profit maximising goes global the race to the bottom we explore four decades of cyclical and long run dynamics in income distribution and economic activity for a panel of 13 oecd countries as measured by the wage share and output gap when modeled as predator prey dynamics economic activity in oecd countries is weakly profit led convergence to a long run equilibrium is relatively slow delaying the profit squeeze stage for many years our race to the bottom model suggests that the oecd countries have been engaged in undercutting each other s real unit labour costs an extension of the model shows that the long run equilibrium has been shifting south west towards a lower wage share it may even be that this race has the undesirable consequence of decreasing economic activity

is minsky s financial instability hypothesis valid in this article i reassess the validity of minsky s financial instability hypothesis and the main criticism about its internal coherence starting from this fundamental objection i study minsky s contribution within the scope of a highly simplified macro model it is shown that the financial instability hypothesis increasing debt ratios during economic expansion remains valid in numerous cases it appears amongst other things that a sufficient fall in the retention rate reinforces minsky s conclusions emphasising the destabilising role of shareholders in the distribution of net profits

limit cycles in intertemporal adjustment models theory and applications this paper starts from well behaved i e concave one state variable optimal control models the crucial feature is that indigenous growth is present the replacement of the control by an adjustment process and presumably penalizing these adjustments may convert stable and only stable fixed point equilibria into limit cycles indeed given positive growth and proper externalities such that discounting exceeds growth one can generate stable limit cycles with ease e g for a separable framework examples from such diverse fields as renewable resources optimal saving and public choice highlight the economic applicability

local context academic entrepreneurship and open science publication secrecy and commercial activity among japanese and us scientists abstract like the us before it japan has adopted a series of policy initiatives designed to encourage the commercialization of academic science however such initiatives may also adversely affect open science based on matched surveys of almost 1000 researchers in japan and over 800 in the us the paper examines rates of commercial activity reasons to patent and secrecy related to research results in particular it examines the extent to which participation in commercial activity is associated with publication secrecy the results show that patenting rates are higher in japan while industry funding is more common in the us in addition the overall level of publication secrecy is greater in japan and in both countries individuals who are commercially active are less likely to share their research results through publication but patents are less directly linked to commercial activity in japan than in the us and have less impact on academic secrecy the results suggest that academic entrepreneurship is associated with reduced participation in open science but that the extent of adverse effects depends significantly on institutional context

evaluating interval forecasts a complete theory for evaluating interval forecasts has not been worked out to date most of the literature implicitly assumes homoskedastic errors even when this is clearly violated and proceed by merely testing for correct unconditional coverage consequently i set out to build a consistent framework for conditional interval forecast evaluation which is crucial when higher order moment dynamics are present the new methodology is demonstrated in an application to the exchange rate forecasting procedures advocated in risk management

a minsky crisis a model is developed to illustrate hyman minsky s financial crisis theories a key assumption is that the level of wealth in the economy is determined mac roeconomically with the value of firms assets responding to the state of confidence as reflected by discounted quasi rents on capital the second assumption is that there is high substitutability between liabilities of firms and money in the public s portfolio a downward shift in anticipated profits leads wealth to contract and the public to shift portfolio preferences toward money interest rates rise leading to further dampening of expected profits and a debt deflation crisis can occur

a patent system for both diffusion and exclusion public policy analysis of optimal patent regimes is often framed as a tradeoff between static and dynamic efficiency in this analytical framework weak patent protection and strict antitrust policy are taken to be directed toward static concerns while protection of intellectual property through strong patent laws is taken as a reflection of broader social concerns for long run growth and technological progress this characterization has some truth but the magnitude of the conflict between static and dynamic efficiency can easily be exaggerated in this article i want to argue that weak patent protection need not be inimical to economic growth and conversely that strong patent protection need not be an enemy of diffusion appropriately structured patent law and antitrust rules can together ensure incentives for r d and also induce cooperation among firms in diffusing r d results through licensing and other means at the same time cooperation among firms at the r d stage can counterbalance weak patent protection by internalizing spillovers from ongoing r d programs and such cooperation may also produce additional spillovers from the existing knowledge

progressive supply side economics an explanation and update of the rehn meidner model the swedish rehn meidner model is a unique economic and wage policy program for the simultaneous achievement of full employment price stability growth and equality this article presents specif

the effects of interbank networks on efficiency and stability in a macroeconomic agent based model we develop a macroeconomic agent based model that consists of firms banks unions and households who interact on labour goods credit and interbank markets the model endogenises pricing decisions by firms wage setting by unions and interest rate setting by banks on both firm and interbank lending banks also set leverage targets and precautionary liquidity buffers on the basis of internal risk models our model produces endogenous fluctuations driven by the pricing behaviour of firms and the wage setting behaviour of unions fluctuations lead to loan defaults which are exacerbated as lenders reduce lending and charge higher interest rates inducing a credit crunch we also study how making the inter banking network more connected affects the key outcomes of the economy and find that while the flow of funds from surplus banks to firms can be increased the latter effect is soon dominated by increasing instability in the real sector as firms default at higher rates while the banking sector experiences fewer defaults as a whole losses on the interbank market increase as a source of bank defaults

the financial instability hypothesis a stochastic microfoundation framework this paper examines the dynamics of financial distress and in particular the mechanism of transmission of shocks from the financial sector to the real economy the analysis is performed by representing the linkages between microeconomic financial variables and the aggregate performance of the economy by means of a microfounded model with firms that have heterogeneous capital structures the model is solved both numerically and analytically by means of a stochastic approximation that is able to replicate quite well the numerical solution these methodologies by overcoming the restrictions imposed by the traditional microfounded approach enable us to provide some insights into the stabilization policies which may be effective in a financially fragile system

basel s value at risk capital requirement regulation an efficiency analysis abstract we analyze the optimal portfolio policies of expected utility maximizing agents under var capital requirement var cr regulation in comparison to the optimal policy under exogenously imposed var limit var l and limited expected loss lel regulations with var cr regulation the agent strategy consists of simultaneous decisions on both the portfolio var and on the implied amount of required eligible capital as a result the performance of var cr regulation depends on its design the parameter n and the agent preferences we show that an optimal var cr regulation allows the regulator on the one hand to completely eliminate the exposure to the largest losses which may jeopardize the existence of the institution and on the other hand to restrain the portfolio exposure to all other losses these results rationalize the current basel regulations however the analysis shows also that there is an optimal level of required eligible capital from the regulator standpoint counter intuitively any requirement above this optimal level is inefficient as it leads to a smaller amount of actually maintained eligible capital and thereby to a larger exposure to the most adverse states of the world unfortunately the current basel s range of required levels n 3 4 is within this inefficient range moreover with an inefficient regulation the agent might employ an inefficient reporting and disclosure procedure

a monetary minsky model of the great moderation and the great recession abstract steve keen s model of minsky s financial instability hypothesis keen 1995 displayed qualitative characteristics that matched the real macroeconomic and income distributional outcomes of the preceding and subsequent fifteen years a period of economic volatility followed by a period of moderation leading to a rise of instability once more and a serious economic crisis this paper extends that model to build a strictly monetary macroeconomic model which can generate the monetary as well as the real phenomena manifested by both the great recession and the great moderation

private equity and regulatory capital regulatory capital requirements for european banks have been put forward in the basel ii capital framework and subsequently in the capital requirements directive crd of the eu we provide a detailed discussion of the capital requirements for private equity investments under different approaches for the internal model approach we present a structural model that we calibrate to a proprietary dataset we modify the standard merton structural model to make it applicable in practice and to capture stylized facts of private equity investments we also implement the early default feature with a fast simulation algorithm our results support capital requirements lower than in basel ii but not as low as in crd thereby giving adverse incentives to banks for using advanced risk models a sensitivity analysis shows that this finding is robust to parameter uncertainty and stress scenarios

unemployment income distribution and debt financed investment in a growth cycle model abstract as recent experience suggests the most significant economic fluctuations are those that combine real and financial factors this paper works out a simple model that couples a version of goodwin s 1967 growth cycle model of real fluctuations with insights drawn from a model of financial fluctuations based on minsky s financial instability hypothesis vercelli 2000 sordi and vercelli 2006 sordi and vercelli 2012 the model suggested substantially modifies that of keen 1995 who combined insights from goodwin and minsky within a model of fluctuating growth in the real part of the model we introduce the possibility of disequilibrium in the goods market and formalize a mechanism of output adjustment based on the conventional dynamic multiplier the model so obtained may exhibit persistent dynamics and provide insights to enable better understanding of the nature of real world fluctuations

a macroeconomic model with a financial sector this paper studies a macroeconomic model in which financial experts borrow from less productive agents we pursue four sets of results i the economy is prone to instability and occasionally enters volatile episodes as volatility spikes agents precautionary motive increases depressing prices even further log linear approximations fail to capture these non linear effects that can cause economies to be significantly depressed for long periods of time ii endogenous risk during volatile episodes increases asset price correlations iii financial experts impose a negative externality on each other and on the labor sector by not maintaining adequate capital cushion and funding structure iv while risk sharing within the financial sector through securitization and derivatives contracts reduces many inefficiencies it can also amlify systemic risks

stock market booms endogenous credit creation and the implications of broad and narrow banking for macroeconomic stability abstract in this paper we study the implications of the present broad banking system for macroeconomic stability we show that when commercial banks are allowed to trade in financial assets here equities as a substitute for traditional lending the macroeconomic system is likely to be an unstable one we then consider a narrow banking system defined by a fisherian 100 percent reserve ratio for checkable deposits and the ban for commercial banks from trading in stocks and other financial assets within the stylized theoretical framework set up here we show that in the second system macroeconomic stability is guaranteed by some weak assumptions on the behavior of economic agents moreover while a sufficient loan supply can be guaranteed in such a framework the rationale for bank runs can be eliminated in contrast to what is likely to happen under traditional broad banking though narrow banking is an extreme banking system unlikely to be adopted in the short run its features highlight the stability and efficiency properties that the separation between commercial and investment banking bring about

growth and income distribution with the dynamics of power in labour and goods markets the interaction between economic growth and income distribution is examined using kaleckian post keynesian models in which there are lags in investment and in which the dynamics of income distribution between wages and profits depends on changes in power relations in both the labour market and goods market by examining these two influences on distributional dynamics simultaneously the relative strength of which can change over the growth process it is shown that the growth distributional dynamics can involve non linearities multiple equilibria and instability the implications of policy induced changes including those in macroeconomic policy and labour market and antitrust policies on aggregate demand and distribution are examined for both wage led and profit led growth regimes copyright oxford university press

a clarification of the goodwin model of the growth cycle abstract we show that there is a difficulty in the original goodwin model which is also found in some more recent applications in it both the labour share and the proportion employed can exceed unity properties which are untenable however we show that the underlying dynamic structure of the model can be reformulated to ensure that these variables cannot exceed unity an illustrative example extends the original model and we argue it is both plausible and satisfies the necessary unit box restrictions

cash flow investment and keynes minsky cycles this paper analyzes a dynamic model with 1 an investment function that emphasizes cash flow 2 a keynesian macroeconomic framework that determines cash flow endogenously 3 a dynamic labor market model that drives wage and price adjustments and 4 boundedly rational expectations simulations from the calibrated model generate endogenous cycles with characteristics described in hyman minsky s research the cycle arises from the link between investment interest rates debt service and cash flow the amplitude and frequency of the cycle are related to the importance of cash flow for investment the dynamics of inflation and the distribution of income

debt cycles instability and fiscal rules a godley minsky synthesis wynne godley and hyman minsky were two macroeconomists who saw the crisis coming this paper develops a simple macrodynamic model that synthesises some key perspectives of their analytical frameworks the model incorporates godley s financial balances approach and postulates that private sector s propensity to spend is driven by a stock flow norm the target net private debt to income ratio that changes endogenously via a minsky mechanism it also includes two fiscal rules a maastricht type fiscal rule according to which the fiscal authorities adjust the government expenditures based on a target net government debt ratio and a godley minsky fiscal rule which links government expenditures with private indebtedness following a counter cyclical logic the analysis shows that i the interaction between the propensity to spend and net private indebtedness can generate cycles and instability ii instability is more likely when the propensity to spend responds strongly to deviations from the stock flow norm and when the expectations that determine the stock flow norm are highly sensitive to the economic cycle iii the maastricht type fiscal rule is destabilising while the godley minsky fiscal rule is stabilising iv the paradox of debt can apply both to the private sector and the government sector

semi autonomous household expenditures as the causa causans of postwar us business cycles the stability and instability of luxemburg type external markets similar patterns can be observed in post wwii us business cycles the initial upswings tend to be led by household investment and debt financed personal consumption expenditures which then wane in relative importance and lead downswings as those expenditures are financed in significant part by money creation they function as an external market driving accumulation by enabling monetary profit realisation in a way analogous to rosa luxemburg s treatment of the public and foreign sectors empirical studies on wage led profit led demand regimes typically exclude household investment or include it in with business investment this paper argues that it is vital to distinguish an independent role for semi autonomous household expenditures as a driver of effective demand and cyclical dynamics the failure to do so in empirical studies sustains misleading conclusions such as the perceived relevance of goodwin type profit squeeze cycles

policy watch the repeal of glass steagall and the advent of broad banking enactment of the gramm leach bliley act glba in november 1999 effectively repealed the long standing prohibitions on the mixing of banking with securities or insurance businesses and thus permits broad banking we attribute repeal of these prohibitions to the increasingly persuasive evidence from academic studies of the pre glass steagall era the recent favorable experience in the united states following partial deregulation of banking activities the experience of banking systems abroad with broader scopes for banking activities and rapid technological change in telecommunications and data processing how regulators will in practice coordinate their efforts so that the safety and soundness of the banking system is maintained efficiently remains to be seen

testing goodwin growth cycles in ten oecd countries following desai 1984 goodwin s simple predator prey growth cycle model of the economy 1967 is tested using post war data for ten oecd countries australia canada finland france germany greece italy norway the uk and the us at a quantitative level goodwin s model is found not to be adequate i estimated parameter values poorly predict the cycles centres and ii goodwin s restrictive assumptions are not justified however at a qualitative level the evidence presented here for the existence of goodwin type cycles is extremely encouraging justifying both existing theoretical extensions of goodwin s model and further empirical work in this area copyright 2000 by oxford university press

model risk and capital reserves abstract we propose a procedure to take model risk into account in the computation of capital reserves this addresses the need to make the allocation of capital reserves to positions in given markets dependent on the extent to which reliable models are available the proposed procedure can be used in combination with any of the standard risk measures such as value at risk and expected shortfall we assume that models are obtained by usual econometric methods which allows us to distinguish between estimation risk and misspecification risk we discuss an additional source of risk which we refer to as identification risk by way of illustration we carry out calculations for equity and fx data sets in both markets estimation risk and misspecification risk together explain about half of the multiplication factors employed by the bank for international settlements bis

pseudo goodwin cycles in a minsky model goodwin cycles result from the dynamic interaction between a profit led demand regime and a reserve army effect in income distribution the paper proposes the concept of a pseudo goodwin cycle we define this as a counter clockwise movement in output and wage share space which is not generated by the usual goodwin mechanism in particular it does not depend on a profit led demand regime to illustrate this a simple minsky type model is extended by a reserve army distribution adjustment in this model the cycle is generated by the interaction of financial fragility and demand the wage share rises at higher levels of output but this generates no feedback so that by design demand does not react to changes in income distribution but the model does exhibit a pseudo goodwin cycle in the output wage share space this holds true even if we introduce a wage led demand regime this demonstrates that the existence of a counter clockwise movement of output and the wage share cannot be regarded as proof of the existence of a goodwin cycle and a profit led demand regime

dynamic analysis of policy lag in a keynes goodwin model stability instability cycles and chaos abstract in this paper we investigate the impact of government s stabilization policy on the dynamic behavior of the economic system in an analytical framework of a keynes goodwin model of the growth cycle in particular we study the effects of the policy lag on macroeconomic stability analytically and numerically it is shown that the increase of the policy lag contributes to destabilize the system and cyclical behavior and chaotic motion emerge in some ranges of the parameter values

functional income distribution and aggregate demand in the euro area an increase in the wage share has contradictory effects on the subaggregates of aggregate demand private consumption expenditures ought to increase because wage incomes typically are associated with higher consumption propensities than capital incomes investment expenditures ought to be negatively affected because investment will positively depend on profits net exports will be negatively affected because an increase in the wage share corresponds to an increase in unit labour costs and thus a loss in competitiveness therefore theoretically aggregate demand can be either wage led or profit led depending on how these effects add up the results will crucially depend on how open the economy is internationally the paper estimates a post kaleckian macro model incorporating these effects for the euro area and finds that the euro area is presently in a wage led demand regime implications for wage policies are discussed

effective demand class struggle and cyclical growth the paper presents an analytical model of endogenous cyclical growth in a pure capitalist economy the model integrates keynesian ideas on effective demand with a marxian emphasis on class struggle and the reserve army of labor for reasonable parameter values the model has a unique nontrivial balanced growth equilibrium the equilibrium is unstable and using the poincare bendixson theorem it is shown that the economy will exhibit perpetual fluctuations around the balanced growth path copyright 1989 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the cyclical effects of the basel ii capital requirements abstract capital requirements play a key role in the supervision and regulation of banks the basel committee on banking supervision is in the process of changing the current framework by introducing risk sensitive capital charges some fear that this will unduly increase the volatility of regulatory capital furthermore by limiting the banks ability to lend capital requirements may exacerbate an economic downturn the paper examines the problem of capital induced lending cycles and their pro cyclical effect on the macroeconomy in greater detail it finds that the capital buffer that banks hold on top of the required minimum capital plays a crucial role in mitigating the impact of the volatility of capital requirements

reconsidering the bayh dole act and the current university invention ownership model abstract the bayh dole act of 1980 provided u s universities with the right to commercialize employees inventions made while engaged in government funded research this paper argues that the current university invention ownership model in which universities maintain de jure ownership of inventions is not optimal either in terms of economic efficiency or for advancing the social interest of rapidly commercializing technology and encouraging entrepreneurship we argue that this model is plagued by ineffective incentives information asymmetries and contradictory motivations for the university the inventors potential licensees and university technology licensing offices tlos these structural uncertainties can lead to delays in licensing misaligned incentives among parties and obstacles to the flow of scientific information and the materials necessary for scientific progress the institutional arrangements within which tlos are embedded have encouraged some of them to become revenue maximizers rather than facilitators of technology dissemination for the good of the entire society we suggest two alternative invention commercialization models as superior alternatives the first alternative is to vest ownership with the inventor who could choose the commercialization path for the invention for this privilege the inventor would provide the university an ownership stake in any returns to the invention the inventor would be free to contract with the university tlo or any other entity that might assist in commercialization the second alternative is to make all inventions immediately publicly available through a public domain strategy or through a requirement that all inventions be licensed non exclusively both alternatives would address the current dysfunctional arrangements in university technology commercialization

growth cycles with induced technical change this paper concerns itself with two related topics the relative shares of workers and capitalists in the national income and the labour augmenting bias of technical change both have been dealt with in contrasting fashion in two seminal papers on distribution theory kennedy i964 attempts to explain the then observed constancy of relative shares with the help of the now famous invention possibility frontier however the wage and profit rates are exogeneous to his model goodwin i967 on the other hand presents a model of cycles in growth rates in which the share of labour the wage rate and the profit rate are endogenously determined however unlike the kennedy analysis technical change is assumed to be constant and exogeneously given given that these pioneering works have addressed themselves to important questions it seems a worthwhile task to build a model in which the shares of labour and capital the wage rate the profit rate and technical change are all endogenously determined the perspective we have chosen here introduces the key element of kennedy s perception induced technical change into the goodwin scheme and the consequences of so doing are traced out in the following terse account there are two classes in the economy workers and capitalists only one good q t is produced and it can be either consumed or invested capital stock k t is homogeneous and for simplicity also assumed to be non depreciating the capital output ratio at time t is denoted by o t labour i t is also homogeneous and its productivity at time t a t q t l t improves at the rate ac t labour s share in the national income denoted by u t is

distribution and growth reconsidered empirical results for six oecd countries we analyse the relationship between functional income distribution and economic growth in austria france germany the netherlands the uk and the usa from 1960 until 2005 the analysis is based on a demand driven distribution and growth model for an open economy inspired by bhaduri and marglin which allows for either profit or wage led growth we find that growth in france germany the uk and the usa has been wage led whereas austria and the netherlands have been profit led in the case of austria a domestically wage led economy changes to profit led when including the effect of distribution on external trade the netherlands however are already profit led without external trade our results so far only partially confirm bhaduri and marglin s theoretical conclusion that wage led growth becomes less feasible when the effects of distribution on foreign trade are taken into account

book reniewstabilizing an unstable economy hyman p minsky a twentieth century fund report yale university press new haven and london pp xiv 353 35 00 cloth 14 95 paper

minsky models a structured survey minsky s ideas have recently gained prominence in the mainstream as well as in the heterodox literature however there exists no agreement upon the formal presentation of minsky s insights the aim of this paper is to survey the literature and identify differences and similarities in the ways through which minskyan ideas have been formalised we distinguish between the models that focus on the dynamics of debt or interest with no or a secondary role for asset prices and the models in which asset prices play a key role in the dynamic behaviour of the economy within the first category of models we make a classification between i the kalecki minsky models ii the kaldor minsky models iii the goodwin minsky models iv the credit rationing minsky models v the endogenous target debt ratio models and vi the minsky veblen models within the second category of models we distinguish between i the equity price minsky models and ii the real estate price minsky models key limitations of the models and directions for future research are outlined

causal parameters and policy analysis in economics a twentieth century retrospective the major contributions of twentieth century econometrics to knowledge were the definition of causal parameters within well defined economic models in which agents are constrained by resources and markets and causes are interrelated the analysis of what is required to recover causal parameters from data the identification problem and clarification of the role of causal parameters in policy evaluation and in forecasting the effects of policies never previously experienced this paper summarizes the development of these ideas by the cowles commission the response to their work by structural econometricians and var econometricians and the response to structural and var econometrics by calibrators advocates of natural and social experiments and by nonparametric econometricians and statisticians this paper considers the definition and identification of causal parameters in economics and their role in econometric policy analysis it assesses different research programs designed to recover causal parameters from data at the beginning of this century economic theory was mainly intuitive and empirical support for it was largely anecdotal at the end of the century economics has a rich array of formal models and a high quality database empirical regularities motivate theory in many areas of economics and data are routinely used to test theory many economic theories have been developed as measurement frameworks to suggest what data should be collected and how they should be interpreted econometric theory was developed to analyze and interpret economic data most econometric theory adapts methods originally developed in statistics the major exception to this rule is the econometric analysis of the identification problem and the companion analyses of structural equations causality and economic policy evaluation although an economist did not invent the phrase correlation does not imply causation 1 economists clari

selling university technology patterns from mit many research universities engage in efforts to license inventions developed by university affiliated inventors however no systematic explanation of the conditions under which university inventions will be licensed or commercialized has been provided drawing on transaction cost economics i provide a conceptual framework to explain which university inventions are most likely to be licensed commercialized and generate royalties and who will undertake that commercialization i test this framework on data on the 1 397 patents assigned to the massachusetts institute of technology during the 1980 1996 period the results showthat 1 university inventions are more likely to be licensed when patents are effective 2 when patents are effective university technology is generally licensed to noninventors 3 when patents are effective licensing back to inventors increases the likelihood of license termination and reduces the likelihood of invention commercialization and 4 the effectiveness of patents increases royalties earned for inventions licensed to noninventors the implications of these findings for innovation management and strategy entrepreneurship and university technology commercialization are discussed

r d spillovers patents and the incentives to innovate in japan and the united states national surveys of r d labs across the manufacturing sectors in the us and japan show that intraindustry r d knowledge flows and spillovers are greater in japan than in the us and the appropriability of rents due to innovation less patents in particular are observed to play a more central role in diffusing information across rivals in japan and appear to be a key reason for greater intraindustry r d spillovers there suggesting that patent policy can importantly affect information flows uses of patents differ between the two nations with strategic uses of patents particularly for negotiations being more common in japan

a methodology for assessing model risk and its application to the implied volatility function model we propose a methodology for assessing model risk and apply it to the implied volatility function ivf model this is a popular model among traders for valuing exotic options our research is different from other tests of the ivf model in that we reflect the traders practice of using the model for the relative pricing of exotic and plain vanilla options at one point in time we find little evidence of model risk when the ivf model is used to price and hedge compound options however there is significant model risk when it is used to price and hedge some barrier options

accurate minimum capital risk requirements a comparison of several approaches in this paper we estimate for several investment horizons minimum capital risk requirements for short and long positions using the unconditional distribution of three daily indexes futures returns and a set of short and long memory stochastic volatility and garch type models we consider the possibility that errors follow a t student distribution in order to capture the kurtosis of the returns series the results suggest that accurate modelling of extreme observations obtained for long and short trading investment positions is possible with an autoregressive stochastic volatility model moreover modelling futures returns with a long memory stochastic volatility model produces in general excessive volatility persistence and consequently leads to large minimum capital risk requirement estimates finally the models predictive ability is assessed with the help of out of sample conditional tests

stabilizing an unstable complex economy on the limitations of simple rules abstract this paper offers a systematic comparison of a wide range of leaning against the wind interest rate policy rules within a macroeconomic stock flow consistent agent based model the model generates endogenous booms and busts along credit cycles as feedback loops on aggregate demand affect the goods and the labor markets the real and the financial sides of the economy are closely interconnected the baseline scenario is able to qualitatively reproduce a wide range of stylized facts we show that a monetary policy rule that targets the movements in the net worth of firms significantly dampens the credit cycles and reduces the employment costs of financial crises because this indicator incorporates early signals of financial imbalances performances of this three mandate taylor rule are also more robust to the specific parameter values and regulatory framework than the standard dual mandate taylor rules nonetheless none of the policy rules under study completely eliminates the high employment costs of financial crises

the tragedy of uk fiscal policy in the aftermath of the financial crisis the evolving response of the uk fiscal authorities to the financial crisis and recession are briefly outlined with a focus on the fiscal austerity programme introduced by the incoming coalition government during 2010 the reasoning for that programme is critically examined and largely dismissed it is argued that the drive for major cuts in public expenditure comes from seeking to achieve a balanced structural budget and reductions in estimated potential output the significance of the latter are discussed the paper is completed by a brief consideration of alternatives

a simplified stock flow consistent dynamic model of the systemic financial fragility in the new capitalism in the last few years many financial analysts and heterodox economists but even some dissenters among orthodox economists have referred to the contribution of hyman p minsky as fundamental to understanding the current crisis however it is well known that the traditional formulation of minsky s financial instability hypothesis shows serious internal logical problems furthermore minsky s analysis of capitalism must be updated on the basis of the deep changes which during the last three decades have concerned the world economy in order to overcome these theoretical and empirical troubles this paper first introduces the reader to the mechanics of the financial instability theory according to the formulation of the traditional minskian literature section 2 second it shows why minsky s theory cannot be regarded as a general theory of the business cycle section 3 third the paper attempts to supply a simplified but consistent re formulation of minsky s theory by inter breeding it with inputs coming from the new cambridge theories and the current formal minskian literature the aim of this is to analyze the impact of both capital asset inflation and consumer credit on the financial soundness of the non financial business sector sections 4 7 some concluding remarks are provided in the last part of the paper section 8

risk models at risk the experience from the global financial crisis has raised serious concerns about the accuracy of standard risk measures as tools for the quantification of extreme downward risks a key reason for this is that risk measures are subject to a model risk due e g to specification and estimation uncertainty while regulators have proposed that financial institutions assess the model risk there is no accepted approach for computing such a risk we propose a remedy for this by a general framework for the computation of risk measures robust to model risk by empirically adjusting the imperfect risk forecasts by outcomes from backtesting frameworks considering the desirable quality of var models such as the frequency independence and magnitude of violations we also provide a fair comparison between the main risk models using the same metric that corresponds to model risk required corrections

minsky from the bottom up formalising the two price model of investment in a simple agent based framework abstract this paper presents a fully formalised version of hyman minsky s two price model of capital investment embedded in a macroeconomic model consisting of an agent based sector of consumption goods firms as well as three strongly simplified aggregated sectors in an innovation to the literature on minsky models the model is calibrated empirically using moments drawn from us data demonstrating that it is capable of producing plausible time series simulations show that the individual investment and financing choices made by the agent based firms lead to the emergence of business cycles at the aggregate level key aspects of the model can be closely related to central concepts from the financial accelerator literature and moreover it is demonstrated through simulation experiments that expectations and sentiment dynamics play an important role being able to amplify or dampen the cycles it is also shown that the introduction of fiscal policy monetary policy or a restriction on firm dividend payouts can contribute to a stabilisation of the model