intrinsic bubbles the case of stock prices several puzzling aspects of the behavior of united states stock prices may be explained by the presence of a specific type of rational bubble that depends exclusively on aggregate dividends the authors call bubbles of this type intrinsic bubbles because they derive all of their variability from exogenous economic fundamentals and none from extraneous factors intrinsic bubbles provide a more plausible empirical account of deviations from present value pricing than do the traditional examples of rational bubbles their explanatory potential comes partly from their ability to generate persistent deviations that appear to be relatively stable over long periods copyright 1991 by american economic association

is there private information in the fx market the tokyo experiment it is a common view that private information in the foreign exchange market does not exist we provide evidence against this view the evidence comes from the introduction of trading in tokyo over the lunch hour lunch re turn variance doubles with the introduction of trading which cannot be due to public information since the flow of public information did not change with the trading rules having eliminated public information as the cause we exploit the volatility pattern over the whole day to discriminate between the two alternatives private information and pricing errors three key re sults support the predictions of private information models first the vola tility u shape flattens greater revelation over lunch leaves a smaller share for the morning and afternoon second the u shape tilts upward an impli cation of information whose private value is transitory finally the morning exhibits a clear u shape when tokyo closes over lunch and it disappears when trading is introduced

sustainability of the friedman rule in an international monetary policy game this article develops a two country monetary economy model in order to analyze the international monetary policy game between governments and the domestic monetary policy game between each government and its private sector we prove that if governments can commit to their own private sectors the cooperative equilibrium of the game between governments is for them to follow the friedman rule when governments lack such ability to commit we find that the friedman rule is more likely to be sustained in our open economy model than in the closedeconomy model of ireland jel e31 e52 e61 one recurring theme in the analysis of policy making is that in many situations policymakers can benefit from the opportunity to make a binding commitment to restrict their activities one such situation is what is known as the time consistency problem in monetary policy making a government or its monetary authority out of good intention may find it beneficial to generate unexpected inflation to fix some nonmonetary distortion in the economy for example goods market inefficiency due to monopoly power that is characterized by higher than efficient product prices this first best monetary policy however is not time consistent in the sense that firms foresee the government s incentive to impose monetary surprises and set their nominal prices at a higher level as a result the government s attempts to remedy the

towards an attention based view of the firm the central argument is that firm behavior is the result of how firms channel and distribute the attention of their decision makers what decision makers do depends on what issues and answers they focus their attention on what issues and answers they focus on depends on the specific situation and on how the firm s rules resources and relationships distribute various issues answers and decision makers into specific communications and procedures the paper develops these theoretical principles into a model of firm behavior and presents its implications for explaining firm behavior and adaptation 1997 by john wiley sons ltd

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

the behavior of risk and market prices of risk over the nasdaq bubble period we exploit the information in the options market to study the variations of return risk and market prices of different sources of risk during the rise and fall of the nasdaq market we specify a model that accommodates fluctuations in both risk levels and market prices of different sources of risk and we estimate the model using the time series returns and option prices on the nasdaq 100 tracking stock our analysis reveals three key variations during the period from march 1999 to march 2001 first return volatility increased together with the rising nasdaq index level even though the two tend to move in opposite directions second although the market price of diffusion return risk averages around 1 82 over the whole sample the estimates reached negative territory at the end of 1999 the estimates reverted back to highly positive values after the collapse of the nasdaq market third the market price of jump risk increased with the rising nasdaq valuation and this increase in market price coincided with an increased imbalance in open interest between put and call options

credible public policy abstract credible public policy is defined in a way that incorporates competitive equilibrium behavior for households and subgame perfect nash equilibrium behavior for the government it is shown that the set of all equilibrium outcome paths for credible policies can be constructed by using arguments analogous to those of abreu 1988 for repeated games the results are then extended to systems with state variables simple models of monetary policy and capital taxation are studied by way of example

sustainable monetary policies abstract this paper uses a model with utility maximizing households monopolistically competitive firms and sticky goods prices to derive a version of barro and gordon s time consistency problem for monetary policy where the government s objectives are consistent with a representative household s preferences the paper applies the methods of chari and kehoe to characterize the entire set of time consistent or sustainable outcomes it goes on to find conditions under which the friedman rule the optimal policy under commitment can be supported when the government lacks a commitment technology

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

a quantitative analysis of optimal sustainable monetary policies abstract this study examines the quantitative properties of optimal sustainable monetary policies using a monetary model with a stabilization bias as in kurozumi 2008 the optimal sustainable policy is a strategy considered in the absence of commitment technologies however it is implemented following an optimal quasi sustainable policy derived by assuming that the commitment technologies are present this study finds that solving for the policy function of the optimal quasi sustainable policy yields a result basically identical to the ramsey optimal commitment policy under a set of parameters commonly used in the literature the simulation shows two further results policymakers have incentive to deviate from the ramsey optimal commitment policy when the lagged output gap is large and the optimal quasi sustainable policy endogenously diminishes the steadfastness of policymakers commitment

the non optimality of proposed monetary policy rules under timeless perspective commitment abstract in a near canonical forward looking model the timeless perspective form of commitment typically provides outcomes that are on average superior to those resulting from discretion the specific condition that appears in the literature is however not optimal from the relevant perspective

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

money is an experience good competition and trust in the private provision of money the interplay between competition and trust as efficiency enhancing mechanisms in the private provision of money is studied with commitment trust is automatically achieved and competition ensures efficiency without commitment competition plays no role trust does play a role but requires a bound on efficiency stationary inflation must be non negative and therefore the friedman rule cannot be achieved the quality of money can be observed only after its purchasing capacity is realized in this sense money is an experience good

discretionary monetary policy and the zero lower bound on nominal interest rates abstract ignoring the existence of the zero lower bound on nominal interest rates one considerably understates the value of monetary commitment in new keynesian models a stochastic forward looking model with an occasionally binding lower bound calibrated to the u s economy suggests that low values for the natural rate of interest lead to sizeable output losses and deflation under discretionary monetary policy the fall in output and deflation are much larger than in the case with policy commitment and do not show up at all if the model abstracts from the existence of the lower bound the welfare losses of discretionary policy increase even further when inflation is partly determined by lagged inflation in the phillips curve these results emerge because private sector expectations and the discretionary policy response to these expectations reinforce each other and cause the lower bound to be reached much earlier than under commitment

recursive monetary policy games with incomplete information abstract this paper provides recursive methods for analyzing the credible equilibria of an incomplete information monetary policy game the policy game is one in which a discretionary government has a short run temptation to engage in a surprise monetary expansion it also has the opportunity to imitate a government that always implements the ex ante optimal monetary policy actions we derive an algorithm for computing the set of credible equilibrium payoffs we use this algorithm to explore the idea that incomplete information monetary policy games of this kind have fewer equilibria and less indeterminacy than their complete information counterparts

shrewd crude or simply deluded comovement and the internet stock phenomenon we show that i return comovement among internet stocks during the late 1990s and early 2000 was not exceedingly high ii there was substantial consistency in the manner by which investors distinguished among internet stocks and iii high comovement is most common during periods of price erosion these results cast doubt on the view that the extraordinary appreciation of internet stocks was due to the crude classification of all such stocks as members of a hot category

on the efficiency effects of private dis trust in the government abstract we consider a version of the seminal kydland prescott model where in each period some private agents believe the policy announcements made by the government the other agents follow a standard optimizing strategy the fraction of agents who believe the government changes over time according to a word of mouth learning process we show that the initial number of believers and the speed of learning can have drastic consequences for the policy followed and the losses experienced by the different agents in particular the utility of the private sector may jump upwards if the initial number of believers exceeds a given threshold

a framework for the analysis of moderate inflations abstract optimal monetary policy is studied in a model with no contractual restrictions or physical costs of changing prices nevertheless the price level is sticky in a range of mark up indeterminacy and inflation occurs only when employment presses against capacity under full information the monetary authority can exploit price level stickiness to minimize the mark up and keep employment at a constrained optimum without inflation under uncertainty negative aggregate demand shocks produce real contractions and positive shocks raise the price level the monetary authority can raise the likelihood that aggregate demand will maximize employment but at the cost of higher expected inflation

on two notions of imperfect credibility in optimal monetary policies abstract we explore how outcomes of optimal monetary policy with loose commitment schaumburg and tambalotti 2007 debortoli and nunes 2010 with the non reoptimization probability of can be interpretable as outcomes of deeper optimal policy under sustainable plans chari and kehoe 1990 with n period punishment in a standard monetary policy framework we show that for any sufficiently high value of there exists an integer n such that impulse responses to the cost push shock under each policy are similar to each other

private information trading volume and stock return variances new evidence is provided on the determinants of stock return variances first when the tokyo stock exchange is open on saturday the weekend variance increases weekly variance is unaffected however despite an increase in weekly volume second the listing of u s stocks in tokyo substantially increases the number of trading hours but tokyo volume is negligible for these u s stocks and their 24 hour variance is unaffected the overall results are consistent with the predictions of private information based rational trading models but inconsistent with both the irrational trading noise and public information hypotheses

in search of a signaling effect the wealth effects of corporate name changes abstract we find that evidence of a positive stock price reaction to the announcement of a name change is very weak and is sensitive to sample selection we interpret the evidence as a caution against the popular opinion that corporate name changes have significant valuation effects we also find little evidence that corporate name changes correspond to changes in a firm s stock return covariability with its industry index or changes in the firm s earnings growth rate these results cast doubt on two purported motives for name changes that they convey information to the market about changes in the firm s line of business or that they signal management s private information about the firm s future performance corporate name changes may serve useful purposes but such purposes have small valuation effects or tend to be anticipated by investors

the propensity to patent abstract this paper analyzes the relationship between 1974 rd among the exceptions the tendency was toward diminishing returns variables measuring overseas sales federal r d support diversification scope of invention use and invention type had only modest explanatory power there was no significant evidence of disproportionate patent accumulation in the more highly concentrated industries

sustainable plans and mutual default this paper presents a simple general equilibrium model of optimal taxation in which both private agents and the government can default on their debt as a benchmark we consider ramsey equilibria in which the government can precommit to its policies at the beginning of time but in which private agents can default we then consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we adapt abreu s 1988 optimal trigger strategies to completely characterize the entire set of sustainable equilibria in particular we show that when there is sufficiently little discounting and government consumption fluctuates enough the ramsey allocations and policies in which the government never defaults can be supported by a sustainable equilibrium by way of an example we show that the larger the variance of government consumption the easier it is to support good outcomes we also show for moderate discount factors that in the best sustainable equilibrium tax rates are more volatile and debt is smaller than in the ramsey equilibrium

delegation time inconsistency and sustainable equilibrium this paper analyzes the effectiveness of delegation in solving the time inconsistency problem of monetary policy using a microfounded general equilibrium model where delegation and reappointment are explicitly included into the government s strategy the method of chari and kehoe 1990 sustainable plans journal of political economy 98 4 783 802 is applied to characterize the entire set of sustainable outcomes countering mccallum s 1995 two fallacies concerning central bank independence american economic review 85 2 207 211 second fallacy delegation is able to eliminate the time inconsistency problem with the commitment policy being sustained under discretion for any intertemporal discount rate

when discretion is better initial conditions and the timeless perspective abstract according to woodford 1999 and 2003 woodford michael 1999 commentary how should monetary policy be conducted in an era of price stability in new challenges for monetary policy federal reserve bank of kansas city pp 277 316 woodford michael 2003 interest and prices foundations of a theory of monetary policy princeton university press princeton nj optimal monetary policy in the new keynesian model follows the timeless perspective rule we show why an economy that is sufficiently far away from its steady state suffers from a short run cost associated with the timeless perspective in this case discretionary policy making can be better than the timeless perspective policy rule

optimal sustainable monetary policy in recent monetary policy literature optimal commitment policy or its variant from a timeless perspective has been studied with emphasis on welfare gains from policy commitment regardless of its time consistency problem called a stabilization bias with an optimizing model used in the literature we examine sustainable equilibrium of chari and kehoe 1990 and study optimal sustainable policy the policymaker s strategy in the best sustainable equilibrium in the absence of commitment technologies calibrated versions of the model show that the ramsey equilibrium generated by optimal commitment policy is not achievable suggesting that optimal sustainable policy is the desirable policy benchmark from the viewpoint of policy operationality the latter policy involves some issues due to its dependence on the entire history of lagrange multipliers on a sustainability constraint as a guidepost for actual policy conduct that contains no such issues and attains higher social welfare than discretionary policy does we propose a sustainable policy conducted by following a policy rule that achieves the best markov equilibrium

inflation and reputation with generic policy preferences this paper analyzes a reputational equilibrium for inflation under the generic assumption that monetary policy reflects proximate preferences for low expected inflation and positive unexpected inflation the paper stresses the qualitative implication that in a reputational equilibrium the policymaker behaves as if he is concerned about controlling inflation even though he does not have a direct preference for a low actual inflation rate the analysis also shows how the equilibrium inflation rate depends on a decision interval that reflects the underlying real objectives of monetary policy and that determines how fast private agents would react to opportunistic behavior by the policymaker copyright 1990 by ohio state university press

credible monetary policy in an infinite horizon model recursive approaches abstract this paper develops recursive methods to study optimal and time consistent policy in dynamic models we analyze a version of calvo s 1978 monetary model and show that its time consistent outcomes can be completely characterized as the largest fixed point of either of two operators recursive application of these operators provides a computing algorithm which always converges to the set of time consistent outcomes finally we obtain valuable information about the nature of time consistent outcomes it is discovered in particular that all such outcomes are markovian the methods obtained are intuitive and should be useful for many applications journal of economic literatureclassification numbers e61 e52 c61

discretionary monetary policy with costly inflation this paper considers how an output cost of inflation affects the discretionary inflation bias we show that conditions exist under which costly inflation actually increases this inflation bias

international business cycles with endogenous incomplete markets backus kehoe and kydland 1992 baxter and crucini 1995 and stockman and tesar 1995 find two major discrepancies between standard international business cycle models with complete markets and the data in the models cross country correlations are much higher for consumption than for output while in the data the opposite is true and cross country correlations of employment and investment are negative while in the data they are positive this paper introduces a friction into a standard model that helps resolve these anomalies the friction is that international loans are imperfectly enforceable any country can renege on its debts and suffer the consequences for future borrowing to solve for equilibrium in this economy with endogenous incomplete markets the methods of marcet and marimon 1999 are extended incorporating the friction helps resolve the anomalies more than does exogenously restricting the assets that can be traded

rational pricing of internet companies we apply real options theory and capital budgeting techniques to the problem of valuing an internet company we formulate the model in continuous time form a discrete time approximation estimate the model parameters solve the model by simulation and then perform sensitivity analysis we report that depending on the parameters chosen the value of an internet stock may be rational if growth rates in revenues are high enough even with a real chance that a company may go bankrupt if the initial growth rates are sufficiently high and if this growth rate contains enough volatility over time then valuations can reach a level that would otherwise appear dramatically high in addition the valuation is highly sensitive to initial conditions and exact specification of the parameters which is consistent with observations that the returns of internet stocks have been strikingly volatile

optimal monetary policy under commitment with a zero bound on nominal interest rates we determine optimal monetary policy under commitment in a forwardlooking new keynesian model when nominal interest rates are bounded below by zero the lower bound represents an occasionally binding constraint that causes the model and optimal policy to be nonlinear a calibration to the u s economy suggests that policy should reduce nominal interest rates more aggressively than suggested by a model without lower bound rational agents anticipate the possibility of reaching the lower bound in the future and this amplifies the effects of adverse shocks well before the bound is reached while the empirical magnitude of u s mark up shocks seems too small to entail zero nominal interest rates shocks affecting the natural real interest rate plausibly lead to a binding lower bound under optimal policy however this occurs quite infrequently and does not imply positive average inflation rates in equilibrium interestingly the presence of binding real rate shocks alters the policy response to non binding markup shocks

when is discretion superior to timeless perspective policymaking the monetary policy literature assumes increasingly that policy is formulated according to the timeless perspective woodford 1999a however by treating appropriately the auxiliary state variables that characterize the timeless perspective equilibrium when evaluating policy performance this paper shows that discretionary policymaking can be superior to timeless perspective policymaking and identifies model features that make this outcome more likely using standard new keynesian dsge models discretion is found to dominate timeless perspective policymaking when the price wage phillips curves are relatively flat due perhaps to firm specific capital or labor and or kimball 1995 aggregation in combination with nominal rigidities these results suggest that studies applying the timeless perspective might also usefully compare its performance to discretion paying careful attention to how policy performance is evaluated

the suspension of the gold standard as sustainable monetary policy abstract this paper models the gold standard as a state contingent commitment technology that is only feasible during peace monetary policy during war when the gold convertibility rule is suspended can still be credible if the policymaker s plan is to resume the gold standard in the future the dsge model developed in this paper suggests that the resumption of the gold standard was a sustainable plan which replaced the gold standard as a commitment technology and made monetary policy time consistent trigger strategies support the equilibrium private agents retaliate if a policymaker defaults on its plan to resume the gold standard

venture capital financing moral hazard and learning we consider the provision of venture capital in a dynamic agency model the value of the venture project is initially uncertain and more information arrives by developing the project the allocation of the funds and the learning process are subject to moral hazard the optimal contract is a time varying share contract which provides intertemporal risk sharing between venture capitalist and entrepreneur the share of the entrepreneur reflects the value of a real option the option itself is based on the control of the funds the dynamic agency costs may be high and lead to an inefficient early stopping of the project a positive liquidation value explains the adoption of strip financing or convertible securities finally relationship financing including monitoring and the occasional replacement of the management improves the efficiency of the financial contracting

the consequences of entrepreneurial finance evidence from angel financings this article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures they have improved survival exits employment patenting web traffic and financing we use strong discontinuities in angel funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach we confirm the positive effects for venture operations with qualitative support for a higher likelihood of successful exits on the other hand there is no difference in access to additional financing around the discontinuity this might suggest that financing is not a central input of angel groups

sustainable international monetary policy cooperation abstract we provide new insight on international monetary policy cooperation in a familiar two country setting a country facing a relatively more volatile markup shock has an incentive to deviate from an assumed cooperation regime to a non cooperation regime a similar result obtains if countries differ in size have non unitary elasticity of substitution between domestic and foreign goods and have different degrees of trade openness home bias in consumption this motivates our study of an endogenous history dependent sustainable cooperation regime its history contingent welfare redistributions are supported by incentive compatible variations in resource transfers through the terms of trade or net exports such an endogenous cooperative solution may also provide a theoretical rationale for perceived occasional cooperation between national central banks in reality

imperfect credibility and the zero lower bound as the nominal interest rate cannot fall below zero a central bank with imperfect credibility faces a significant challenge to stabilize the economy in a new keynesian model during a large recession we characterize the optimal monetary policy at the zero lower bound for the nominal interest rate if credibility is imperfect confronting monetary policy communication of the u s federal reserve and the swedish riksbank with such a framework the credibility of both institutions is shown to have been low in the aftermath of the 2008 economic crisis

venture capital investments and the technological performance of portfolio firms what is the relationship between venture capitalists selection of investment targets and the effects of these investments on the patenting performance of portfolio companies in this paper we set out a modelling and estimation framework designed to discover whether venture capital vc increases the patenting performance of firms or whether this effect is a consequence of prior investment selection based on firms patent output we develop simultaneous models predicting the likelihood that firms attract vc financing the likelihood that they patent and the number of patents applied for and granted fully accounting for the endogeneity of investment we find that the effect of vc on patenting is insignificant or negative in contrast to the results generated by simpler models with independent equations our findings show that venture capitalists follow patent signals to invest in companies with commercially viable know how and suggest that they are more likely to rationalise rather than increase the patenting output of portfolio firms

the valuation and market rationality of internet stock prices this paper provides an analysis of some existing as well as new evidence of the relation between market prices and fundamentals in the internet sector over the period january 1998 to february 2000 appealing to results across a broad class of outcomes we demonstrate a strong circumstantial case against market rationality in particular we investigate i the level of internet stock prices given their underlying fundamentals ii responses of stock prices to information based events and iii the volatility of internet prices we review several potential explanations of these phenomena including one based on heterogeneous beliefs across investors who are subject to short sales constraints we provide a discussion of the empirical evidence supporting this latter explanation copyright 2002 oxford university press

were japanese stock prices too high abstract this paper asks whether market fundamentals can explain the recent run up and decline of japanese equity values and price earnings ratios accounting differences explain about half of the long run disparity between u s and japanese p e s for example if japanese firms used u s accounting rules the japanese p e ratio would have been 32 6 not 53 7 in 1989 accounting differences cannot however explain the doubling of this ratio in 1986 nor its decline in 1990 similarly we are unable to isolate changes in required stock returns or growth expectations that are large enough to explain recent japanese stock price movements

sticky goods prices flexible asset prices monopolistic competition and monetary policy a monetary general equilibrium asset pricing model with sticky goods prices is developed goods prices are set by monopolistically competitive firms that maximize stock market value equilibria with underutilization of resources excess capacity in some states result in contrast to previous monetary asset pricing models the degree of competition affects capacity utilization monetary policy can affect output and resource utilization in addition to real asset prices depending upon the amount of information available to the monetary authority

optimal random monetary policy with nominal rigidity abstract this paper studies a money in the utility function model with imperfect competition and one period ahead nominal price setting under standard assumptions on preferences friedman s rule setting the money growth rate equal to the household time discount factor generates an equilibrium that is optimal within the class of deterministic policies we then provide conditions under which a random monetary policy increases ex ante expected welfare relative to friedman s rule the result obtains because random policy can reduce the distortion associated with imperfect competition our result exhibits original features relative to existing cases of welfare improving random monetary policy such as polemarchakis and weiss j econom theory 15 1977 345

sticky price and limited participation models of money a comparison abstract we provide new evidence that models of the monetary transmission mechanism should be consistent with at least the following facts after a contractionary monetary policy shock the aggregate price level responds very little aggregate output falls interest rates initially rise real wages decline by a modest amount and profits fall we compare the ability of sticky price and limited participation models with frictionless labor markets to account for these facts the key failing of the sticky price model lies in its counterfactual implications for profits the limited participation model can account for all the above facts but only if one is willing to assume a high labor supply elasticity 2 percent and a high markup 40 percent the shortcomings of both models reflect the absence of labor market frictions such as wage contracts or factor hoarding which dampen movements in the marginal cost of production after a monetary policy shock 1997 elsevier science b v

central bank design in general equilibrium we study the effects of alternative institutional arrangements for the determination of monetary policy in the context of a capital theoretic general equilibrium economy we consider three institutional arrangements for determining monetary policy the first unconditional majority voting always leads to a substantial inflation bias the second a simple form of bargaining which we interpret as a policy board generally improves on the unconditional majority voting outcome finally we consider a constitutional rule which always achieves the social optimum

the theory of rational bubbles in stock prices free disposal of equity which directly rules out the existence of negative rational bubbles in stock pric es also imposes theoretical restrictions on the possible existence o f positive rational bubbles the analysis in this paper shows that a positive rational bubble can start only on the first date of trading of a stock thus the existence of a rational bubble at any date woul d imply that the stock has been overvalued relative to market fundame ntals since the first date of trading and that prior to the first da te of trading the issuer of the stock and potential stockholders who anticipated the initial pricing of the stock expected that the stock would be overvalued copyright 1988 by royal economic society

start ups venture capitalists and the capital gains tax a model of start up finance with double moral hazard is proposed entrepreneurs have ideas and technical competence but lack own resources as well as commercial experience venture capitalists vcs provide start up finance and managerial support both types of agents thus jointly contribute to the firm s success but neither type s effort is verifiable we find that the market equilibrium is biased towards inefficiently low entrepreneurial effort and venture capital support in this situation the capital gains tax is particularly harmful the introduction of a small tax impairs effort and advice and leads to a first order welfare loss several other policies towards venture capital and start up entrepreneurship are also investigated

monetary policy and policy credibility theories and evidence within the past decade there has been a significant shift in attitude by many western industrialized countries toward the objectives and conduct of national economic policy the events of the 1970s accelerating inflation and stagnant economic growth motivated the view that inflation had created its own stubborn self sustaining momentum that either was not amendable to the influences of conventional macroeconomic policy or else would yield to such influences only at unacceptable costs this led to the development of a program aimed at reestablishing control over prices while minimizing any adverse consequences of anti inflationary policies on output and employment seen as a new monetary experiment the essential ingredients included prudent financial management abstinence from discretionary intervention commitment to intermediate targets and above all prior announcement of these policies evidence of this program and its effects can be found oni the continents of europe north america and latin america and provide further important lessons in anti inflationary management this paper is a survey of recent theoretical developments in monetary policy which among other issues attempt to explain one rationale for this program and the likely consequences thereof to the extent that the new program of monetary and fiscal reform was deliberately made public and impressed upon citizens as an overriding commitment of governments in advance of its execution reflects a prevailing opinion that economic policies are more effective if they are credible to private economic agents this view emphasized forcefully by william fellner 1976 1979 may be seen as being mainly due to the assimilation of the rational expectations hypothesis

strategic monetary policy with non atomistic wage setters monetary policy analyses usually assume an atomistic private sector thereby ignoring potential interactions between policy and wage setting decisions yet non atomistic wage setters are a key feature of several industrialized economies we study the economic consequence of non atomistic agents and show that this qualifies previous results on the effects and desirability of a conservative central banker in particular the central bank aversion to inflation may have a permanent effect on structural employment while no such effect emerges with atomistic agents

variances of security price returns based on high low and closing prices in a recent paper garman and klass 1980 studied the problem of estimating capital asset price volatility parameters developing an idea first introduced by parkinson 1980 they argue that improved volatility measures can be obtained by taking into account the daily high low and opening prices in addition to the traditionally used closing prices this paper is concerned mainly with testing the empirical validity of different volatility estimators based on high low and closing prices

patents as signals for startup financing patents as signals for startup financing we examine the role of patents as signals used to reduce information asymmetries in entrepreneurial finance a theoretical model gives conditions for a unique separating equilibrium in which startup founders file for patents to signal invention quality to investors as well as appropriating value the theory allows for heterogeneous investors and examine the optimal match of different types of startups as defined by the quality of their technology to investors who differ in the amount of non financial capital they provide the empirical analysis is consistent with the model s predictions using a novel dataset of israeli startups that received external funding during the period 1994 2011

central bank reputation in a forward looking model this paper examines whether reputation concerns can induce the central bank to implement the time inconsistent optimal monetary policy in the standard new keynesian model interestingly the forward looking nature of this model enables us to account for the coordination of the private agents on the punishment length of their trigger strategy our results suggest that both the inflation bias and the stabilization bias can be overcome by a reputation concerned central bank for the calibrations used in the literature these results enable us to endogenize woodford s timeless perspective and tend to weaken the case for recent monetary policy delegation proposals

sustainable plans and debt abstract this paper presents a simple general equilibrium model of optimal fiscal policy similar to that of lucas and stokey j monet econ 12 1983 55 93 except that we let the government default on its debt we consider sustainable equilibria in which both government and private agent decision rules are required to be sequentially rational we concentrate on trigger mechanisms which specify reversion to the markov equilibrium after deviations by the government and show that such mechanisms cannot support equilibria with positive debt we go on to show by way of examples that there can be more complicated trigger mechanisms which support positive debt journal of economic literature classification numbers e61 e62

an analysis of compensation in the u s venture capital partnership abstract venture capital limited partnerships are an attractive arena to study cross sectional and time series variations in compensation schemes we empirically examine 419 partnerships the compensation of new and smaller funds displays considerably less sensitivity to performance and less variation than that of other funds the fixed base component of compensation is higher for younger and smaller firms we observe no relation between incentive compensation and performance our evidence is consistent with a learning model in which the pay of new venture capitalists is less sensitive to performance because reputational concerns induce them to work hard

time consistent monetary policy with endogenous price rigidity abstract i characterize time consistent equilibrium in an economy with price rigidity and an optimizing monetary authority operating under discretion firms have the option to increase their frequency of price change at a cost in response to higher inflation previous studies which assume a constant degree of price rigidity across inflation regimes find two time consistent equilibria one with low inflation the other with high inflation in contrast when price rigidity is endogenous the high inflation equilibrium ceases to exist hence time consistent equilibrium is unique this result depends on two features of the analysis 1 a plausible quantitative specification of the fixed cost of price change and 2 the presence of an arbitrarily small cost of inflation that is independent of price rigidity