequences of the uncertain aggregate productivity and money supply are also examined

european inflation dynamics abstract we provide evidence on the fit of the new phillips curve npc for the euro area over the period 1970 1998 and use it as a tool to compare the characteristics of european inflation dynamics with those observed in the u s we also analyze the factors underlying inflation inertia by examining the cyclical behavior of marginal costs as well as that of its two main components namely labor productivity and real wages some of the findings can be summarized as follows a the npc fits euro area data very well possibly better than u s data b the degree of price stickiness implied by the estimates is substantial but in line with survey evidence and u s estimates c inflation dynamics in the euro area appear to have a stronger forward looking component i e less inertia than in the u s d labor market frictions as manifested in the behavior of the wage markup appear to have played a key role in shaping the behavior of marginal costs and consequently inflation in europe

market share dynamics and the persistence of leadership debate this paper introduces a novel analysis of the classic persistence of leadership question and applies it to a newly constructed dataset for japanese manufacturing the analysis rests on an appeal to an empirical scaling relationship between current market share and the variance of changes in market share this relationship provides a powerful model selection criterion for candidate models of market share dynamics it also makes it feasible even in small datasets to test directly for the properties of the first passage times corresponding to loss of leadership

the real effects of monetary shocks in sticky price models a sufficient statistic approach abstract we prove that the ratio of kurtosis to the frequency of price changes is a sufficient statistic for the real effects of monetary shocks measured by the cumulated output response following the shock the sufficient statistic result holds in a large class of models which includes taylor 1980 calvo 1983 reis 2006 golosov and lucas 2007 nakamura and steinsson 2010 midrigan 2011 and alvarez and lippi 2014 several models in this class are able to account for the positive excess kurtosis of the size distribution of price changes that appears in the data we review empirical measures of kurtosis and frequency and conclude that a model that successfully matches the microevidence on kurtosis and frequency produces real effects that are about four times larger than in the golosov lucas model and about 30 percent below those of the calvo model we discuss the robustness of our results to changes in the setup including small inflation and leptokurtic cost shocks jel e23 e31

sectoral systems of innovation and production the concept sectoral system of innovation and production provides a multidimensional integrated and dynamic view of sectors it is proposed that a sectoral system is a set of products and the set of agents carrying out market and non market interactions for the creation production and sale of those products a sectoral systems has a specific knowledge base technologies inputs and demand agents are individuals and organizations at various levels of aggregation they interact through processes of communication exchange co operation competition and command and these interactions are shaped by institutions a sectoral system undergoes change and transformation through the co evolution of its various elements 2002 elsevier science b v all rights reserved

optimal monetary policy optimal monetary policy maximizes the welfare of a representative agent given frictions in the economic environment constructing a model with two sets of frictions costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods we find optimal monetary policy is governed by two familiar principles first the average level of the nominal interest rate should be sufficiently low as suggested by milton friedman that there should be deflation on average yet the keynesian frictions imply that the optimal nominal interest rate is positive second as various shocks occur to the real and monetary sectors the price level should be largely stabilized as suggested by irving fisher albeit around a deflationary trend path since expected inflation is roughly constant through time the nominal interest rate must therefore vary with the fisherian determinants of the real interest rate although the monetary authority has substantial leverage over real activity in our model economy it chooses real allocations that closely resemble those which would occur if prices were flexible in our benchmark model there is some tendency for the monetary authority to smooth nominal and real interest rates

new tests of the new keynesian phillips curve abstract lagged dependent variables typically play an important role in empirical models of inflation do these lags reflect backward looking inflation expectations or do they proxy for rational forward looking expectations as in the new keynesian phillips curve gali and gertler 1999 inflation dynamics a structural econometric analysis journal of monetary economics 44 195 222 attempt to answer this question using gmm to estimate specifications incorporating both lagged and future inflation they report small coefficients on lagged inflation and conclude that the new keynesian model provides a good first approximation to inflation dynamics we show that these tests have low power against alternative backward looking specifications and demonstrate that their results are also consistent with a backward looking phillips curve using an alternative approach we find that the new keynesian pricing model cannot explain the importance of lagged inflation in standard inflation regressions and find that forward looking terms play a very limited role in explaining inflation dynamics

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

does europe perform too little corporate r d a comparison of eu and non eu corporate r d performance this paper examines whether there are differences in private r d investment performance between the eu and the us and if so why the study is based on data from the 2008 eu industrial r d investment scoreboard the investigation assesses the effects of several very distinct factors that can determine the relative size of the overall r d intensities of the two economies these are the influence of sector composition structural effect vis a vis the intensity of r d in each sector intrinsic effect and the company demographics the paper finds that the lower overall corporate r d intensity for the eu is the result of sector specialisation structural effect the us has a stronger sectoral specialisation in the high r d intensity especially ict related sectors than does the eu and also has a much larger population of r d investing firms within these sectors since aggregate r d indicators are so closely dependent on industrial structures many of the debates and claims about differences in comparative r d performance are in effect about industrial structure rather than sector r d performance these have complex policy implications that are discussed in the closing section

a two parameter model of dispersion aversion the idea of representing choice under uncertainty as a trade off between mean returns and some measure of risk or uncertainty is fundamental to the analysis of investment decisions in this paper we show that preferences can be characterized in this way even in the absence of objective probabilities we develop a model of uncertainty averse preferences that is based on a mean and a measure of the dispersion of the state wise utility of an act the dispersion measure exhibits positive linear homogeneity sub additivity translation invariance and complementary symmetry since preferences are only weakly separable in terms of these two summary statistics the uncertainty premium need not be constant we generalize the concept of decreasing absolute risk aversion further we derive two fund separation and asset pricing results analogous to those that hold for the standard capm

the anatomy of industry r d intensity distributions using firm data disaggregated by industry we establish a set of regularities in the distribution of firm r d intensities within manufacturing industries we show how a simple probabilistic process in which chance influences a key unobserved determinant of r d and firm size conditions the returns to r d can account for these regularities and other features of the distributions the model provides a unified noncausal explanation of a series of long observed relationships across mean r d intensity market concentration and the coefficient of variation it also offers a novel explanation for the inverse relationship between r d productivity and firm size jel 031