animal spirits and credit cycles in this paper we extend the behavioral macroeconomic model as proposed by de grauwe 2012 to include a banking sector the behavioral model takes the view that agents have limited cognitive abilities as a result it is rational to use simple forecasting rules and to subject the use of these rules to a fitness test agents are then driven to select the rule that performs best the behavioral model produces endogenous and self fulfilling movements of optimism and pessimism animal spirits our main result is that the existence of banks intensifies these movements creating a greater scope for booms and busts thus banks do not create but amplify animal spirits we find that increases in the equity ratios of banks tend to reduce the importance of animal spirits over the business cycle the other policy conclusion we derive from our results is that the central bank has an important responsibility for stabilising output output stabilization is an instrument to tame the animal spirits this has the effect of improving the trade off between inflation and output volatility

the role of american depositary receipts in the development of emerging equity markets this paper finds that the growth and expansion of u s cross listings by firms from emerging markets around the world facilitated an expansion of cross border equity flows and overall development of their stock markets during the 1990s however these benefits have negative spillover effects the capitalization and turnover ratios of local market firms that do not pursue overseas listings decline as u s cross listings in the form of american depositary receipts adrs increase in size and scope we investigate various possible sources of these negative spillovers and offer new evidence that the growth of adrs neither facilitates nor hinders local market development but represent an outcome of poorly functioning local markets policy implications are discussed

dynamic predictor selection in a new keynesian model with heterogeneous expectations abstract this paper introduces dynamic predictor selection into a new keynesian model with heterogeneous expectations and examines its implications for monetary policy we extend branch and mcgough 2009 by incorporating endogenous time varying predictor proportions along the lines of brock and hommes 1997 we find that periodic orbits and complex dynamics may arise even if the model under rational expectations has a unique stationary solution the qualitative nature of the non linear dynamics turns on the interaction between hawkishness of the government s policy and the extrapolative behavior of non rational agents

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

risk taking global diversification and growth this paper develops a continuous time stochastic model in which international risk sharing can yield substantial welfare gains through its effect on expected consumption growth the mechanism linking global diversification to growth is an attendant world portfolio shift from safe low yield capital to riskier high yield capital the presence of these two types of capital captures the idea that growth depends on the availability of an ever increasing array of specialized hence inherently risky production inputs calibration exercises using consumption and stock market data imply that most countries reap large steady state welfare gains from global financial integration copyright 1994 by american economic association

stock markets corporate finance and economic growth during the past decade the capitalization of emerging markets increased twentyfold in 1994 trading on these markets accounted for about 17 percent of the 9 6 trillion of shares traded on the world s stock markets up from a mere 3 percent of the much smaller 1 6 trillion in 1985 this rapid growth in emerging stock market activity raises critical questions for developing country policymakers what effect do stock markets have on economic growth how does stock market development affect firms financing decision and if stock markets are good for growth what policies can governments adopt to foster their development this note summarizes answers to these questions drawn from a recent research project

institutional determinants of capital structure adjustment speeds abstract many authors relate a firm s performance to legal and political features and the regulatory environment in which it operates this article compares firms capital structure adjustments across countries and investigates whether institutional differences help explain the variance in estimated adjustment speeds we find that legal and financial traditions significantly correlate with firm adjustment speeds more narrowly institutional features also relate to adjustment speeds consistent with the hypothesis that better institutions lower the transaction costs associated with adjusting a firm s leverage such associations between institutional arrangements and leverage adjustment speeds are consistent with the dynamic trade off theory of capital structure choice

heterogeneous expectations adaptive learning and evolutionary dynamics this paper presents a linear self referential macroeconomic model with the possibility of multiple equilibria where agents have the choice of using one of two forecasting models one of minimum state variable form and the other of sunspot form to form expectations of current and future prices endogenous predictor selection is modeled as an evolutionary game where individuals choose among the forecasting models based on relative performance some nash solutions are not relevant as they are not stable under evolutionary or adaptive learning finally it is shown that the sunspot equilibrium is fragile against temporary shocks to information costs

fertility volatility and growth abstract empirically growth rates are negatively correlated with birth rates they are also correlated with production risk we argue that these stylized facts are related and arise jointly from the decision of how many children to have in a risky environment

the economic significance of national border effects to address the economic significance of national border effects this paper provides evidence on two fundamental questions 1 do large border effects arise because of high perceived price wedges between foreign and domestic products or because imports and domestic goods are very close substitutes and 2 if price wedges are important do they reflect distortionary barriers to trade or do they arise from nondistortionary factors such as differences in transactions costs or product characteristics i conclude that while border effects may imply barriers welfare costs and a role for policy distortions are probably not as substantial as initial border results suggested jel f1

financial integration gdp correlation and the endogeneity of optimum currency areas the paper analyses the relationship between trade financial integration and business cycle synchronization in the euro area the introduction of the euro has had a noticeable impact on european financial markets evidence that capital market integration exerts a positive effect on output correlation has two major implications first it corroborates the hypothesis of the endogeneity of optimum currency areas whereby after joining a monetary union countries better meet standard oca criteria second it provides european policy makers with yet another reason to pursue financial integration in the euro area and in prospective members as well

welfare gains from financial liberalization financial liberalization has been a controversial issue as empirical evidence for growth enhancing effects is mixed here we find sizable welfare gains from liberalization cost to repression though the gain in economic growth is ambiguous we take the view that financial liberalization is a government policy that alters the path of financial deepening while financial deepening is endogenously chosen by agents given a policy and occurs in transition towards a distant steady state this history dependent view necessitates the use of simulation analysis based on a growth model our application is a specific episode thailand from 1976 to 1996

assessing spillovers from universities to firms evidence from french firm level data we assess the importance of information flows from universities to innovative firms and determine the relative contribution of formal collaboration and pure knowledge spillovers in this process we find that spillovers provide the most benefit to firms that imitate existing technologies or those that are involved in incremental innovation on the other hand highly innovative firms appear to derive most benefit from collaborative research with foreign universities indeed highly innovative firms are at the frontier of the academic knowledge in their industry therefore they only marginally benefit from aggregate or industry wide spillovers they require new forms of academic knowledge that they acquire through formal cooperation with foreign universities

behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation a model is developed in which a continuum of agents makes interdependent output decisions in a stochastic environment characterised by strategic complementarity two groups are distinguished naive agents follow a costless adaptive expectations rule while sophisticated agents incur an optimisation cost to achieve self fulfilling expectations the paper studies the dynamics generated as the population composition evolves under pressure of differential payoffs sophisticated agents are favoured if optimisation is cheap or the stochastic environment highly variable but naive agents generally persist a higher long run share of sophisticated agents is associated with greater output variability and low output persistence several attempts have been made in the recent macroeconomic literature to explore the implications of allowing for behavioural heterogeneity among economic agents typically the standard postulates of unbounded rationality are held to apply only to a subset of the population while the remainder is assumed to behave in accordance with some alternative specification the nature of which depends on the situation being analysed akerlof and yellen

expectation calculation and macroeconomic dynamics the authors establish a framework wherein agents make expectation revision decisions subject to a specified calculation technology and preferences over forecast errors the technology endows agents with correctly specified economic models but the cost of expectation calculation using these models leads to gradual and incomplete adjustment to long run rational expectation equilibrium the rational expectations hypothesis emerges as a special case of the equilibrium paths obtained in the authors framework in a natural rate model of monetary policy calculation technology gives rise to long run nonneutrality and hysteresis effects and incomplete adjustment of forecast rules causes output fluctuations to be amplified copyright 1992 by american economic association

on the global supply of basic research abstract in a two country schumpeterian growth model we study the incentives for basic research investments by governments in a globalized world a country s basic research investments increase with the country s level of human capital and decline with its own market size this may explain why some smaller countries invest so much in basic research compared with the optimal investments achievable when countries coordinate their basic research policies a single country may over invest in basic research however the total amount of decentralized basic research investments is always below the socially optimal investment level which justifies policy coordination in this area

investment in new activities and the welfare cost of uncertainty abstract recent literature has shown that trade distortions are associated with first order costs stemming from the induced drop in the formation of new activities we demonstrate that uncertainty may induce similar welfare costs and that these costs apply also to a closed economy this argument is illustrated in romer s model of a dependent economy where foreign direct investment is needed to enable the importation of capital goods and intermediate products used in domestic production we show that knightian uncertainty inhibits the formation of new activities leading to first order losses whereas risk aversion alone leads to second order losses

equilibrium consumption and precautionary savings in a stochastically growing economy abstract the derivation of a closed form solution for consumption based on the constant elasticity utility function in the presence of stochastic labor income has proved to be intractable this paper derives a closed form equilibrium relationship between consumption and wealth one that holds along a balanced growth path in a stochastic romer endogenous growth model by employing more general recursive preferences we can disentangle the coefficient of relative risk aversion from the intertemporal elasticity of substitution the effects of key structural parameters on equilibrium consumption and its tradeoff with leisure are analyzed a significant aspect of our analysis concerns the extent to which current risk in the economy is shared between labor and capital this plays an important role in determining the impact of risk on the economy in general and on consumption in particular formal analysis is supplemented with extensive numerical simulations

replicator dynamics in a cobweb model with rationally heterogeneous expectations abstract this paper extends the adaptively rational equilibrium dynamics of brock and hommes brock w a hommes c h 1997 a rational route to randomness econometrica 65 1059 1160 by introducing a generalized version of the replicator dynamic the replicator equilibrium dynamics red couples the price dynamics of a cobweb model with predictor selection governed by an evolutionary replicator dynamic we show that the red supports the conclusion of sethi and franke sethi r franke r 1995 behavioural heterogeneity under evolutionary pressure macroeconomic implications of costly optimisation the economic journal 105 583 600 that costly rational beliefs persist though unlike them these results obtain in the deterministic case numerical evidence shows that complex dynamics exist as in brock and hommes even though no weight is placed on strictly dominated predictors in an red steady state

growth and financial liberalization under capital collateral constraints the striking case of the stochastic ak model with cara preferences we consider a small open collateral constrained ak economy we show that the combination of cara preferences and uncertainty on capital inflows generates long term growth while the deterministic counterpart does not long term growth is entirely driven by precautionary savings and the asymptotic growth rate of the expected capital stock is increasing in both the risk magnitude and the arrow pratt absolute risk aversion parameters

academic freedom private sector focus and the process of innovation we develop a model that clarifies the respective advantages and disadvantages of academic and private sector research rather than relying on lack of appropriability or spillovers to generate a rationale for academic research we emphasize control rights considerations and argue that the fundamental tradeoff between academia and the private sector is one of creative control versus focus by serving as a precommitment mechanism that allows scientists to freely pursue their own interests academia can be indispensable for early stage research at the same time the private sector s ability to direct scientists toward higher payoff activities makes it more attractive for later stage research

intrinsic heterogeneity in expectation formation we introduce the concept of misspecification equilibrium to dynamic macroeconomics agents choose between a list of misspecified econometric models and base their selection on relative forecast performance a misspecification equilibrium is a stochastic process in which agents forecast optimally given their choices with forecast model parameters and predictor proportions endogenously determined under appropriate conditions the misspecification equilibrium will exhibit intrinsic heterogeneity in which all predictors are used at all times even in the neoclassical limit in which only the most successful predictors are used this equilibrium is attainable under least squares learning and dynamic predictor selection based on average profits

myth sin and redemption in capital account liberalisation the fund s argument that capital account liberalisation in developing countries might appeal for justification to the recognised gains from free trade in goods and services was seriously undermined by the asian financial crisis perhaps the most remarkable critique in view of his pre eminence in the development of international trade theory and policy was a short paper by jagdish bhagwati in which the fund s parallel was described as a myth taking up the argument he advanced this article explores further the underlying weakness of the fund s case jagdish emphasised the discrepancy between the nebulous long term benefits from capital flow liberalisation and the painful consequences of the crises that they had recently occasioned the relevance of the original sin hypothesis in determining the magnitude of these costs is therefore discussed here with attention drawn to country inability to borrow readily in their own currencies as a reason for their acute exposure to exchange rate speculation redemption for borrowers is then sought through an identification of sources of genuine comparative advantage in financial trade net flows of finance are not required for the realisation of these gains and a final section argues that there should be no presumption that net transfers improve welfare just as jagdish claimed

genetic algorithm learning and the cobweb model this paper presents the cobweb model in which competitive firms in a market for a single good use a genetic algorithm to update their decision rules about next period production and sales the results of simulations show that the genetic algorithm converges to the rational expectations equilibrium for a wider range of parameter values than other algorithms frequently studied within the context of the cobweb model price and quantity patterns generated by the genetic algorithm are also compared to the data of experimental cobweb economies it is shown that the algorithm can capture several features of the experimental behavior of human subjects better than three other learning algorithms that are considered

an exploration of the eductive justifications of the rational expectations hypothesis this paper examines justifications of the rational expectations hypothesis that rely on the analysis of the agents mental forecasting educing activity which involves forecasting the forecasts of others etc the corresponding concept of eductive learning stability based on the game theoretical concept of rationalizability is primarily used within the classical muth model conditions for coordination of beliefs are interpreted and discussed they are robust to the introduction of noise more generally eductive stability fits economic intuition on coordination stability increases when the industry product differentiation increases and when decisions are sequential and observable copyright 1992 by american economic association

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

growth and risk sharing with private information abstract we examine the impact of incomplete risk sharing on growth and welfare the source of market incompleteness in our economy is private information a household s idiosyncratic productivity shock is not observable by others risk sharing between households occurs through long term contracts with intermediaries we find that incomplete risk sharing tends to reduce the rate of growth relative to the complete risk sharing benchmark numerical examples indicate that the welfare cost and the growth effect of private information are small

adaptive expectations and cobweb phenomena does heterogeneity matter this paper studies a cobweb type commodity market characterized by a strictly monotone demand and supply in which n types of firms operate types differ in a key parameter governing price expectations which are supposed to be adaptive the unique steady state of the resulting economic dynamics is characterized in terms of stability and the impact of the number of firms types is studied to this end the notions of structural and behavioural degree of instability which are introduced in the paper prove to be crucial in determining whether stability or instability prevail the case of market integration is also considered and conditions to have stability or instability in terms of the original markets parameters are given the baseline structure is extended in two directions the first extension assumes the point of view of an authority who is uncertain about the firms types in this case the structural degree of instability determines how heterogeneity affects the probability of ending up with a stable outcome the second extension consists in endogenizing the choice of predictors through a discrete choice based evolutionary mechanism in both cases the amount of the heterogeneity and its possible variations play a critical role in shaping the range of possible long run outcomes of the model

a new keynesian model with heterogeneous expectations abstract within a new keynesian model we incorporate bounded rationality at the individual agent level and we determine restrictions on expectations operators sufficient to imply aggregate is and as relations of the same functional form as those under rationality this result provides dual implications the strong nature of the restrictions required to achieve aggregation serve as a caution to researchers imposing heterogeneous expectations at an aggregate level may be ill advised on the other hand accepting the necessary restrictions provides for tractable analysis of expectations heterogeneity as an example we consider a case where a fraction of agents are rational and the remainder are adaptive and find specifications that are determinate under rationality may possess multiple equilibria in case of expectations heterogeneity

learning with expert advice surveys of inflation forecasts show that expectations combine forward looking and backwardlooking elements this contradicts conventional wisdom in the presence of rational agents adaptiveagentswouldbedrivenoutofthemarket inourpaper werationalizethisfindinginan equilibrium framework our model has two types of agents one having rational expectations and the other using adaptive learning the proportion of these agents in the population evolves according to their past forecasting performance we show that even an underparameterized learning algorithm survives competition with rational expectations jel c62 d83 d84

human capital risk and economic growth this paper develops a tractable incomplete markets model of economic growth in which households invest in risk free physical capital and risky human capital the paper shows that a reduction in uninsurable idiosyncratic labor income risk decreases physical capital investment but increases human capital investment growth and welfare a quantitative analysis based on a calibrated version of the model reveals that these effects are substantial and of the same order of magnitude as the effects of distortionary income taxation the analysis further suggests that government sponsored severance payments to displaced workers increase growth and welfare even if these payments have to be e nanced through distortionary income taxation

rational contagion and the globalization of securities markets this paper argues that globalization may promote contagion by weakening incentives for gathering costly information and by strengthening incentives for imitating arbitrary market portfolios in the presence of short selling constraints the gain of gathering information at a fixed cost may diminish as markets grow moreover if a portfolio manager s marginal cost for yielding below market returns exceeds the marginal gain for above market returns there is a range of optimal portfolios in which all investors imitate arbitrary market portfolios and this range widens as the market grows numerical simulations suggest that these frictions can have significant implications for capital flows in emerging markets

the pecking order of cross border investment abstract is there a pecking order of cross border investment in that countries become financially integrated through some types of investment rather than others using a novel database of bilateral capital stocks for all types of investment fdi portfolio equity securities debt securities as well as loans for a broad set of 77 countries we show that such a pecking order indeed exists the paper focuses on two key determinants of this pecking order information frictions and the quality of host country institutions overall we find that in particular fdi and to some extent also loans are substantially more sensitive to information frictions than investment in portfolio equity and debt securities we also show that the share as well as the size of fdi that a country receive are largely insensitive to institutional factors in host countries while portfolio investment is by far the most sensitive to the quality of institutions this provides new evidence in favor of some hypotheses but contradicts others put forward in the literature on trade in financial assets

a multi country real business cycle model with heterogeneous agents a multicountry real business cycle model is developed capturing two important aspects of heterogeneity found in household survey data only a small fraction of the population holds stock and a significant fraction of nonstockholders are borrowing constrained the model is applied to data for twenty oecd countries it generates cross country consumption correlations consistent with those observed in the data potential welfare gains from international portfolio diversification by stockholders are large leaving the observed home bias as a significant puzzle the model can also account for the finding in u s data that consumption of stockholders is more volatile than that of nonstockholders copyright 1996 by the editors of the scandinavian journal of economics

factor eliminating technical change endogenous growth requires that non reproducible factors of production be either augmented or eliminated attention heretofore has focused almost exclusively on augmentation in contrast we study factor elimination maximizing agents decide when to reduce the importance of non reproducible factors we use a cobb douglas production function with two factors of production one reproducible capital and one not labor there is no augmenting progress of any kind thus excluding the standard engine of growth what is new is the possibility of changing factor intensities endogenously by spending resources on r d the economy starts with no capital and no knowledge of how to use it by conducting r d the economy learns new technologies that use capital which then is built there are two possible ultimate outcomes the economy may achieve perpetual growth or it may stagnate with no growth the rst outcome is an asymptotic version of the ak model of endogenous growth and the second outcome is the standard solow model in the absence of any exogenous sources of growth which outcome is achieved depends on parameter values of saving and production and there always is a feasible saving rate that will give the perpetual growth outcome the model thus provides a theory of the endogenous emergence of a production technology with constant returns to the reproducible factors that is one that is capable of supporting perpetual economic growth the model also allows derivation of the full transition dynamics which have interesting properties one especially notable feature is that the origin is not a steady state an economy that starts with pure

non linear growth effects of financial development does financial integration matter using both macro and industry level data this paper analyses the non linear effects of financial development and international financial integration on economic growth in europe special attention is devoted to modeling threshold effects with respect to the depth of financial markets as a measure of economies absorption capacity results reveal evidence of significant non linear effects with less developed european countries gaining more from financial development in contrast benefits of international financial integration become significant at higher levels of financial development the data show that monetary integration in europe significantly contributed to a higher degree of financial integration entry of new eu members to the european monetary union may thus be the mechanism ensuring a virtuous development circle as the adoption of the euro may allow the development of domestic financial markets and financial integration to go hand in hand

an analysis of the cobweb model with boundedly rational heterogeneous producers abstract this paper considers the traditional cobweb model with heterogenous risk averse producers whose supply functions involve their estimates of the conditional mean and variance of the future price the producers seek to learn these quantities by applying geometric decay processes gdp to past prices the heterogeneity manifests itself in the lag lengths and memory parameters applied to past prices as well as in risk aversion coefficients we find that each dimension of heterogeneity changes enriches the cobweb dynamics with respect to the case of homogeneous producers

interacting cobweb markets abstract we enrich the classical cobweb framework by allowing producers to enter different markets the market entry decision is repeated every period and depends on the markets historical profit differentials as a result the number of producers in a market and thus also a market s total supply vary over time analytical and numerical investigations of our four dimensional nonlinear model indicate that interacting cobweb markets may contribute to the strong cyclical price motion observed in many commodity markets we furthermore find that endogenous dynamics may either set in via a flip or a neimark sacker bifurcation interestingly the latter scenario is prevalent if producers are sufficiently risk averse

are small stock markets different abstract recent literature has established a positive correlation between financial development and economic growth while papers such as bencivenga et al j econom theory 67 1995 53 identify potential nonlinearities in this relationship empirical research to date has allowed for only linear relationships this paper uses regression tree techniques to investigate whether the partial correlation between growth and financial development differs based on countries levels of financial and economic development as in previous studies growth and financial development are positively correlated in countries with high levels of market capitalization however this relationship does not appear to hold for countries with low levels of market capitalization

should the government protect its basic research basic research is mainly performed publicly yet in the us public research findings were not patentable until 1980 and in other countries are not yet patentable patentability renders public research more directed with less potential waste but it also restricts private applied research this paper shows by means of a multi stage schumpeterian growth model that in the long run the first effect is bound to dominate

subglobal climate agreements and energy intensive activities an evaluation of carbon leakage in the copper industry subglobal climate policies induce changes in international competitiveness and favour a relocation of carbon emitting activities to nonabating regions in this paper we evaluate the potential for co abatement and the emissions leakage effect in the copper industry a prominent energy intensive trade exposed sector we formulate a plant level spatial equilibrium model for copper commodities in which parameters describing the behavioural response of agents are calibrated to a set of estimated price elasticities we find producers and consumers to be price inelastic even in the long run making the copper industry unresponsive to climate policies monte carlo simulations with our model based on statistical uncertainty on elasticity estimates suggest that around 30 per cent of emissions reductions in industrialised countries would be compensated by an increase of emissions in nonabating countries

cyclical uncertainty precautionary saving and economic growth this paper studies the interaction between cyclical uncertainty precautionary saving and economic growth in a stochastic endogenous growth model the analysis provides insight into the potential connection between technological uncertainty of the sort popularized in real business cycle models and the determinants of economic growth in a stochastic version of a popular model of endogenously determined economic growth the magnitude of the link between cyclical uncertainty and growth is quantified and found to be small in terms of its effect on the growth rate but possibly large in terms of its effect on levels of macroeconomic variables moreover the welfare costs of reduced cyclical uncertainty can be substantial owing to the lower historical rate of capital accumulation induced by a decrease in precautionary saving the chief implications of the model are found to be roughly consistent with the postwar experience of several countries although the predictions of the model with regard to growth rates are too small to explain much of the variation in growth rates across time or across countries

volatility and slow technology diffusion abstract i study the effects of uncertainty on technology adoption and thereby on volatility and growth i present an analytically tractable model in which i uncertainty about the returns to adoption delays technology diffusion and ii the mean and volatility of output growth are jointly determined in equilibrium i then test the key predictions of the model by studying the introduction of three major information and communication technologies icts computers internet and cell phones i find that countries with more volatile growth rates of real gdp per capita have higher time adoption lags and lower average growth as predicted by the model

dynamic r d competition the authors study a simple two stage stochastic patent race involving two firms they examine the behavior of the participants as they gain the lead or fall behind in the race the authors find that the leader engages in rd 2 a policy of issuing patents for intermediate research results and 3 the effects of research joint ventures whereby the firms coordinate their initial research efforts and share their results copyright 1987 by royal economic society

volatility and development why is gdp growth so much more volatile in poor countries than in rich ones we identify four possible reasons i poor countries specialize in more volatile sectors ii poor countries specialize in fewer sectors iii poor countries experience more frequent and more severe aggregate shocks e g from macroeconomic policy and iv poor countries macroeconomic fluctuations are more highly correlated with the shocks of the sectors they specialize in we show how to decompose volatility into these four sources quantify their contribution to aggregate volatility and study how they relate to the stage of development we document the following regularities first as countries develop their productive structure moves from more volatile to less volatile sectors second the level of specialization declines with development at early stages and slowly increases at later stages of development third the volatility of country specific macroeconomic shocks falls with development fourth the covariance between sector specific and country specific shocks does not vary systematically with the level of development we argue that many theories linking volatility and development are not consistent with these findings and suggest new directions for future theoretical work

enterprise ownership constraints and the role of equity markets in financial development the long standing controversy of the contribution of equity markets to economic development has been reactivated by the emerging markets phenomenon positive reassessments have emphasised diversification and liquidity gains for investors funding risky long lived projects the present analysis adopts instead the viewpoint of the issuer the owner controlled enterprise typical of ldcs owners wealth is a fundamental constraint on expansion when gearing is limited by bankruptcy risk and minority equity issue eases this constraint it is suggested that equity and debt are thus complementary and that stock markets may improve overall allocative efficiency if equities correctly value firm prospects

risk sharing and industrial specialization regional and international evidence the authors provide empirical evidence that risk sharing enhances specialization in production to the best of their knowledge this well established and important theoretical proposition has not been tested before the empirical procedure is summarized as follows first the authors construct a measure of specialization in production and calculate an index of specialization for each of the european community ec and non ec oecd countries u s states canadian provinces japanese prefectures latin american countries and regions of italy spain and the united kingdom then they estimate the degree of capital market integration a measure of risk sharing within each of these groups of regions the ec countries the non ec oecd countries the united states canada japan italy spain and the united kingdom and rely on another author s estimate for latin america finally they perform a regression of the specialization index on the degree of risk sharing controlling for relevant economic variables they find a positive and significant relation between the degree of specialization of individual members of a group of countries provinces states or prefectures and the amount of risk that is shared within the group the authors perform regressions using variables such as shareholder rights and the size of the financial sector relative to gdp as instruments for the amount of inter regional risk sharing these regressions confirm that risk sharing facilitated by a favorable legal environment and a developed financial system is a direct causal determinant of industrial specialization this abstract was borrowed from another version of this item

financial integration productivity and capital accumulation understanding the mechanism through which nancial globalization aects eco nomic performance is crucial for evaluating the costs and bene ts of opening nancial markets this paper is a rst attempt at disentangling the eects of nancial inte gration on the two main determinants of economic performance productivity tfp and investment i provide empirical evidence from a sample of 70 countries observed between 1975 and 1999 the results for both de jure and de facto indicators suggest that nancial integration has a positive direct eect on productivity while it does not directly aect capital accumulation i also control for indirect eects of nancial globalization through nancial development and banking and currency crises while nancial integration does not systematically increase domestic nancial depth it may raise the likelyhood of banking crises though only to a minor extent yet the overall eect of nancial liberalization remains positive for productivity and negligible for investment

growth renewables and the optimal carbon tax optimal climate policy is investigated in a ramsey growth model of the global economy with exhaustible oil reserves an infinitely elastic supply of renewables stock dependent oil extraction costs and convex climate damages four regimes can occur depending on the initial social cost of oil being larger or smaller than that of renewables and depending on the initial oil stock being large or small we also offer some policy simulations for the first and second regime which illustrate that with a lower discount rate more oil is left in situ and renewables are phased in more quickly we identify the conditions under which the optimal carbon tax rises or decreases subsidizing renewables without a carbon tax induces more oil to be left in situ and a quicker phasing in of renewables but oil is depleted more rapidly initially the net effect on global warming is ambiguous abstract from author

local convergence properties of a cobweb model with rationally heterogeneous expectations abstract this paper gives local stability conditions for convergence of the price dynamics in a cobweb model with rationally heterogeneous expectations generalizing the example of brock and hommes 1997 when agents choose between rational naive and adaptive beliefs the steady state may be locally asymptotically stable if the adaptive predictor places enough weight on past prices and is costless if adaptive expectations are sufficiently more costly than naive expectations the steady state will be an unstable saddle point our results imply that adding a choice can stabilize a system which is unstable under the brock and hommes model these results illustrate how the critical parameter that governs stability is dependent on the array of available predictors