three principles for market based credit regulation a key lesson of the financial crisis 2007 09 is that the bagehot rule lend freely but at a high rate needs to be updated for the emerging market based credit system a modern rule is suggested markets not banks outside spread not inside spread core not periphery

technological innovation and long waves one who has examined the dynamics of capitalist economies over long historical periods can doubt that they experience significant long term variations in their aggregate perform ance the question is whether these long term variations are more than the outcome of a summation of random events and further whether they exhibit recurrent temporal regu larities that are sufficiently well behaved to call them long waves in recent years there has been a strong resurgence of interest in such long term movements since their existence could provide a coherent explanation for the poor performance of capitalist economies over the past decade 1 this renewed interest also reflects a search for alternative ways of explaining the unbalanced nature of the growth processes of mature capitalist economies that go uncaptured by the solow swan paradigm in its concern with equilibrium dynamics and steady states of one two or multisector representations of the economy the study of price and output swings of extended duration has a long tradition having initially drawn the interest of both marxist and non marxist writers around the turn of the century 2 yet it was the work of kondratiev 1925 which constituted the first system atic attempt to confirm such movements with data that included not only prices interest rates and wage series but foreign trade industrial production and consumption for france britain and to a lesser extent the us kondratiev concluded that the data suggested the

can stabilisation policy reduce long run growth this paper presents an analysis of the long run implications of short term stabilisation policy the analysis is based on a simple stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology by virtue of the latter temporary shocks have permanent effects such that the cyclical and secular properties of output are related in particular smoother cyclical fluctuations may be associated with flatter secular trends implying a trade off between short term stabilisation and long term growth

long term growth and short term economic instability when learning by doing is at the origin of growth the long run growth rate should be negatively related to the amplitude of the business cycle if human capital accumulation is increasing and concave in the cyclical component of production empirical evidence strongly supports this nding for industrialized countries and european regions using the standard control variables we nd that countries and regions that have a higher standard deviation of growth and of unemployment have lower growth rates the result does not come from an e ect of instability on investment the negative relation however does not hold for non industrialized countries for which learning by doing may not to be the main engine of growth 2000 elsevier science b v all rights reserved jel classixcation o40 e32

too big to manage us megabanks competition by innovation and the microfoundations of financialization disagreements over the systemic implications the future of financialization can be traced in part to the absence of sustained attention to the role of banking firms in driving this secular shift forward that is the financialization literature lacks an adequate microfoundation accounting for the drivers of financialization processes solely at the macro level overlooks the problems of how these processes came about and whether they are sustainable this paper addresses this explanatory gap arguing that a key independent microeconomic driver of increasing financialization did exist the incessant efforts by money centre banks in the usa to break out of depression era restrictions on their size activities and markets these banks growth strategies in turbulent times led to an institutional meso shift the rise of a megabank centred shadow banking system that now shapes global financial architecture even while operating in ways that are unsustainable in short too big to manage megabanks are at the heart of the fragility and instability of the economy today

implicit delivery options and optimal delivery strategies for financial futures contracts abstract futures contract specification usually allow the short position some variation as to when where how much and what is to be delivered in this paper we derive the optimal delivery policy for the treasury bond futures contracts and find that our policy produces profits that are positive and statistically significant this indicates that future prices are too high in that the short position can earn profits by skillfully exercising his delivery options we find the actual delivery policies of market participants depart substantially from the optimal strategy the implications of these findings for futures traders and bond dealers are discussed

structural causes of the global financial crisis a critical assessment of the new financial architecture we are in the midst of the worst financial crisis since the great depression this crisis is the latest phase of the evolution of financial markets under the radical financial deregulation process that began in the late 1970s this evolution has taken the form of cycles in which deregulation accompanied by rapid financial innovation stimulates powerful financial booms that end in crises governments respond to crises with bailouts that allow new expansions to begin as a result financial markets have become ever larger and financial crises have become more threatening to society which forces governments to enact ever larger bailouts this process culminated in the current global financial crisis which is so deeply rooted that even unprecedented interventions by affected governments have thus far failed to contain it in this paper we analyse the structural flaws in the financial system that helped bring on the current crisis and discuss prospects for financial reform

exploration during turbulent times an analysis of the relation between cooperation in innovation activities and radical innovation performance during the economic crisis this article investigates the relation between cooperation in innovation activities and innovation before and during the last economic recession we find that cooperation in innovation activities has a stronger relation with radical innovation performance during the economic recession than before this being true irrespectively of whether the partners are national or international this benefit from cooperation during the economic turmoil is higher in the case of firms having different types of partners simultaneously we also find that past cooperation in innovation activities is positively associated to innovation performance during the crisis

business cycles and long run growth in this survey we discuss the effect of macroeconomic fluctuations on long run growth from both a theoretical and empirical perspective we emphasize the opportunity cost approach which states that firms will intertemporally substitute productivity enhancing activities for regular production activity during recessions we provide aggregate evidence in favor of the opportunity cost approach copyright 1997 by oxford university press

common trends and common cycles in international labor productivity abstract the objective of this paper is to present a trend cycle decomposition of the industrial labor productivity series in six major industrialized countries to study the relationship between trend and cycle innovations and to highlight the role of monetary policy as a possible source of transitory and permanent variations in labor productivity

on the cyclicality of r d this paper explores the link between short run cycles and long run growth by examining the cyclicality of rd but aggregate data repeatedly show that rd but interestingly estimates using demand shift instruments suggest that it responds asymmetrically to demand shocks we propose that liquidity constraints and technology improvement cause the observed pro cyclicality of r d

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

demand and innovation schmookler re examined schmookler s demand pull hypothesis implying that innovation is a function of market demand has been widely accepted re reading schmookler s invention and economic growth we discover a statistical inadequacy re estimating his cross section results in a different way we find somewhat lower coefficients moreover the direction of causality appears to be far from obvious an independent cross sectional test of the schmookler hypothesis in the netherlands based on r d instead of patent data shows similar results the relationship between indicators of demand and innovation turns out to be generally weaker but in most cases still significant and the results suggest that there is a simultaneous relationship between demand and innovation the latter may be explained by the concept of the innovation multiplier which has implications for macro economic modelling 1 re reading schmookler schmookler s 13 finding of a strong relationship between investment in capital goods users industries and patent applications by capital goods producing sectors has been generally accepted by economists as evidence that patenting is a function of effective demand demand pull hypothesis quite a number of case studies have followed schmookier s seminal work but there have been

an equilibrium model of bond pricing and a test of market efficiency in two previous and related papers 3 4 the authors have reported the results of estimating a particular equilibrium model of bond pricing using quarterly data on canadian government bonds for the period 1964 to 1979 this paper reports the results of applying a similar model to the pricing of u s government bonds for the period 1958 1979 using data from the crsp government bond file the paper also extends the previous empirical analysis by evaluating the ability of the pricing model to detect underpriced and overpriced bonds the data reveal a strong relation between price prediction errors and subsequent bond returns

empirical studies of financial innovation lots of talk little action this paper reviews the extant empirical studies of financial innovation adopting broad criteria we could find only somewhat more than two dozen studies and since some financial innovations are examined by more than one study they cover only seventeen phenomena especially striking is the fact that only two studies offer tests of the broad hypotheses concerning the environmental conditions spurring financial innovation e g regulation taxes unstable macroeconomic conditions and ripe technologies that have been advanced in descriptive articles we offer some tentative conjectures as to why empirical studies of financial innovation are comparatively rare among our suggested culprits is an absence of accessible data we urge financial regulators to undertake more surveys of financial innovation and to make the survey data more available to researchers

housing really is the business cycle what survives the lessons of 2008 09 the downturn of 2008 09 has confirmed that i housing is the single most critical part of the u s business cycle ii the proper conduct of monetary policy needs to be cognizant that choices made at one point in time affect the options later and iii the best time to intervene in the housing cycle is when the volume of building is above normal and growing more so what was different this time was the rapid and substantial decline in home prices

innovative activity over the business cycle this paper examines cyclical patterns of innovative activity in the united kingdom over the period 1948 83 innovative activity turns out to have many of the properties of a random walk but does show a tendency to cluster during booms there is clear evidence of a long term secular relation between the level of innovative activity and the level of economic activity although this may have changed in the 1980s finally the data provide no reason for thinking that these clusters of innovation cause cyclic variations in economic activity but variations in economic activity do granger cause changes in innovative activity copyright 1995 by royal economic society

business cycles and research investment this paper examines the impact of uncertainty and the business cycle on us high tech manufacturing firms research investment although the reliance on internal financing suggests firms will consider uncertainty and the business cycle when determining their research budget little is known about how the business cycle and uncertainty influence research investment using firm level data on sales cash flow and industry level indicators of the business cycle this paper finds that the firm s response to the business depends on the firm s industry and the industry s current location in the business cycle the data also shows that the business cycle also depresses the firm s reaction to changes in sales and cash flow uncertainty clearly reduces research efforts although non linearly

a new approach to decomposition of economic time series into permanent and transitory components with particular attention to measurement of the business cycle abstract this paper introduces a general procedure for decomposition of non stationary time series into a permanent and transitory component allowing both components to be stochastic the permanent component is shown to be a random walk with drift and the transitory or cyclical component is a stationary process with mean zero the decomposition methodology which depends only on past data and therefore is computable in real time is applied to the problem of measuring and dating business cycles in the portwar u s economy we find that measured expansions and contractions are of roughly equivalent duration and that our dating of cyclical episodes tends to lead the traditional nber dating and to a lesser extent the growth cycle chronology of zarnowitz and boschan 1977

the effects of public r d subsidies on firms innovation activities the case of eastern germany this study analyzes the effects of public r d policy schemes on the innovation activities of firms in eastern germany the main question in this context is whether public funds stimulate r d activities or simply crowd out privately financed r d empirically we investigate the average causal effects of all public r d schemes in eastern germany using a nonparametric matching approach compared to the case in which no public financial means are provided it turns out that firms increase their innovation activities by about four percentage points

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

business cycle models with endogenous technology this paper compares real and monetary business cycle models with and without endogenous technical change if technology is endogenous the properties of these models change significantly in particular both real and monetary models yield very similar output processes if growth is endogenous and changes in aggregate demand can result in permanent changes in productivity employment and output the effect of depreciation of technology is examined and the pattern of real wage movements over the cycle when money wages are fixed but technology is changing is briefly considered copyright 1990 by american economic association

is public r d a complement or substitute for private r d a review of the econometric evidence is public r d spending complementary and thus additional to private r d spending or does it substitute for and tend to crowd out private r d conflicting answers are given to this question we survey the body of available econometric evidence accumulated over the past 35 years a framework for analysis of the problem is developed to help organize and summarize the findings of econometric studies based on time series and cross section data from various levels of aggregation laboratory firm industry country the findings overall are ambivalent and the existing literature as a whole is subject to the criticism that the nature of the experiment s that the investigators envisage is not adequately specified we conclude by offering suggestions for improving future empirical research on this issue

r d and subsidies at the firm level an application of parametric and semi parametric two step selection models this paper analyzes the effects of public r d subsidies on r d expenditure in the german manufacturing sector the focus is on the question whether public r d funding stimulates or crowds out private investment cross sectional data at the firm level is used by apllying parametric and semiparametric selection models it turns out that public funding increases firms r d expenditure altough the magnitude of the treatment effect depends on the assumpions imposed by the particular selection model

the delivery option on forward contracts many futures contracts contain a delivery option which allows the short position a choice to deliver one of several varieties of a commodity several authors have argued that deliv ery options can have considerable value for a forward contract with a delivery option this paper shows that a continuously adjusted hedge will drive the value of the delivery option towards zero assuming perfect and frictionless markets tract the option to deliver one of several grades of a commodity on the delivery date recent papers by garbade and silber 3 and gay and manaster 4 have examined this delivery option and have suggested that this option reduces the futures price prior to the delivery date this paper examines a perfect market with continuous prices with an infinite number of deliverable varieties with ac tive forward markets for all deliverable varieties and without marking to market under these assumptions the value of the delivery option is shown to ap proach zero the paper shows that a continuously adjusted hedge exists that guarantees this result therefore the attachment of value to the delivery option

introduction the global financial crisis there cannot now be a shadow of a doubt that the flaw in his ideology admitted by alan greenspan in response to a question by henry a waxman chairman of the us house of representatives committee on oversight and government reform whether he felt that your ideology pushed you to make decisions that you wish you had not made is both significant and permanent the current financial and economic crisis that has forced the likes of greenspan to question the coherence of dominant conceptual frameworks is unprecedented in global reach and systemic gravity some basic figures speak for themselves according to mckinsey s mapping global financial markets october 2008 global financial assets rose from us 12 trillion in 1980 to us 196 trillion in 2007 the international monetary fund s global financial stability report imf 2009a estimate for the latter figure is considerably higher at us 241 trillion global cross border capital flows more than doubled between 2002 and 2007 with foreign investors holding one in four debt securities and one in five equities while in 2000 only 11 countries had financial assets of more than 350 of gross domestic product gdp 25 countries had deepened their financial markets to the same extent by 2007 as early as 1990 money managers had increased their control of us corporate equities from 8 in 1950 to 60 porter 1992 p 6 whalen 2002 p 402 similarly pension funds had extended their share of total business equities from less than 1 to just short of 39 and their fraction of corporate debt from 13 to 50 ghilarducci 1992 p 117 whalen 2002 p 402 in the period from 1986 to 2006 the us financial sector as a whole increased its share of corporate profits from 10 to 30 while its outstanding debts grew from 20 of gdp in 1980 to 116 in 2007 fed 2009 according to gillian tett from the financial times outstanding credit defaults swaps cds today amount to no less than us 60 trillion with the risk embodied after discounting mutually off setting contracts still as high as us 14 trillion tett 2009 p 264 as we know the curtains have now come down on this dance of the trillions palma 2009 the immediate hang over in the form of a pile of toxic debt is surreal not only in its

the great moderation and the relationship between output growth and its volatility this study examines the effect of the great moderation on the relationship between u s output growth and its volatility over the period 1947 to 2006 first we consider the possible effects of structural change in the volatility process in so doing we employ garch m and arch m specifications of the process describing output growth rate and its volatility with and without a one time structural break in volatility second our data analyses and empirical results suggest no significant relationship between the output growth rate and its volatility favoring the traditional wisdom of dichotomy in macroeconomics moreover the evidence shows that the time varying variance falls sharply or even disappears once we incorporate a one time structural break in the unconditional variance of output starting 1982 or 1984 that is the integrated garch effect proves spurious finally a joint test of a trend change and a one time shift in the volatility process finds that the one time shift dominates

an empirical examination of the procyclicality of r d investment and innovation abstract the schumpeterian opportunity cost hypothesis predicts that firms concentrate innovative activities in recessions however empirical evidence suggests that innovative activities are procyclical theory proposes that firms shift r d investments and innovation from recessions to booms to maximize returns by capturing high demand periods before imitators compete away rents this paper provides the first empirical test of these predictions results indicate that r d spending is more procyclical in industries with faster obsolescence where matching invention to demand is more valuable and innovation is more procyclical in industries with weaker ip protection where imitation poses a greater threat

spectral and persistence properties of cyclical growth abstract this article investigates the cyclical properties of an endogenous growth model an explicit solution is derived which permits the full characterization of the cyclical as well as the long run properties of the model using spectral autocorrelation and impulse response functions we show that introducing endogenous growth overcomes some of the main shortcomings of rbc models in particular the model can generate positive autocorrelation of output growth when endogenous growth dominates the dynamics moreover the model exhibits the hump shaped pattern of impulse response functions of the trend reverting component of output

sources of productivity growth an empirical analysis with german sectoral data many theoretical analyses of the sources of economic growth focus on knowledge spillovers and scale economies to explain growth endogenously the contribution of this paper is to shed some light on these arguments by an empirical investigation based on a production function framework sectoral production functions are estimated with annual german data of 51 sectors from 1960 90 the estimates reveal that both a pure solow growth model and a solow model augmented with human capital cannot account for the observed productivity increases the model should be extended by allowing for inter industry spillovers and scale economies at the aggregate level as well as for scale economies associated with human capital at the sectoral level the business cycle affects observed productivity changes in the short run and in the long run

uncertainty and the dynamics of r d uncertainty varies strongly over time rising by 50 to 100 in recessions and by up to 200 after major economic and political shocks this paper shows that higher uncertainty reduces the responsiveness of r d to changes in business conditions a caution effect making it more persistent over time thus uncertainty will play a critical role in shaping the dynamics of r d through the business cycle and its response to technology policy i also show that if firms are increasing their level of r d then the effect of uncertainty will be negative while if firms are reducing r d then the effect of uncertainty will be positive

the delivery option on forward contracts a comment livingston contends that short futures long cash traders can eliminate the potential costs of the quality option through use of a dynamic trading strategy it is proposed here that if this is possible then futures prices will never reach a stable equilibrium alternatively if livingston s argument is flawed then no risk free arbitrage opportunities are likely to be available to either short cash long futures or long cash short futures traders under such conditions futures prices will reach an equilibrium when the expected return and risk of each type position are equally attractive

the relationship between r d collaboration subsidies and r d performance empirical evidence from finland and germany this study focuses on the impact of innovation policies and r d collaboration in germany and finland we consider collaboration and subsidies as heterogeneous treatments and perform an econometric matching to analyze r d and patent activity at the firm level in general we find that collaboration has positive effects in germany subsidies for individual research do neither exhibit a significant impact on r d nor on patenting but the innovative performance could be improved by additional incentives for collaboration for finnish companies public funding is an important source of finance for r d without subsidies recipients would show less r d and patenting activity whilst those firms not receiving subsidies would perform significantly better if they were publicly funded copyright 2007 john wiley sons ltd

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

are output fluctuations transitory according to the conventional view of the business cycle fluctuations in output represent temporary deviations from trend the purpose of this paper is to question this conventional view if fluctuations in output are dominated by temporary deviations from the natural rate of output then an unexpected change in output today should not substantially change one s forecast of output in say five or ten years our examination of quarterly postwar united states data leads us to be skeptical about this implication the data suggest that an unexpected change in real gnp of 1 percent should change one s forecast by over 1 percent over a long horizon

mixed oligopoly cost reducing research and development and privatisation abstract we develop a mixed oligopoly model to examine the role of r d subsidies and evaluate the welfare effects of privatisation in solving the oligopoly model we propose a novel use of aggregative games techniques our analysis reveals that privatisation reduces the optimal r d subsidy furthermore privatisation improves social welfare but only when the number of firms is sufficiently large implementing solely a subsidy to r d does not lead to a privatisation neutrality theorem or irrelevance result

an ex post valuation of the quality option implicit in the treasury bond futures contract abstract this paper develops three empirical estimates of the value of the quality delivery option implicit in the treasury bond futures contract a an ex ante value as given by the excess of forward price of the cheapest to deliver bond over its conversion factor times the futures price b an ex post value equal to the payoffs to a strategy of buying and holding a short futures long forward position at the start and delivering the cheapest bond at the expiration of futures contract and c another ex post value equal to the sum of payoffs to a continuous rollover strategy involving a short futures long forward position in the cheapest to deliver bonds three months prior to delivery the average values of the three estimates are 464 329 and 2 075 respectively the differences among the three estimates appear to be largely due to nonsynchronous spot futures data

impact of flexibility in public r d funding how real options could avoid the crowding out effect abstract this paper explores new mechanisms to ensure grants are additional to private research and development investment with no displacing or crowding out effect our results indicate that by studying the flexibility embedded in these type of projects using the real options framework it is possible to reduce the size of grants given by financing bodies while remaining equally attractive to companies this result is reached due to the higher flexibility provided in potential new grant schemes in addition to the obvious consequence of less expensive public r d funding there are other side benefits to this new scheme such as avoiding the crowding out effect while also allowing more honest and sincere research and development investment by companies because they are sharing the risk with the funding body this paper presents a case study an r d project carried out in the concentrated solar power sector in which we propose and calculate the effect of providing the grant 2 years earlier with a sensitivity analysis performed over the discount rate volatility and first commercial revenue this paper may encourage funding bodies to consider implementing alternative grant schemes valuing the flexibility embedded in r d projects

participation inertia in r d tax incentive and subsidy programs we examine how persistent firms participation is in rd the use of tax credits in contrast is unrelated to a firm s productivity our results suggest that r d tax incentives and r d subsidies are not substitutes and that any unintended misallocation of support is likely to persist

the delivery option on forward contracts a note a number of futures contracts conveys to the short position various delivery options re garding the quality and exact timing of delivery moreover the compensation to the long position is not solely determined by the market value of the delivered asset at the time of delivery sometimes the long position can hedge this delivery risk by holding an appropriate portfolio of the underlying asset it often has been stated that whenever the long position can form a dynamic hedge against the delivery risk the delivery option has a zero value this paper demonstrates the implication of such erroneous intuition to the pricing of options it is shown that the root of the issue is the property of diffusion processes whereas within a given time interval a random variable either will never cross a given boundary or else cross it an inflnite number of times

procyclical labour productivity a closer look at a stylized fact at 4 digit united states manufacturing industry level we find evidence suggesting that the stylized fact of procyclical labour productivity should be treated with great caution we use the nber manufacturing productivity database to investigate the relationship between hourly labour productivity and real output for 450 industries for the years 1958 91 labour productivity is significantly procyclical in 63 of industries and acyclical in 36 in the latter respect a high proportion of investment goods industries display acyclical productivity cross section regressions are carried out that seek to explain the interindustry distribution of cyclicality the analysis attributes a significant role to variations in materials costs as a proxy for fluctuations in factor utilization

persistence of shocks and their sources in a multisectoral model of uk output growth this paper develops a multisectoral framework for the measurement of persistence of shocks to sectoral and aggregate output and provides a decomposition of the contribution of shocks from different sources to the overall persistence measure the framework is applied to u k output data distinguishing four types of macroeconomic shocks innovations in money supply growth stock returns exchange rates and oil prices among the macro shocks exchange rate shocks have the largest persistence effects on aggregate output through their effects on manufacturing sectors the contribution of the identified macro shocks to total persistence was small however compared to that of sector specific shocks copyright 1992 by royal economic society

macroeconomic conditions and the determinants of commercialisation in this paper we focus on the effects of macroeconomic conditions on commercialisation using survey data on the activities of australian inventors who attempted to commercialise 3 736 inventions over the period 1986 2005 we find evidence that macroeconomic conditions have a pro cyclical effect on commercialisation activities such a finding has important policy implications since it suggests that recessions have both short term effects on employment income and long term effects on productivity however the magnitude of the supply side effects the cost of finance and level of public sector research are estimated to be larger than the growth in aggregate or industry demand copyright the author 2010 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

demand shocks and firm financed r d expenditures business cycles might affect firms ability and incentive to perform r d firms finance most r d activities out of cash flow so when cash flow decreases the funds available for r d also decreases this limits the ability of firms to perform r d potentially leading to reduced r d expenditures during recessions however business cycles also influence the incentive to perform r d the opportunity cost of funds devoted to r d falls during recessions since the return on production will likely be lower than during an expansion during recessions this provides firms with an incentive to redistribute an existing pool of funds away from production and towards r d projects this paper tests whether the business cycle influences the incentive and ability of firms to engage in r d activities in particular examining whether the response is symmetric across the business cycle

procyclical government spending patterns of pressure and prudence in the oecd this paper tests for differences in the cyclicality of government spending across functional categories evidence from 20 oecd countries suggests that procyclicality is more likely in smaller functional budgets but capital spending is more likely to be procyclical for the larger spending categories

firm characteristics and the cyclicality of r d investments the aim of this study is to combine micro aspects of firm behavior with macro aspects of business development and identify market conditions e g price competition and firm characteristics e g type of r d partners that enable a firm to have a pro cyclical anti cyclical or non systematic r d investment behavior the empirical results confirm to large extent a series of hypotheses as to innovation relevant firm characteristics that underline the three different behavior categories and allow us to make profiles of the three types of r d behavior

is demand pulled innovation equally important in different groups of firms previous empirical literature has tested the demand pull hypothesis and found that innovation may be driven by output using a balanced panel of 216 italian manufacturing firms 1995 2000 and checking for the path dependent nature of r d we find a role of sales in inducing r d however the demand pull effect plays a varying role for different sub samples of firms exporting firms liquidity constrained firms not subsidised firms and those not heading a group seem to be sensitive to sales in deciding r d these results have been obtained using a least squares dummy variable corrected estimator a recent panel data technique suitable for small samples

the cyclical behaviour of fiscal policy evidence from the oecd this paper addresses the topic of cyclicality in scal policy in particular we show that the level of cyclicality varies across spending categories and across oecd countries in line with leading theories of scal cyclicality we show that countries with volatile output and dispersed political power are the most likely to run procyclical scal policies wage government consumption is highlighted as the most important channel by which these variables affect scal cyclicality

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

the influence of industry downturns on the propensity of product versus process innovation this article sheds light on how industry fluctuations affect firms propensity to innovate we test two seemingly conflicting arguments that suggest how firms are more or less inclined to engage in innovation activities during industry fluctuations by studying a panel of 622 italian manufacturing firms during the period 1995 2003 we show how differentiating between product and process innovation may help reconcile the theory of opportunity cost of innovation with the cash flow effect argument we find that industry downturns are related to product and process innovation in different ways firms tend to invest in product innovation rather than process innovation in downturns the findings have implications for both theory showing when the opportunity cost of innovation dominates and research design showing the importance of both the input and output measures in innovation studies and how they might influence the results

the effects of expected and unexpected volatility on long run growth evidence from 18 developed economies 1 introductionalthough there is disagreement about the magnitude many economists agree that business cycles have negative consequences for welfare in the short run by causing output to deviate from potential as a result most policymakers regard reducing volatility as a desirable goal however there is disagreement about the long run consequences of business cycles some models suggest that business cycle volatility should reduce long run growth in these models increased volatility increases risk reduces investment and slows the growth rate of output in addition volatility may reduce the diffusion rate of new technology which might reduce the long run growth rate hence business cycles have negative short run consequences by causing output to deviate from the trend and negative long run consequences by slowing the long run growth rate if these models are accurate then the welfare consequences of business cycles are more severe than previously thought an alternative view of the growth volatility relationship suggests that there may be a long run benefit to business cycles in these models increased volatility stimulates inventive activity which increases the long run growth rate reduced volatility will be beneficial in the short run but if reduced volatility decreases the long run growth rate then there are costs to stabilization as a result policymakers would face a trade off between business cycle volatility and long run growth in addition it is possible that the long run costs of stabilization policy might exceed the short run benefits this article sheds new light on the growth volatility relationship first this article focuses on two types of volatility expected volatility and unexpected volatility this allows a more thorough test of the two general hypotheses linking growth to volatility second this article empirically examines the relationship between growth and volatility for 18 industrialized nations over a 110 year period therefore the analysis avoids the problem of short time span of data this article proceeds as follows section 2 clarifies the relationship between the competing hypotheses as well as between expected and unexpected volatility section 3 analyzes the growth volatility relationship without making the distinction between expected and unexpected volatility section 4 uses generalized method of moments gmm and ordinary least squares ols along with panel data to estimate the effects of expected and unexpected volatility on growth section 5 concludes with suggestions for further research 2 the growth volatility relationshipthe view that business cycle volatility reduces the long run growth rate focuses on risk bernanke 1983 ramey and ramey 1991 and pindyck 1991 argue that volatility creates risk about future demand and that firms are unlikely to invest in new plants and equipment if they are unsure about the demand for their product the greater the volatility in output the more uncertain future demand becomes the greater the risk and the less likely firms are to invest this negative relationship between volatility and investment might lead to a negative relationship between growth and volatility increased volatility decreases investment which then slows the growth rates of the capital stock and output the effect would be especially pronounced if new technology is embodied in new capital goods ramey and ramey 1995 and macri and sinha 2000 have found results consistent with this view of the growth volatility relationship using aggregate data this view emphasizes the risks associated with unexpected changes in output when firms cannot accurately forecast the demand for their goods they reduce capital expenditures which reduces growth the view that business cycles might increase long run growth focuses on the opportunity cost of productivity enhancing activities peas bean 1990 and saint paul 1993 view firms as solving an intertemporal profit maximizing problem in which producing goods provides profits today but engaging in peas produces profits only in the distant future

the new keynesian synthesis the new keynesians made more rapid progress in understanding the microeconomics of unemployment than in understanding the microeconomics of nominal price rigidity but the past five years have seen important breakthroughs in this second area this paper will describe these breakthroughs discuss our current understanding of nominal rigidity and assess the work that remains to be done

government science and technology budgets in times of crisis abstract following a recent paper by filippetti and archibugi filippetti a archibugi d 2011 innovation in times of crisis national systems of innovation structure and demand research policy 40 2 179 192 this article aims to contribute to the sparse literature on the impacts of the recent economic downturn on the government expenditures and innovative activities of the countries of the enlarged european union eu 27 using eurostat s socio economic objectives i e the nomenclature for the analysis and comparison of scientific programmes and budgets nabs 2007 classification this paper addresses the impact of the recent economic downturn on governments science and technology s t budgets across the 27 eu countries most countries followed a pro cyclical pattern where the government s t budgets in most nabs shrunk along slowing gross domestic product growth in similar pace with total government expenditure the new member states of eastern europe were the most affected

invention and innovation in the chemical industry demand pull or discovery push abstract this paper describes a study of the determinants of the rate direction and scale of inventive and innovative activity in the chemical industry over the period 1830 1980 statistical data are interpreted in the light of case study material in three major sectors dyestuffs plastics and pharmaceuticals theories of technical change and economic growth particularly those of schmookler and schmpeter are examined in relation to this material on the chemical industry the findings suggest that the importance of demand pull and discovery push factors and the validity of schmookler s and schumpeter s theories vary over an industry s life cycle

difference systems in financial futures markets many financial futures markets allow substitutions for the par grade of security at delivery substitutes are deliverable at premiums or discounts differences in commodities parlance to the futures price the rule that establishes these differences is called a difference system this paper characterizes financial futures market equilibrium with yield based difference systems and investigates particular systems in use the major finding is that currently used difference systems effectively limit deliverable supply in the futures markets and lead to futures prices which understate the cash market price of the par security in order to increase deliverable supply many financial futures markets allow the delivery of a variety of grades issues of securities in fulfillment of a financial futures contract the par grade of security on which the futures contract is based is deliverable at the futures price various other grades of securities are deliverable at premiums or discounts to the futures price in commodities parlance these premiums and discounts are called differences and the rule that establishes the set of premiums and discounts is called a difference system see hoffman 2 chapter xv for an excellent discussion of difference systems in commodity futures contracts there are two types of difference systems currently in use in financial futures markets both are based on security yields the first is called variable rate or yield maintenance pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted by the yield of the par security selling at the futures price the second is called fixed rate or factor pricing under this system nonpar securities are deliverable at the futures price times a factor which is the price of the delivered security relative to the par security where both are discounted at the yield of the par security selling at par this paper first characterizes financial futures market equilibrium with yieldbased difference systems and then investigates theoretically and empirically the particular characteristics of factor pricing and yield maintenance pricing the major finding is that currently used differences systems produce financial futures prices which systematically understate the spot market price of the par security vice president chicago mercantile exchange this research was conducted while the author was economist financial studies section board of governors of the federal reserve system the opinions in this paper are those of the author and do not necessarily reflect the opinions of the board

unemployment and growth some empirical evidence from structural time series models this study investigates the empirical relationship between unemployment and growth in a number of oecd economies a structural time series model is used for labour productivity growth to demonstrate that in most economies there seems to be a negative correlation between unemployment and labour productivity growth the results provide little support for the theory that recessions may stimulate productivity growth the use of a structural time series approach allows an attempt to model the underlying dynamics of productivity growth jointly with the effect of unemployment

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

are firms that received r d subsidies more innovative this paper looks at the effectiveness of r d grants for canadian plants that already benefit from r d tax credits using a non parametric matching estimator we find that firms that benefited from both policy measures introduced more new products than their counterparts that only benefited from r d tax incentives they also made more world first product innovations and were more successful in commercializing their innovations

determinants of environmental innovation new evidence from german panel data sources abstract in most cases empirical analyses of environmental innovations based on firm level data relied on surveys for one point in time these surveys allow for the inclusion of many explanatory variables such as different policy instruments or the influence of pressure groups but it is not possible to address the dynamic character of environmental innovations this paper uses two german panel databases the establishment panel of the institute for employment research iab and the mannheim innovation panel mip of the centre for european economic research zew to explore the determinants of environmental innovations the econometric estimations show that the improvement of the technological capabilities knowledge capital by r d triggers environmental innovations environmental regulation environmental management tools and general organizational changes also encourage environmental innovation a result that has also been postulated by the famous porter hypothesis

r d expenditure in g7 countries and the implications for endogenous fluctuations and growth abstract the literature on endogenous growth cycles predicts countercyclical r d expenditure aggregate r d expenditure in g7 countries from 1973 to 2000 tends to be procyclical implications for future theoretical research are discussed

assessing the effect of public subsidies on firm r d investment a survey this survey examines the empirical literature on the relationship between public r d subsidies and private r d investment over the past five decades the survey reveals a considerable heterogeneity of empirical results that cannot be explained fully by methodological issues we aim to provide further explanations of the possible causes of that heterogeneity in particular we emphasise a set of issues that in our view are critical to understanding the potential effect of public r d subsidies on private r d spending special attention is paid to the dynamic aspects and composition of firm r d the constraints faced by the firm such as financial constraints and the amount and source of public subsidies none of these issues have been investigated in depth we formulate a set of research assumptions to guide future empirical research in this field

r d and aggregate fluctuations the research and development r d sector is considered one of the main driving forces of sustainable growth in the long run the sector however also shows excessive volatility which raises interesting questions regarding the sources of this volatility as well as the nature of the relation between the sector and aggregate fluctuations using data from the united states bureau of economic analysis and national science foundation we show that technology innovations are the main source of fluctuations in r d investment while r d technology shocks are important in driving aggregate output fluctuations after taking nominal innovations into consideration such as shocks in monetary policy and inflation capital investment specific shocks explain 70 percent of fluctuations of r d investment while r d technology shocks explain 30 percent of the variation in the output of the non r d sector technology innovations jointly explain most of the variation of output in the r d sector and 78 percent of the variation of output in the rest of the economy

increasing returns labour utilization and externalities procyclical productivity in the united states and japan this paper investigates procyclical productivity and attempts to discriminate among several competing explanations the study focuses on the united states and japan since the different industrial relations in these two economies serve to cast a sharper light on the procyclical productivity debate labour hoarding evaluated through the introduction of a labour utilization proxy proves to be an important influence the interpretation of the role of external economies remains an open issue

quality option profits switching option profits and variation margin costs an evaluation of their size and impact on treasury bond futures prices this paper provides empirical evidenee that the quality option in f bond futures is much less valuable than previously indicated in addition a dynamic trading strategy involving multiple switches of the cash bonds held in a long cash versus short futures position is shown to produce substantially greater profits than the single exercise of the quality op tion these findings suggest that the optimal management of long cash short futures positions is likely to involve dynamic trading strategies while passive strategies appear more appropriate for short cash long futures positions it is also shown that required variation margin payments are frequently large and may impact the profitability and risk of such positions to a greater extent than either of these options further evidenee is given indicating that observed t bond futures prices reflect an imputed value for the options and risks inherent in such positions

endogenous growth and the procyclical behaviour of productivity abstract in this paper a model with endogenous growth is used to explain the procyclical behaviour of productivity periods when the marginal return to goods production is high are associated with low levels of human capital formation and other investment like activities in particular the model successfully explains the surges in productivity exhibited in the uk during wartime and the apparently permanent effect of the level of defence spending on the growth of total factor productivity

endogenous growth cycles current explanations why a growing economy necessarily goes through periods of high and low growth predict countercyclical r d investment as this is very controversial from an empirical perspective a stochastic poisson model of endogenous growth cycles is presented where the determinants of the cyclical behaviour of r d investment are analytically studied providing an explicit expression for the expected length of a cycle shows that high frequency fluctuations can indeed be understood by this approach it is also shown how small technological improvements translate into large aggregate fluctuations

job creation and job destruction by small firms an empirical investigation for the dutch manufacturing sector this paper studies the differences in behaviour of small and large firms concerning job creation and job destruction in the dutch manufacturing sector over the period 1978 1991 we find that both job creation and job destruction rates are higher in small firms than in large ones in addition we found that the persistence of jobs created in slumps are much higher for small firms than for large firms persistence rates of job destruction are however less connected to the state of the business cycle and increase with firm size more importantly small firms seem to reallocate their jobs in a continuous way as job turnover moves independent of the business cycle large firms on the other hand reallocate counter cyclically an obvious explanation for this phenomenon is that small firms are better equipped to adjust to shifts in economic circumstances large firms adjust only slowly and for them reallocating jobs in a recession is more advantageous than in a boom

innovation in times of crisis national systems of innovation structure and demand this article addresses the impact of the current economic downturn on innovation across europe using micro and macro data we investigate to what extent some structural characteristics of national systems of innovation along with demand affect firms persistency in terms of innovation investment it emerges that the effects of the economic downturn in terms of firms innovation investment are not the same across european countries the competences and quality of the human resources the specialization in the high technology sector together with the development of the financial system seem to be the structural factors which are able to offset the effect of the economic downturn on innovation investments of firms across europe finally some considerations about policies during recessions are discussed

does innovation cause stock market runups evidence from the great crash this article examines the stock market s changing valuation of corporate patentable assets between 1910 and 1939 it shows that the value of knowl edge capital increased significantly during the 1920s compared to the 1910s as investors responded to the quality of technological inventions innovation was an important driver of the late 1920s stock market runup and the great crash did not reflect a significant revaluation of knowledge capital relative to physical capital although substantial quantities of influential patents were accumulated during the post crash recovery high technology firms did not earn significant excess returns over low technology firms for most of the 1930s

do research subsidies crowd out private r d of large firms evidence from european framework programmes abstract we evaluate whether public research subsidies are complements or substitutes to the private r d spending of large firms combining data on the ec s three most recent framework programmes fp6 fp7 and h2020 with data on the world s largest research companies we use matching and difference in difference estimation to compute the causal impact of subsidies on private r d spending while on average subsidies have not led to increased private research budgets we identify policy relevant heterogeneities finding that subsidies increased own r d for smaller firms and projects as well as more r d intensive firms we also find that horizon 2020 successfully stimulated firms private r d spending while its predecessors did not

innovation procurement as capability building evaluating innovation policies in eight central and eastern european countries abstract after decades of impressive growth the new member states of the european union are once again in transition but this time from imitation to innovation driven competitiveness this paper evaluates the relationship between both public funding and public procurement for innovation ppi and firm level innovation output and outcome additionality in eight central and eastern european countries matching estimates on a sample of 41 623 firms suggest that ppi has a large effect on innovation and output and the highest additionality is sometimes achieved when firms receive both financial support and innovation oriented public procurement we argue that policy makers aiming to strengthen indigenous innovation capabilities should place stronger emphasis on ppi

understanding real business cycles he 1 960s were a time of great optimism for macroeconomists many economists viewed the business cycle as dead the keynesian model was the reigning paradigm and it provided all the necessary instructions for manipulating the levers of monetary and fiscal policy to control aggregate demand inflation occurred if aggregate demand was stimulated excessively and unemployment arose if demand was insufficient the only dilemma faced by policymakers was determining the most desirable location along this inflation unemployment tradeoff or phillips curve the remaining intellectual challenge was to establish coherent microeconomic foundations for the aggregate behavioral relations posited by the keynesian framework but this was broadly regarded as a detail that should not deter policymakers in their efforts to stabilize the economy the return of the business cycle in the 1970s after almost a decade of economic expansion and the accompanying high rates of inflation came as a rude awakening for many economists it became increasingly apparent that the basic keynesian framework was not the appropriate vehicle for understanding what happens during a business cycle nor did it seem capable of providing the empirically correct answers to questions involving changes in the economic environment or changes in monetary or fiscal policy the view that keynesian economics was an empirical success even if it lacked sound theoretical foundations could no longer be taken seriously the essential flaw in the keynesian interpretation of macroeconomic phenomenon was the absence of a consistent foundation based on the choice theoretic framework of microeconomics two important papers one by milton friedman 1968 and the other by robert lucas 1976 forcefully demonstrated examples of

the impact of r d subsidies during the crisis this study investigates the impact of r d subsidies on r d investment during the past financial crisis we conduct a treatment effects analysis and show that r d subsidies increased r d spending among subsidized small and medium sized firms in germany during the crisis years in the first crisis year the additionality effect induced by public support was however smaller than in other years this temporary decrease may be caused by an altered innovation subsidy scheme in crisis years or by a different innovation investment behavior of the subsidy recipients we do not find support for the countercyclical innovation subsidy scheme having caused the smaller additionality effect and conclude that it is likely to be driven by subsidy recipient behavior

the rise and fall of money manager capitalism a minskian approach we are in the midst of a global financial crisis accompanied by a deep and probably long lasting economic downturn indeed some analysts are already calling this the first depression of the post world war ii era in this article i argue that this is a systemic crisis a crisis of what hyman minsky called money manager capitalism i link this to the analyses of hilferding and veblen of an earlier period finance capitalism and argue that this is in effect the second failure of this type of capitalism the essential characteristics of early finance capitalism are relatively small government use of external finance for investment and growing concentration of economic power in the hands of trusts or what we might today call megacorporations with varied interests and diverse affiliations across industry finance and insurance unlike the first phase the second phase of finance capitalism took place in the context of a big government neoconservative model minsky s analysis helps us to understand how the new deal and big government created a paternalistic capitalism after world war ii which favoured high consumption high employment greater equality and financial stability however that stability was destabilising because it permitted the rise of managed money over time innovation and deregulation increased fragility which generated increasingly frequent and severe financial crises while previous crises were resolved quickly enough to prevent it another debt deflation from happening again this crisis appears to be sufficiently severe that the very survival of money manager capitalism is thrown into question the article examines the contributing factors to the current crisis including the real estate boom and bust the rise of risky financial instruments such as securitised debts and credit default swaps the commodities market bubble and the fiscal squeeze the article concludes with some suggestions concerning the possible outcome of the failure of this form of finance capitalism copyright the author 2009 published by oxford university press on behalf of the cambridge political economy society all rights reserved oxford university press

animal spirits through creative destruction we show how a schumpeterian process of creative destruction can induce rational herd behavior by entrepreneurs across diverse sectors as if fueled by animal spirits consequently a multisector economy in which productivity improvements are made by independent profit seeking entrepreneurs exhibits regular booms slowdowns and downturns as part of the long run growth process our cyclical equilibrium has higher average growth but lower welfare than the corresponding acyclical one we show how a negative relationship can emerge between volatility and growth across cycling economies and assess the extent to which our model matches several features of actual business cycles

openness and innovation home and export demand effects on manufacturing innovation panel data evidence for ireland and switzerland abstract recent studies in the tradition of schmookler have re emphasised the potential role of demand in stimulating innovation here we reconsider the role of home and export market demand in stimulating manufacturing innovation using comparable panel data for two small open economies ireland and switzerland our analysis is based on the estimation of reduced form innovation production functions using panel data estimators over the sample period 1994 2005 for a range of innovation indicators however we find little evidence of any significant market demand effects with innovation performance instead determined largely by firm level capability effects and characteristics in policy and strategy terms this suggests the continued value of measures to improve innovation capability regardless of market demand conditions in more methodological terms our results suggest the validity of the usual assumption implicit in modelling innovation outputs that supply side factors predominate