uncertainty investment and industry evolution we study the effects of aggregate and idiosyncratic uncertainty on the entry of firms total investment and prices in a competitive industry with irreversible investment we first use standard dynamic programming methods to determine firms entry decisions and we describe the resulting industry equilibrium and its characteristics emphasizing the effects of different sources of uncertainty we then show how the conditional distribution of prices can be used as an alternative means of determining and understanding the behavior of firms and the resulting industry equilibrium finally we use four digit u s manufacturing data to examine some implications of the model

testing for nonlinear dependence in daily foreign exchange rates the purpose of this article is to investigate whether daily changes in five major foreign exchange rates contain any nonlinearities although the data contain no linear correlation evidence indicates the presence of substantial nonlinearity in a multiplicative rather than additive form further examination reveals that a generalized autoregressive conditional heteroskedasticity model can explain a large part of the nonlinearities for all five exchange rates copyright 1989 by the university of chicago

a retrospective look at a behavioral theory of the firm abstract the papers in this special issue focus on ideas associated with a book published 45 years ago a behavioral theory of the firm cyert r m march j g 1963 a behavioral theory of the firm endlewood cliffs prentice hall nj the book proposed the introduction of a few more realistic behavioral assumptions into the economic theory of the firm the papers presented here examine some aspects of the history of the ideas found in the book extend and elaborate the ideas in the context of current research and indicate possible directions for future research in the behavioral tradition we will not attempt to summarize the papers but will try to locate them gently in their historical and intellectual context

news shock firm dynamics and business cycles evidence and theory abstract the literature of expectation driven business cycles has overlooked the role played by endogenous entry this paper documents empirically news shock as a major source of fluctuations in firm dynamics and comovement between firm entry and gdp using structural vector auto regressions we then develop a tractable dynamic stochastic general equilibrium model to study the propagation mechanism assuming fixed operating costs for incumbents and decreasing survival rates for entrants our quantitative prediction closely matches the positive comovement between firm entries and core macroeconomic indicators upon news shock these results remain robust at the sectoral level when the baseline model is extended to a two sector setup

the effect of immigration along the distribution of wages this paper analyses the effect immigration has on wages of native workers unlike most previous work we estimate wage effects along the distribution of wages we derive a flexible empirical strategy that does not rely on pre allocating immigrants to particular skill groups in our empirical analysis we demonstrate that immigrants downgrade considerably upon arrival as for the effects on native wages we find that immigration depresses wages below the 20th percentile of the wage distribution but leads to slight wage increases in the upper part of the wage distribution the overall wage effect of immigration is slightly positive the positive wage effects we find are although modest too large to be explained by an immigration surplus we suggest alternative explanations based on the idea that immigrants are paid less than the value of what they contribute to production generating therefore a surplus and we assess the magnitude of these effects

the role of investment specific technological change in the business cycle this is a quantitative investigation of the importance of technological change speci c to new investment goods for postwar us aggregate uctuations a growth model that incorporates this form of technological change is calibrated to us data and simulated using the relative price of new equipment to identify the process driving investmentspeci c technology shocks the analysis suggests that this form of technological change is the source of about 30 of output uctuations 2000 elsevier science b v all rights reserved

skill biased technological change and rising wage inequality some problems and puzzles the recent rise in wage inequality is usually attributed to skill biased technical change sbtc associated with new computer technologies we review the evidence for this hypothesis focusing on the implications of sbtc for overall wage inequality and for changes in wage differentials between groups a key problem for the sbtc hypothesis is that wage inequality stabilized in the 1990s despite continuing advances in computer technology sbtc also fails to explain the evolution of other dimensions of wage inequality including the gender and racial wage gaps and the age gradient in the return to education

entrepreneurs perceived chances for success abstract entrepreneurs involved in planning or starting firms must engage in a continuing process of appraising prospects for success these assessments presumably bear upon the preparations they make as well as at some later point whether they decide to make major changes or even to discontinue the business in this study data from 2994 entrepreneurs who had recently become business owners were analyzed to determine their perceived changes of success although previous evidence on business survival led to the hypothesis that the entrepreneurs would only be cautiously optimistic this was not the case they perceived their prospects as very favorable with 81 seeing odds of 7 out of 10 or better and a remarkable 33 seeing odds of success of 10 out of 10 in considering the prospects for other businesses like their own they perceived odds which were significantly lower but still moderately favorable based upon previous research on factors associated with new business success it was hypothesized that those who were more likely to succeed based upon their personal backgrounds and the nature of their new firms would be more optimistic however this was not the case those who were poorly prepared were just as optimistic as those who were well prepared at this point shortly after having become business owners the assessment by entrepreneurs of their own likelihood of success was dramatically detached from past macro statistics from perceived prospects for peer businesses and from characteristics typically associated with higher performing new firms the psychological literature on post decisional bolstering suggests that decision makers in many settings tend to bolster or exaggerate the attractiveness of an option after it has been chosen this coupled with the tendency of entrepreneurs to believe that they can control their own destinies implies that the extreme optimism observed here is probably a typical occurrence for entrepreneurs the findings suggest that it is probably natural to experience feelings of entrepreneurial euphoria when first becoming a business owner with the available evidence it is difficult to judge whether this leads to inadequate preparations or an inability to diagnose problems and make adjustments after the business is started this extreme optimism probably does contribute to the heavy personal commitments observed here in which the median entrepreneur devoted more than 60 hours per week to the business the entrepreneur would seem well advised to form relationships with outsiders such as board members and professional advisors who can be objective and detached in diagnosing problems and assessing objectively the prospects for the business in its current form

evolutionary theorizing in economics modern economic analysis oriented toward understanding the workings of economies that make extensive use of markets came into existence with three guiding questions all central in adam smith s 1776 1937 the wealth of nations one question concerned order without any central authority guiding and commanding action how is economic activity coordinated the second question was the challenge of explaining the prevailing constellation of prices inputs and outputs what explains the price of labor and the rent of land the third question addressed the processes of economic progress or development smith and other early economists clearly were impressed by the inventiveness the energy and the growing productivity generated by the evolving market economy how to understand its dynamics the first two questions have defined continuing central concerns of the discipline of economics since they first were posed over two centuries ago when not posed in the context of an economy that is understood as in the process of developing they seem to pull the focus of theorizing toward equilibrium conditions the third question concerned with the processes driving economic progress pulls the theorizing toward an evolutionary orientation the question of economic development has waxed and waned in centrality to the discipline as has the importance of evolutionary theorizing during the first several decades of the twentieth century evolutionary thinking and language was widespread in economics but as one contrasts the economic

intersectoral labor immobility sectoral comovement and news shocks sectoral comovement of output and hours worked is a prominent feature of business cycle data however most two sector neoclassical models fail to generate this sectoral comovement we construct and estimate a two sector neoclassical dynamic stochastic general equilibrium dgse model generating sectoral comovement in response to both anticipated and unanticipated shocks the key to our model s success is a significant degree of intersectoral labor immobility which we estimate using data on sectoral hours worked furthermore we demonstrate that imperfect intersectoral labor mobility provides a better explanation for the sectoral comovement than an alternative model emphasizing the role of labor supply wealth effects

fickle consumers durable goods and business cycles abstract this paper develops a three sector dynamic general equilibrium model with the specific aim of evaluating the role of consumer durables in the generation and propagation of business cycles the model displays indeterminacy at commonly considered realistic parameter restrictions and basically constant returns to scale if calibrated at modest increasing returns to scale the sunspots driven model version produces a close match to moments of aggregate u s data journal of economic literatureclassification numbers e00 e32

team theory garbage cans and real organizations some history and prospects of economic research on decision making in organizations this essay attempts to articulate and advance a long term agenda for organizational economics the essay begins with a general discussion of four specific items on this agenda and then moves to a more specific discussion of decision making in organizations beginning with two polar opposite conceptions team theory and garbage cans and then describing several recent economic models part of the rationale for writing this essay is that this agenda has both substantive and methodological commonalities with the work of james march copyright 2003 oxford university press

ideas and work of richard m cyert abstract richard m cyert s seminal contribution to economics is the development of behavioral theory of the firm this theory has become an important plank in the bridge from economics to management his other contributions include applications of bayesian theory to economics statistical sampling in accounting experimental economics and developing an economic theory of stragetic management

why are the wages of job changers so procyclical evidence on wage cyclicality shows job changers have more procyclical wages than job stayers previous work argued this arises because workers gain greater access to jobs in sectors such as manufacturing that offer high wages this article argues that workers who switch jobs in booms enter temporary jobs with unemployment risk and are merely compensated for subsequent losses i demonstrate that the two explanations can be distinguished using the relationship between unemployment insurance and wage cyclicality among job changers the evidence supports the compensation hypothesis that is that job changers might not experience real gains from higher paying jobs in booms

structural transformation and the deterioration of european labor market outcomes this paper examines hours worked in continental europe and the united states from 1956 to 2003 the empirical work establishes two results first hours worked in europe decline by almost 45 percent compared to the united states over this period second this decline is almost entirely accounted for by the fact that europe develops a much smaller market service sector than the united states a simple model of time allocation is used to understand these patterns i find that relative increases in taxes and technological catch up can account for most of the differences between the european and american time allocations over this period

housing dynamics over the business cycle housing construction measured by housing starts leads gdp in a number of countries measured as residential investment the lead is observed only in the united states and canada elsewhere residential investment is coincident variants of existing theory however predict housing construction lagging gdp in all countries in the sample nominal interest rates are low ahead of gdp peaks introducing long term nominal mortgages and an estimated process for nominal interest rates into a standard model aligns the theory with observations on starts as mortgages transmit nominal rates into real housing costs longer time to build makes residential investment cyclically coincident abstract from author

the fragility of sunspots and bubbles abstract expectational stability e stability is used to examine the multiplicity of solutions in a range of rational expectations models of interest including muth s inventory model and an overlapping generations model in these model it is found that sunspot and other rational bubble solutions are either e unstable or weakly but not strongly e stable

comparing dynamic multisector models we construct a multisector dsge model with input output linkages and a single type of physical capital that is costly to reallocate across sectors our model with intratemporal costs of allocating capital fits sectoral output data as well as existing models with sector specific capital both in terms of volatility and comovement with aggregate output as well as pairwise correlations between sectors the spectra of sectoral output produced by our model is similar to those from the other models the importance of sectoral shocks in our model is also similar to those from other models however our simplified model is much more amenable to extensions involving occasionally binding constraints than the competitor models that feature large state spaces

relative prices complementarities and comovement among components of aggregate expenditures abstract recent work suggests that the standard real business cycle framework has difficulty accounting for co movement among aggregate expenditure components when they are disaggregated even slightly to include business and household investment in addition relative prices of these goods have displayed substantial variation over the post war period this paper reports that incorporating a source of empirically plausible relative price variability makes the framework s implications for comovement even worse compounding the comovement problem the possibility that complementarities in the production of household and business capital may help account for observed co movement is considered the results suggest that complementarities improved the framework s empirical performance

did austerity cause brexit did austerity cause brexit this paper shows that the rise of popular support for the uk independence party ukip as the single most important correlate of the subsequent leave vote in the 2016 european union eu referendum along with broader measures of political dissatisfaction are strongly and causally associated with an individual s or an area s exposure to austerity since 2010 in addition to exploiting data from the population of all electoral contests in the uk since 2000 i leverage detailed individual level panel data allowing me to exploit within individual variation in exposure to specific welfare reforms as well as broader measures of political preferences the results suggest that the eu referendum could have resulted in a remain victory had it not been for a range of austerity induced welfare reforms further auxiliary results suggest that the welfare reforms activated existing underlying economic grievances that have broader origins than what the current literature on brexit suggests up until 2010 the uk s welfare state evened out growing income differences across the skill divide through transfer payments this pattern markedly stops from 2010 onwards as austerity started to bite

separating the effects of aggregate and sectoral shocks with estimates from a markov switching search model abstract a two sector stochastic model of labor market search is estimated in order to identify aggregate and sectoral shocks which impact upon the recruitment intensity decisions of firms separation of aggregate and sectoral recruitment effects is achieved through the use of data for two canadian regions which were affected in opposite directions by recent resource price shocks the results of the estimation process suggest that sectoral shocks can have significant quantitative effects on unemployment duration and the unemployment rate

functional equivalence between intertemporal and multisectoral investment adjustment costs abstract two types of adjustment cost specifications coexist in macroeconomic models with investment intertemporal adjustment costs which involve a nonlinear substitution between capital and investment in capital accumulation and multisectoral costs which are captured by a nonlinear transformation between consumption and investment this paper demonstrates a functional equivalence between these two specifications one surprising result is that an increase in multisectoral adjustment costs can be equivalent to a decrease in intertemporal adjustment costs depending upon the size of the intertemporal costs we then observe that the functional equivalence implies a problem in identifying the two types of adjustment costs and show ways to solve the problem

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

the investment funds system reconsidered this paper studies the effects of the swedish investment funds system if on the cost of capital it is shown that the incentive effects critically depend on which regime the firm is in when the funds are released by the government and which regime it expects to be in in the future for quite reasonable assumptions if releases turn on to have much less impact on the incentive to invest than conventionally assumed

monk mortgages in a new keynesian model abstract there has been much interest recently in the role of household long term mortgage debt in the transmission of monetary policy this paper offers a tractable framework that integrates the long term debt channel with the standard new keynesian channel providing a tool for monetary policy analysis that reflects the recent debates in the literature as there is a nontrivial role in the model for both short and long term debt it provides a laboratory to investigate the effects of monetary policy operating not only through its current short term actions but also through expected persistent changes in its stance

an equilibrium analysis of relative price changes and aggregate inflation abstract inflation is positively correlated with the variability of relative prices as measured by the standard deviation of the cross section distribution of prices and also with the third moment skewness of the cross section distribution of prices the conventional interpretation of these relationships is that they reflect sluggishness in the adjustment of individual prices in response to shocks in this paper we question this interpretation first we show that similar correlations among the moments exist in alternative measures of underlying technology shocks second when these shocks are fed into a general equilibrium model with multiple sectors and flexible prices the resulting prices also display a positive correlation between aggregate inflation and skewness of the cross section distribution

the role of intratemporal adjustment costs in a multisector economy abstract in this paper we construct a multisector business cycle model which is capable of reproducing the procyclical behavior of cross sector measures of capital employment and output we start by documenting the difficulty that a standard variant of a conventional real business cycle model has in accounting for these facts we then show how the introduction of intratemporal adjustment costs for investment can significantly enhance the performance of such a model these costs make it difficult to alter the composition of production of new capital goods the presence of these costs eliminates many counterfactual observations of the model that would otherwise be present the dynamic response of variables in the model is different from what one would observe in the standard one sector model we also examine the implications of imposing intratemporal adjustment costs for labor the model can also account for the cross sector behavior of employment observed in the data

sectoral shifts and cyclical unemployment a substantial fraction of cyclical unemployment is better characterized as fluctuations of the frictional or natural rate than as deviations from some relatively stable natural rate shifts of employment demand between sectors of the economy necessitate continuous labor reallocation since it takes time for workers to find new jobs some unemployment is unavoidable this paper presents evidence that most of the unemployment fluctuations of the seventies unlike those in the sixties were induced by unusual structural shifts within the u s economy simple time series models of layoffs and unemployment are constructed that include a measure of structural shifts within the labor market these models are estimated and a derived natural rate series is constructed

sectoral adjustment costs and real exchange rate dynamics in a two sector dependent economy abstract this paper develops a two sector model in which intersectoral capital movements involve adjustment costs expressed as capital lost in the transformation process these costs have important consequences for the dynamics of capital accumulation and particularly for real exchange rate dynamics persistent deviations of the real exchange rate from its equilibrium are derived and for plausible values of the adjustment cost parameters are consistent with the observed degree of real exchange rate persistence for low adjustment costs the dynamics are qualitatively similar to those of the standard heckscher ohlin technology for high adjustment costs the model converges to the specific factors model thus our framework includes these two standard models as polar extremes

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

mortgages and monetary policy mortgages are long term nominal loans under incomplete asset markets monetary policy is shown to affect housing investment and the economy through the cost of new mortgage borrowing and the value of payments on outstanding debt these channels distinct from traditional transmission of monetary policy are evaluated within a general equilibrium model persistent monetary policy shocks resembling the level factor in the nominal yield curve have larger effects than transitory shocks manifesting themselves as long short spread the transmission is stronger under adjustable than fixed rate mortgages higher persistent inflation benefits homeowners under frms but hurts them under arms

on money and output is money redundant abstract there is an emerging consensus that money can be largely ignored in making monetary policy decisions rudebusch and svensson 1999 policy rules and inflation targeting in taylor j b ed monetary policy rules university of chicago press chicago 203 246 2002 eurosystem monetary targeting lessons from us data european economic review 46 417 442 provide some empirical support for this view we reconsider the role of money and find that money is not redundant more specifically there is a significant statistical relationship between lagged values of money and the output gap even when lagged values of real interest rates and lagged values of the output gap are accounted for we also find that inside and outside money provide significant information in predicting movements in the output gap

a fuzzy design of the willingness to invest in sweden abstract this paper uses a non linear fuzzy logic procedure to empirically investigate the links between the real interest rate and aggregate investments in sweden from 1950 to 1990 the economic environment is characterized by multivalued logic and an indicator for the economy wide investment climate is derived strictly from the interest rate it turns out that the fuzzy logic approach may reveal some empirical regularities that are not recognized by conventional linear regressions

the cross industry effects of unanticipated money in an equilibrium business cycle model abstract this paper examines the differential real effects of monetary policy across industries the purpose is to test whether these differential effects can be accounted for by an incomplete information rational expectations model of the business cycle in the lucas barro tradition such a model implies a positive relation across markets between the variability of market specific shocks and the reduced form output effect of a monetary shock this proposition is tested using industry level post war u s data and support is found the exploration also uncovers other interesting industry level and aggregate results

unemployment rate dynamics and persistent unemployment under rational expectations this paper develops a model of unemployment rate dynamics that provides an explanation of persistent cyclical unemployment that does not involve persistent expectational errors or other nonoptimizing behavior our results are based on the interaction of search dynamics and inventory adjustments an important element in these dynamics appears to be heterogeneity in the labor force which can be characterized as consisting of a relatively small group of high turnover individuals who comprise the bulk of normal unemployment and a larger group of low turnover individuals who dominate movements in cyclical unemployment our empirical results provide support for this theory as we demonstrate that the appropriately measured probability of becoming employed during a recovery falls relative to normal because of the unusually high proportion of low turnover individuals who have lost permanent jobs as aresult recovery is much slower than is indicated by normal relationships although each individual is searching optimally this abstract was borrowed from another version of this item

when can changes in expectations cause business cycle fluctuations in neo classical settings abstract it is often argued that changes in expectation are an important driving force of the business cycle however it is well known that changes in expectations cannot generate positive co movement between consumption investment and employment in the most standard neo classical business cycle models this gives rise to the question of whether changes in expectation can cause business cycle fluctuations in any neo classical setting or whether such a phenomenon is inherently related to market imperfections this paper offers a systematic exploration of this issue our finding is that expectation driven business cycle fluctuations can arise in neo classical models when one allows for a sufficiently rich description of the production technology however such a structure is rarely allowed or explored in macro models in particular we identify a multi sector setting and a setting with a costly distribution system in which expectation driven business cycles can arise

timid choices and bold forecasts decision makers have a strong tendency to consider problems as unique they isolate the current choice from future opportunities and neglect the statistics of the past in evaluating current plans

central bank communication and monetary policy a survey of theory and evidence over the last two decades communication has become an increasingly important aspect of monetary policy these real world developments have spawned a huge new scholarly literature on central bank communication mostly empirical and almost all of it written in this decade we survey this ever growing literature the evidence suggests that communication can be an important and powerful part of the central bank s toolkit since it has the ability to move financial markets to enhance the predictability of monetary policy decisions and potentially to help achieve central banks macroeconomic objectives however the large variation in communication strategies across central banks suggests that a consensus has yet to emerge on what constitutes an optimal communication strategy

mapping india s regional subcultures implications for international management as india continues to emerge as a global economic player scholars and practitioners increasingly need to understand the cultural heterogeneity within this large and populous nation based on lenartowicz and roth s framework of culture assessment we have identified nine distinct subcultural regions of india and used explanations grounded in functional and neo institutional theories to account for the origin and maintenance of cultural distinctiveness of these regions further we developed seven cultural value dimensions for the indian society and used these to hypothesize and empirically test the existence of cultural differences within india results supported our hypothesized arguments this study advances our knowledge of how global functional and institutional forces have combined with national forces to shape india s overall culture and how more local forces have shaped its regions methodologically it identifies and develops measures that specifically reflect the values of individuals living in india and uses these to assess intra national cultural differences within this nation further it suggests how use of multiple methods can enable us to understand the simultaneous presence of somewhat contradictory values within a society the study also provides applications of the proposed cultural value dimensions and advises implications of regional subcultures for various social and organizational phenomena

how did the increase in economic inequality between 1970 and 1990 affect children s educational attainment 1 this study estimates the effect of changes in economic inequality between 1970 and 1990 on children s educational attainment data on individual children from the panel study of income dynamics is combined with other data on state characteristics growing up in a state with widespread economic inequality increases educational attainment for high income children and lowers it for low income children most of the effect is due to factors unassociated with family income or economic segregation in the state these other factors include state spending for schooling and the increase in the returns to schooling over this period

the analytics of technology news shocks abstract this paper constructs several models in which unlike the standard neoclassical growth model positive news about future technology generates an increase in current consumption hours and investment these models are said to exhibit procyclical news shocks we find that all models that exhibit procyclical news shocks in our paper have two commonalities there are mechanisms to ensure that i consumption does not crowd out investment or vice versa ii the benefit of forgoing leisure in response to news shocks outweighs the cost among the models we consider we believe one model holds the greatest potential for explaining procyclical news shocks its critical assumption is that news of the future technology also illuminates the nature of this technology this illumination in turn permits economic actors to invest in capital that is forward compatible i e adapted to the new technology on the technical side our paper reintroduces the laplace transform as a tool for studying dynamic economies analytically using laplace transforms we are able to study and prove results about the full dynamics of the model in response to news shocks

the aggregate effects of sectoral reallocations abstract can a one time permanent change in the fundamentals behind the sectoral composition of the economy prompt an aggregate downturn can this downturn be non negligible even if one uses us data to determine the relative size of gross vs net job flows and the importance of job creation costs can one consider the military build down of the 1990s as a plausible cause for the 1990 1991 recession do sectoral reallocations generate responses that are qualitatively similar to productivity shocks we use a variant of the mortensen pissarides 1994 review of economic studies 61 397 415 job creation destruction model calibrate it to us labor market data and run experiments that suggest one can answer yes to all these questions

interactivity and soft computing in portfolio management should farmers own food and agribusiness stocks this article proposes a fully integrated and interactive elicitation optimization procedure for portfolio management a soft computing approach based on fuzzy logic is developed as an alternative to the traditional mean variance model and compromise programming approach the models are applied to farmers to examine whether they should buy publicly traded food and agribusiness firms stocks rather than invest in a broader market stock portfolio results suggest that investments in publicly traded food and agribusiness stocks allow farmers to capture additional benefits beyond those of simply diversifying in the broader market copyright 2002 oxford university press

keynesian impulses versus solow residuals identifying sources of business cycle fluctuations we employ a neoclassical business cycle model that builds on the greenwood hercowitz and huffman 1988 variable utilization framework to study two sources of business cycl e fluctuations marginal efficiency of investment shocks and total factor productivity shocks the parameters of the model are estimated using a bayesian procedure that accommodates prior uncertainty about their magnitudes from these estimates posterior distributions of the two shocks are obtained the postwar u s experience suggests that both shocks are important in understanding fluctuations but that total factor productivity shocks are primarily responsible for beginning and ending recessions

competitive behavior and nonfinancial objectives entry exit and pricing decisions in closely held firms because of the predominance of the assumption of profit maximization as the goal of the firm and its decision makers especially in the competitive strategy literature research has yet to investigate how differences in objectives might influence competitive actions such as entry exit and pricing decisions this represents an important gap in the literature given the fundamental role of objectives in decision making and widespread evidence that many firms especially those that are closely held are motivated by nonfinancial objectives in addition to an interest in financial returns to further our understanding of firms competitive strategy decisions we discuss how the presence of nonfinancial objectives in closely held firms leads to a weakening of the relationship between economic indications of profitability and competitive behaviors using a unique data set of nearly 4 000 closely held and non closely held establishments engaged in local competition in the texas hotel industry we find that the e

housing dynamics over the business cycle housing dynamics over the business cycle over the u s business cycle fluctuations in residential investment are well known to systematically lead gdp these dynamics are documented here to be specific to the u s and canada in other developed economies residential investment is broadly coincident with gdp nonresidential investment has the opposite dynamics being coincident with or lagging gdp these observations are in sharp contrast with the properties of nearly all business cycle models with disaggregated investment including mortgages and interest rate dynamics aligns the theory more closely with u s observations longer time to build in housing construction makes residential investment coincident with output

using business simulation games in regulatory impact analysis the case of policies aimed at reducing nitrogen leaching in the past regulatory impact analysis was predominantly based on the rational choice assumption of a completely informed and exclusively profit maximizing homo oeconomicus real economic actors however are multiple goal and boundedly rational decision makers an exclusive reliance on rational choice models therefore generates the risk that both the pace and the type of behavioural adaptations to changing institutional environments are misjudged against this background this article addresses three questions first can we use business simulation games as a convincing but low cost experimental tool for policy analysis second how do intentionally varied nitrogen extensification schemes impact the behaviour of students who participate in an explorative business simulation study third do nitrogen reduction policies that are framed as voluntary as opposed to prescriptive schemes have a different impact on behaviour even if they lead to the same profits respectively in our business simulation game th

does money matter abstract the desire to attain personal wealth has long been regarded as the foremost motive for entrepreneurship other goals and values however may also contribute to entrepreneurial motivation thus the extent to which money matters relative to other motives is an empirical question in this study we examine the role of wealth as the motive for the decision to found new ventures three focal questions guide our research 1 does money matter more relative to other decision dimensions in deciding to start a new high technology venture 2 does money matter more to entrepreneurs compared to non entrepreneurs and 3 does money matter in absolute terms that is does a decision model that focuses solely on the motive of wealth attainment parsimoniously predict entrepreneurs start up decisions we conducted in depth interviews with 51 entrepreneurs and a control group of 28 senior managers who decided not to start ventures non entrepreneurs in the high technology industry in british columbia to address our research questions the motives we examined are wealth attainment and an aggregate of other dimensions identified by entrepreneurs and managers we considered three components of values participants ratings of the importance of various decision dimensions their rating of the salience of these dimensions and their satisfaction with prior levels of attainment on those decision dimensions we assessed beliefs as participants perceived probability of attaining their desired level of a particular decision dimension in each of three alternatives the position held at the time the venture decision was made the venture itself and the next best career alternative at that time the data were analyzed to compare entrepreneurs values and beliefs regarding wealth with an aggregate of other decision dimensions our relative hypotheses and with those of non entrepreneurs our comparative hypotheses our findings do not support the common perception that money is the only or even the most important motive for entrepreneurs decisions to start new ventures wealth attainment was significantly less important to entrepreneurs relative to an aggregate of 10 other decision dimensions and entrepreneurs did not rate wealth as any more important than did non entrepreneurs non entrepreneurs rated wealth as no more important than other motives wealth attainment was also significantly less salient to entrepreneurs decisions to venture than were other motives non entrepreneurs reported that wealth was significantly more salient to their decision against founding a venture than other dimensions in fact non entrepreneurs rated wealth attainment as significantly more salient to their decision against founding than entrepreneurs rated it for their decision to proceed with starting a high technology business a significant number of entrepreneurs started businesses even when they believed that doing so offered them a lower probability of obtaining their most desired level of wealth than did one of their other alternatives satisfaction ratings and stated beliefs also dispute classical predictions just prior to making the decision to venture the entrepreneurs in our study were as satisfied with wealth as they were with other decision dimensions the non entrepreneurs were actually more satisfied with wealth attainment than with other dimensions a comparison of the groups revealed no difference in satisfaction with wealth attainment levels entrepreneurs did believe that their chances of attaining their desired level of wealth were much greater through founding a new high technology venture than through their other alternatives this difference in beliefs however was not significantly greater than their optimistic beliefs about chances of attaining desired levels of other dimensions it was significantly higher compared to the non entrepreneurs belief difference measures for wealth in fact the entrepreneurs stated beliefs regarding the chances of attaining their desired levels of all dimensions were higher than those of the non entrepreneurs suggesting that entrepreneurs were simply more optimistic at the time of their decision than non entrepreneurs salience findings suggest that these optimistic beliefs about wealth did not motivate the founding decision alone we can distinguish those people who successfully started ventures by their regard for wealth as a less salient factor and their beliefs in higher chances of a venture producing monetary and other returns other motives such as innovation vision independence and challenge were more important and much more salient to this sample of entrepreneurs our findings have implications for practice teaching and research venture capitalists who partially base their assessment of entrepreneurs on the extent to which they are motivated to make a great deal of money may benefit from reconsideration of this criterion we have evidence of one group of high technology entrepreneurs who achieved success without placing much decision weight on attainment of personal wealth nascent entrepreneurs and those who teach entrepreneurship can use this empirical finding to argue two main points 1 not all entrepreneurs found a business for personal wealth reasons and 2 one need not be motivated by personal wealth attainment to be a successful entrepreneur similarly theoretical models that assume money is the primary motive for entrepreneurial activity require re examination future research in entrepreneurship should focus less on wealth attainment and more on other motives for the venturing decision a multiple attribute decision model may be able to more fully explain venturing decisions

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

liquidity preference in a portfolio framework and the monetary theory of kahn this paper examines the relation between variations in the propensity towards liquidity preference price adjustment and shifts in portfolio allocation by expanding kahn s idea of marginal equilibrium under strong uncertainty in financial markets and contributes to recent post keynesian attempts to develop a liquidity preference theory of asset prices by providing an analysis of the price adjustment mechanism the notion of the own rate of money interest is utilised to develop a multi asset liquidity preference framework which is consistent with uneven variations of liquidity premia across assets in response to changes in the degree of strong uncertainty that is specific to different investors with variable allocation of assets in their portfolios more specifically in the context of this portfolio framework it is established that an increase in the state of strong uncertainty state of bearishness makes less liquid assets further less inconvenient than more liquid assets in periods characterised by greater strong uncertainty equilibrium is restored through a greater demand for more liquid assets including money relative to the demand for less liquid assets and therefore through a higher own rate of money interest for less liquid assets than warranted which shows the ineffectiveness of standard monetary policy

waiting to invest investment and uncertainty the textbook analysis that accepts all projections with positive net present values as positive is quite generally wrong the ability to delay a project means that almost every project competes with itself postponed with uncertain interest rates even the simplest of projects has an option value the effect of interest rate uncertainty on the optimal delay of investment is sizable this implies that the rate of aggregate investment will depend on both the level of the real interest rate and the degree of interest rate uncertainty furthermore it is not necessarily true that investment rises with a fall in interest rates copyright 1992 by university of chicago press

cyclical fluctuations and sectoral reallocation evidence from the psid abstract this paper documents the correlation between permanent sectoral reallocation and the business cycle using data from the michigan panel study of income dynamics we find that the outflow of workers from goods to services accelerates during recessions the flow from services to stable employment in surables accelerates during booms we also document the contribution of sectoral reallocation to total unemployment permanent switchers account for about a quarter of the total weeks of unemployment during booms this proportion rises to nearly 40 duing recessions

news and financial intermediation in aggregate fluctuations an important disconnect in the news view of fluctuations is the lack of consistent evidence suggestive of significant macroeconomic effects of news shocks findings from estimated dsge models that in theory allow news shocks to matter quantitatively suggest that they do not this disconnect can be resolved once we augment a dsge model with a financial channel that provides amplification to news shocks our results suggest that news shocks to the future growth prospects of the economy are significant drivers of u s fluctuations explaining as much as 50 and 37 of the variance in hours worked and output respectively in cyclical frequencies

transaction cost economics and the carnegie connection abstract this paper tracks my remarks at the september 1993 conference honoring richard m cyert it begins with some recollections of my years as a graduate student at gsia in the early 1960s i then shift to transaction cost economics and how this project relates to what i learned from dick cyert and others at carnegie

seniority sectoral decline and employee retention an analysis of layoff unemployment spells we investigate the effect of tenure on employee retention under varying labor market conditions using a competing risks analysis of recall and new job acceptance applied to layoff unemployment spell data from waves 15 and 16 1982 83 of the panel study of income dynamics we find that adverse conditions sectoral employment decline significantly reduce the positive tenure effect on recall probabilities this result is consistent with firm default on delayed payment contracts and does not appear to reflect the effect of technological change on the value of firm specific investments

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

understanding investment irreversibility in general equilibrium miquel faig i introduction many forms of investment are irreversible a growing body of literature 1 has shown that irreversibility is important for firms investment decisions under uncertainty however we still know little about the consequences of investment irreversibility for the economy as a whole that is in general equilibrium learning about these consequences is not only important for a better understanding of capital accumulation it is also important for an understanding of the information that asset returns provide about the business cycle in fact recent papers by boldrin christiano and fisher 1995 beaudry and guay 1996 and jermann 1998 convincingly argue that impediments to the reallocation of capital are crucial to generate realistic dynamics for asset returns thus understanding the general equilibrium consequences of investment irreversibility is important to the theories of economic growth the business cycle and asset pricing in this article i advance an analytically tractable model to explore the consequences of investment irreversibility in general equilibrium the main contribution of this model to the existing literature is analytical tractability analytical results from the literature dealing with investment irreversibility in general equilibrium are scarce and mainly limited to general properties such as existence of solutions as in sargent 1980 and olson 1989 fortunately thanks to numerical simulations we know some of the effects of investment irreversibility in general equilibrium for example using an extension to the neoclassical growth model coleman 1997 documents that irreversibility significantly affects interest rates and it may increase aggregate investment even when no constraints are binding 2 in contrast firms behavioral analyses and the related competitive equilibrium model by leahy 1993 show that irreversibility typically discourages capital creation the model advanced in this paper helps to understand and to formalize why such contrast exists the model of this article extends the endogenous growth model found in barro 1990 the four main assumptions of the model are the following all production processes yield the same output which can be consumed or invested in many types of capital all factors of production are a type of capital the aggregate production function yields constant returns to scale preferences are homothetic and modeled along the lines of epstein and zin 1989 these preferences include as a special case the standard isoelastic time additive preferences but they allow to distinguish between the inter temporal elasticity of substitution and the inverse of the coefficient of relative risk aversion these two parameters play important and distinct roles in the analysis to attain strong analytical results the model in this article has to adopt the restrictive assumption that all factors of production are a form of capital however the model remains quite flexible to capture important elements of reality the model allows for many types of capital so some of them can be interpreted as human capital also the model allows great flexibility on the stochastic shocks affecting the production possibilities of the economy finally the model allows for the coexistence of irreversible and flexible types of capital with or without complementarities between them this diversity of capital types is important to generate endogenous interest rates and endogenous marginal products of capital also capital diversity allows for strongly binding irreversibility constraints even with positive gross investment as it has always been the model reveals that in general equilibrium there are three effects of irreversibility on aggregate investment the first is the obvious direct effect of preventing capital destruction in periods one may wish to consume part of the capital stock

animal spirits technology shocks and the business cycle the last few years have witnessed a revival of business cycle models in which beliefs of agents have played a leading role in explaining economic fluctuations 1 most of these models involve strong economy wide increasing returns to scale in order for sunspot equilibria to exist in a recent paper however basu and fernald 1996 present evidence that returns to scale are far from evenly distributed across the u s economy in particular they report that scale economies are present mainly in the domain of durable goods production in the nondurable goods sector of the u s economy evidence of increasing returns to scale cannot be found

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

aggregate fluctuations and the industry structure of the us economy abstract in a two sector economy changes in intermediate input trade as reflected in cost share fluctuations are key to determining the amplification properties of investment specific and neutral shocks i document that the cost shares of intermediate inputs produced by the investment sector correlate positively with gdp whereas those of inputs produced by the consumption sector correlate negatively with gdp the two sector model of greenwood et al 1988 is extended to allow for trade of intermediate goods and to show that the documented correlations discipline heterogeneous elasticities of substitution in intermediate inputs across sectors shock amplification that is the effect of a sectorial shock on aggregate value added depends on the degree of heterogeneity in these elasticities of substitution for a calibrated economy to that of the united states i find that shock amplification is stronger than in a unitary elasticity economy it is also stronger than in an economy with a common non unitary elasticity that is either inferred from data via reduced form estimates or calibrated to match the same targets as our benchmark economy

preference shifts between consumption goods and sectoral changes abstract this paper analyzes under which conditions a shift in the relative preferences between consumption goods may induce a change in the equilibrium values of the sectoral variables in the same direction compared with the previous static equilibrium

borrow and adjust fiscal policy and sectoral adjustment in an open economy should the government run fiscal deficits in response to an adverse external shock that warrants transfer of resources from production of nontraded to traded goodsq this article considers normative fiscal policy implications of sectoral adjustment costs in a two sector model with overlapping generations fiscal deficits benefit present generations by depleting foreign assets and slowing down the adjustment process we show that despite no nominal rigidities temporary fiscal deficits increase social welfare if adjustment costs prevent immediate sectoral reallocation of inputs if there are no adjustment costs the case for fiscal deficits vanishes copyright 2003 by the economics department of the university of pennsylvania and osaka university institute of social and economic research association

on the stability of the two sector neoclassical growth model with externalities we study a class of two sector growth models with sector specific externalities in which one sector produces consumption and the other sector produces investment the novelty is that investment allocated to the consumption sector is an imperfect substitute for investment allocated to the investment sector we show analytically that in this case local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters more specifically we show that a necessary condition for local indeterminacy is an upward sloping aggregate labor demand curve in the investment sector which requires a counterfactual strength of the externality we show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state these findings differ sharply from the standard result for two sector models that if the investments allocated to the two sectors are perfect substitutes then local indeterminacy occurs for a wide range of plausible parameter values