states and the business cycle abstract we model the us business cycle using a dynamic factor model that identifies common factors underlying fluctuations in state level income and employment growth we find three such common factors each of which is associated with a set of factor loadings that indicate the extent to which each state s economy is related to the national business cycle according to the factor loadings there is a great deal of heterogeneity in the nature of the links between state and national economies in addition to exhibiting geographic patterns the closeness of state economies to the national business cycle is related not only to differences in industry mix but also to non industry variables such as agglomeration and neighbor effects finally we find that the common factors tend to explain large proportions of the total variability in state level business cycles although again there is a great deal of cross state heterogeneity

similarities and convergence in g 7 cycles this paper examines the properties of g 7 cycles using a multicountry bayesian panel var model with time variations unit specific dynamics and cross country interdependences we demonstrate the presence of a significant world cycle and show that country specific indicators play a much smaller role we detect di erences across business cycle phases but apart from an increase in synchronicity in the late 1990s find little evidence of major structural changes we also find no evidence of the existence of an euro area specific cycle or of its emergence in the 1990s

product introduction decisions in a duopoly abstract in this paper we model a dynamic environment with two firms that fight for share of industry sales and profit in a market with constant size they capture share by repeatedly introducing new products price changes from period to period reflecting each firm s learning we formulate the problem as a repeated game where each player s decision at each period is to introduce a new product we find that in general each firm s frequency of product introductions clockspeed in equilibrium decreases as its fixed product introduction cost increases further we find that a higher rate of manufacturing learning results in a higher clockspeed and in a higher market share and also results in significantly worse profits for the competitor the results underscore the importance of manufacturing expertise in a firm s ability to introduce new products

risk sharing by households within and across regions and industries abstract cochrane 1991 journal of political economy 99 957 976 and mace 1991 journal of political economy 99 928 956 test if risk sharing across households is complete in the sense that household consumption moves one for one with aggregate consumption in their studies the source of income risk is idiosyncratic and agents can share risk across the entire economy using a sample of households from the panel study on income dynamics psid we explore whether households share the risk associated with their industries and regions across households in other regions and industries we find that a large fraction of risk faced by households is not shared across regions and industries

wealth and health at the base of the pyramid modelling trade offs and complementarities for fast moving dairy product case abstract this paper models the localized base of the pyramid bop supply and demand chain of a fast moving dairy product within its social and business environment for identifying the effects of various pricing strategies on wealth and health of the poor population of bangladesh the joint venture of the grameen bank and danone gd in bangladesh is a showcase of integrative bop projects it produces fortified yoghurt in a micro plant and distributes it through micro entrepreneurs following a strictly localized approach the objective of this bop project is twofold 1 integrating as many people as possible into productive processes and paying decent prices wages and commissions wealth and 2 regularly serving as many people as possible with fortified yoghurt health by means of dynamic simulation we analyse how volatility in raw material prices affects the economic viability of the business model and hence both objectives the gd case provides the motivation as well as empirical data for the presented research and has been used for model validation additionally we use further literature sources our results show the outstanding importance of sales effectiveness for buffering against negative consumer reaction to sudden price increases sales effectiveness aggregates various performance factors regarding product distribution and perceived product quality and value in this respect awareness raising campaigns by governmental and civil society organizations as well as changes regarding distribution mode and selection of distributors may enhance sales effectiveness

the correlation of productivity growth across regions and industries in the united states abstract this paper shows that productivity growth is more strongly correlated across u s regions than across the g7 countries cross region correlations of productivity growth within a given industry are typically stronger than cross sector correlations of productivity growth within the same region

tastes and technology in a two country model of the business cycle explaining international trade on international financial markets allows people to insure country specific risk and smooth consumption intertemporally equilibrium models of business cycles with trade on global financial markets typically yield international consumption correlations near one and excessive volatility of investment the authors incorporate nontraded goods in the model and find that the implications for aggregate consumption investment and the trade balance are consistent with business cycle properties of industrialized countries however the model driven by technology shocks alone yields counterfactual implications for comovements between consumption and prices at the sectoral level taste shocks produce price quantity relationships more consistent with the data copyright 1995 by american economic association

the propagation of regional recessions this paper develops a framework for inferring common markov switching components in a panel data set with large cross section and time series dimensions we apply the framework to studying similarities and dierences across u s states in the timing of business cycles we hypothesize that there exists a small number of cluster designations with individual states in a given cluster sharing certain business cycle characteristics we nd that although oil producing and agricultural states can sometimes experience a separate recession from the rest of the united states for the most part dierences across states appear to be a matter of timing with some states entering recession or recovering before others jel c11 c32 e32

technological expectations and adoption of improved technology abstract attention is focused upon the adoption demand rather than the creation supply of new technology which improves from time to time based on the expected flow of technological progress over which the firm demander has no control it must decide either to adopt the current best available technology or to postpone adoption the distinguishing features of the model are that more than one technological innovation is anticipated and expectations about the likelihood of such innovations are revised as time passes since the last innovation our analysis shows that the firm will adopt the current best practice if its technological lag exceeds a certain threshold moreover as time passes without new technological advances it may become profitable to purchase a technology that has been available even though it was not profitable to do so in the past

uncertainty competition and the adoption of new technology faced with the decision of whether or not to adopt a new technology whose economic value cannot be gauged with certainty the manager of the firm may elect to decrease the uncertainty by sequentially gathering information at a unit cost of c 0 updating his prior beliefs in a bayesian manner uncertainty regarding the actions of a competitor however cannot be reduced our model allows a manager to account for potential competition either substitute or complementary by inclusion of strategic considerations modelled in a game theoretic setting we show that the firm s best response mapping satisfies a dynamic programming recursion even when the one period reward function is unbounded providing management with a familiar tool to solve its problem best response behavior is characterized by a monotone sequence of pairs of threshold numbers which give rise to a cone shaped continuation region the continuation region is shown to shift up down with increases in the expected level of substitute complementary competition making the firm less more likely to adopt the innovation finally the existence of a nash equilibrium in cone shaped strategies is established

strategic timing of adoption of new technologies under uncertainty abstract in this paper we introduce experience effects into a duopoly game of timing of adoption of new technologies which exhibit exogenous technological progress departing from the existing literature with this model we obtain continuous and downward sloping reaction functions we find that a higher level of uncertainty increases the extent of dispersion between the equilibrium timings of adoption furthermore we find that the equilibrium timings are even more dispersed when the leader takes the follower s reaction into account when firm roles are made endogenous we find that if there is an incentive to lead follow the equilibrium timings are more less dispersed finally we show that it is possible for collusive adoption to improve welfare

channels of interstate risk sharing united states 1963 1990 we develop a framework for quantifying the amount of risk sharing among states in the united states and construct data that allow us to decompose the cross sectional variance in gross state product into several components which we refer to as levels of smoothing we find that 39 percent of shocks to gross state product are smoothed by capital markets 13 percent are smoothed by the federal government and 23 percent are smoothed by credit markets the remaining 25 percent are not smoothed we also decompose the federal government smoothing into subcategories taxes transfers and grants to states

adoption and diffusion of an innovation of uncertain profitability the argument has frequently been made that the pattern of diffusion associated with most new innovations will typically have certain characteristics a diffusion curve for an innovation is usually defined as the proportion of its potential users who have already adopted as a function of time measured from the first adoption many empirical studies by both economists and other social scientists have shown that diffusion curves nearly always have two distinct characteristics i they are s shaped the proportion adopted is an increasing function of time which is initially convex but eventually becomes concave and ii they tend to be right hand skewed the inflection point occurs at a time corresponding to a proportion adopted which is less than one half so that the function is concave over the greatest amount of time in fact this skewing is occasionally severe enough to make the diffusion curve appear concave everywhere the focus of most empirical studies of innovation diffusion has centered on identification of either the major determinants of the speed of diffusion or the characteristics of firms which determine how long they delay adoption the seminal contributions are griliches 6 study of hybrid corn and mansfield s 121 study of 12 industrial innovations these studies and most of the similar ones following conclude that diffusion is faster for innovations with higher profitability and that large firms tend to be the earliest adopters some studies e g mansfield 121 herregat 71 have attempted to ascertain

discontinuity of output convergence within the united states why has the course changed has the progress of output convergence changed within the united states this article examines the output convergence among u s states for the last five decades by making several improvements over the extant literature by applying a battery of convergence tests designed to capture nonlinear transitional dynamics to real output per worker data i e nominal values deflated by state level price we find that output convergence has not been a feature of the continental united states since the 1970s instead output convergence has proceeded among four subgroups within which constituent states have certain characteristics in common our regression analysis suggests that state level characteristics related to technology and human capital play a crucial role in accounting for the formation and composition of convergence clubs in agreement with the recent theoretical models of growth and development e g aghion et al 2009 gennaioli et al 2013b the level of technology proxied by patents turns out to be a consistently significant determinant even after controlling for endogeneity suggesting that frictions in the diffusion of technology and human capital may have led to clustering of states with different levels of productivity our results therefore cast doubt on the common view that diffusion of knowledge and technology across state borders is frictionless jel o47 o51

employment fluctuations in u s regions and industries the roles of national region specific and industry specific shocks this study quantifies the roles of national region specific and industry specific shocks in aggregate employment fluctuations in u s regions and industries variation among the growth rates of major regions and industries is decomposed into unobserved national region and industry specific components the results reject the view that any heterogeneity in regional fluctuations is attributable to differences in industry composition after controlling for industry mix effects roughly 40 of the variance of the cyclical innovation in any region s growth rate is particular to that region in addition region specific shocks appear to propagate across regions over time

intranational business cycles in the united states abstract we established a comprehensive set of stylized facts for intranational business cycles across states and regions in the u s notable findings are that the cross correlations of our consumption measure is much less than that for output and the volatility of the real exchange rate between states is much less than that for output these findings are contrasted with the quantity and price anomalies found in international business cycle data additional results for labour and non labour earnings suggest that the observed amount of intratemporal risk sharing is quite limited as compared to that for intertemporal risk sharing

supply and demand for livestock credit in sub saharan africa lessons for designing new credit schemes abstract based on analysis of credit supply in ethiopia kenya uganda and nigeria it is shown that public credit institutions do not have sufficient funds to meet the demand for livestock credit and cannot mobilize savings from their clients or other commercial sources for one reason or another in addition available credit does not reach those who need it the most and with whom it could have the greatest impact due to the application of inappropriate screening procedures and criteria to determine creditworthiness the analysis of demand based on borrowing and nonborrowing sample households using improved dairy technology it is shown that not all borrowers borrowed due to liquidity constraint while some borrowers and some nonborrowers had liquidity constraint but did not have access to adequate credit logistic regression analysis show that sex and education of the household head training in dairy prevalence of outstanding loan and the number of improved cattle on the farm had significant influence on both borrowing and liquidity status of a household though the degree and direction of influence were not always the same in each study country based on the findings it is suggested that combining public and commercial finance could solve the problem of inadequate credit supply while inventory finance to community level input suppliers and service providers might help in getting credit to worthy and needy smallholders at lower cost than providing credit to smallholders directly

international risk sharing and european monetary unification abstract we explore income and consumption smoothing patterns among european community ec countries and among oecd countries during the period 1966 90 we find that for oecd as well as for ec countries about 40 percent of shocks to gdp are smoothed at the one year frequency with about half the smoothing achieved through national government budget deficits and half by corporate saving at the three year differencing frequency only 25 percent of shocks to gdp are smoothed mainly via government lending and borrowing in the absence of alternative income and consumption smoothing mechanisms the restrictions on budget deficits imposed by the maastricht treaty should be relaxed to allow governments to run large temporary deficits in response to output shocks

information and profitability estimates modelling the firm s decision to adopt a new technology this paper uses a response surface based on catastrophe theory to examine the interaction of information and profitability estimates on the firm s adoption of a new technology or innovation as such the paper builds on the conceptual ideas behind mccardle s 1985 work an illustrative example using simulated data is presented to indicate how one might operationalize the key constructs for the purpose of estimating the model

nash equilibrium search for the best alternative in a recent paper weitzman econometrica 47 1979 641 654 described a policy of optimal search for the best alternative the present paper is concerned with the development and characterization of a policy of nash equilibrium search for the best alternative specifically it is shown that under certain monotonicity assumptions and under the assumption that firms have incomplete information regarding the results of rivals search behavior a nash equilibrium search policy exists and has the same form as weitzman s optimal search policy

borders and nominal exchange rates in risk sharing models of risk sharing predict that relative consumption growth rates are positively related to changes in real exchange rates we investigate this hypothesis using a new multicountry and multiregional data set within countries we find evidence for risk sharing episodes of high relative regional consumption growth are associated with regional real exchange rate depreciation across countries however the association is reversed relative consumption and real exchange rates are negatively correlated we define this reversal as a border effect we find the border effect and show that it accounts for over half of the deviations from full risk sharing since cross border real exchange rates involve different currencies it is natural to ask how much of the border effect is accounted for by movements in exchange rates our measures indicate that a large part of the border effect comes from nominal exchange rate fluctuations we develop a simple open economy model that is consistent with the importance of nominal exchange rate variability in accounting for deviations from cross country risk sharing

understanding the backus smith puzzle it s the nominal exchange rate stupid backus kehoe and kydland bkk 1992 showed that if international capital markets are complete consumption growth correlations across countries should be higher than their corresponding output growth correlations in stark contrast to the theory however in actual data the consumption growth correlation is lower than the output growth correlation by assuming trade imperfections due to non traded goods backus and smith 1993 showed that there is an additional impediment that works to lower the consumption growth correlation while backus and smith s argument was successful in partially explaining the low growth correlation puzzle it contributed to generating another puzzle because the data forcefully showed that consumption growth is negatively correlated with the real exchange rate which is a violation of the theory in this paper by decomposing the real exchange rate growth of the oecd countries into the nominal exchange rate growth and the inflation differential we find that nominal exchange rate movements are the main source for the backus smith puzzle we find that the nominal exchange rate moves counter cyclically with consumption movements which is a violation of the risk sharing theory with non traded goods we also find that the violations are more pronounced when nominal exchange rate changes are larger in absolute value in contrast the negative of bilateral inflation differentials is positively correlated with bilateral consumption movements the latter finding is in accordance with the theory furthermore using intranational data for the united states where the nominal exchange rate is constant the backus smith puzzle disappears although complete risk sharing is rejected

uncertain search a model of search among technologies of uncertain values in the standard search problem there is an infinite pool of items whose distribution of values is known a decision maker draws an item from the pool observes its value and decides whether to keep it or to draw another item he can keep only one item and he seeks the item with the largest value in the standard uncertainty resolution problem there is only one item and the value of that item remains uncertain even after it is drawn the decision maker sequentially collects observations on the value of the item and decides whether to keep the item discard the item or take another observation uncertain search marries the sequential drawing from a pool of items from the search literature with the unknown value of a drawn item from the uncertainty resolution literature presented in the context of technology adoption it considers drawing from a pool of new technologies whose values remain unknown even after being drawn the decision maker sequentially purchases information in order to bayesianly update

eating your own lunch protection through preemption recent discussions of management practices among successful high technology companies suggest that one key strategy for success is to eat your own lunch before someone else does the implication is that in intensely competitive or hypercompetitive markets firms with a leading position should aggressively cannibalize their own current advantages with next generation advantages before competitors step in to steal the market given the pace of technological and other types of change such strategy often requires creating next generation advantages while the current advantages are still profitable that is trading current profits for future market leadership we capture the tradeoff between a market leader s willingness to reap profits with its current set of advantages and its desire to maintain market leadership by investing in the next generation using a competitive model that determines the equilibrium launch time of a next generation advantage we find that in absence of lower launch costs for an

dynamic risksharing in the united states and europe abstract we use a panel var model to improve upon the existing methodologies to analyze interregional risksharing and consumption smoothing channels first we endogenize the output process within a more general multi equation framework capturing the dynamic feedback between output and various smoothing channels second in line with dynamic general equilibrium open economy models of risksharing we exploit impulse response functions to trace the role of each smoothing channel over time in the presence of different structural shocks temporary vs permanent and output vs smoothing channels in the application to the us and oecd countries we find different dynamic properties of different smoothing channels we compare our results with the predictions of standard risksharing and consumption theories and tackle some of the puzzles in the literature such as the international risksharing puzzle and the consumption output correlation puzzle we are also able to address such policy issues as whether fiscal stabilizers have been substitutes or complements for financial market diversification activities and whether further financial market integration is likely to provide countries with more shock absorption tools a key result is the strong substitutability between capital and credit smoothing in the us and between fiscal and credit smoothing in the oecd

international and intranational business cycles this paper surveys and analyzes the international real business cycle literature we re explore two international business cycle anomalies emphasized by backus kehoe and kydland 1995 as well as establishing the pattern of productivity growth between industries and countries we then compare these findings for the international business cycle to those obtained for data between regions within a country the so called intranational business cycle importantly the intranational business cycle is a natural environment for thinking about the interactions between economies when there are no trade frictions and when there are not multiple currencies we summarize our findings with a comparison between the stylized facts for international and intranational business cycles and draw some policy conclusions copyright 1997 by oxford university press

the relationship between credit and productivity in chinese agriculture a microeconomic model of disequilibrium credit is an important element in agricultural production systems it allows producers to satisfy the cash needs induced by the production cycle which characterizes agriculture preparation planting cultivation and harvesting of the crops are typically done over a period of several months in which very little cash revenue is earned while expenditures on materials purchased inputs and consumption must be made in cash cash income is received a short time after the harvest in the absence of credit markets farmers would have to maintain cash reserves so as to facilitate production and consumption in the next cycle the availability of credit allows both greater consumption and greater purchased input use and thus increases welfare of the farmers

asymmetric shocks among u s states abstract the paper applies a factor model to the study of risk sharing among u s states the factor model makes it possible to disentangle movements in output and consumption due to national regional or state specific business cycles from those due to measurement error the results of the paper suggest that some findings of the previous literature which indicate a substantial amount of inter state risk sharing may be due to the presence of measurement error in output when measurement error is properly taken into account the evidence points towards a lack of inter state smoothing

risk sharing versus low cost credit systems for international development low cost credit programs in developing countries have failed to achieve agricultural technology adoption goals this research attributes the failure to the inabiiity of poor farmers to bear the combined business and financial risks p sed ly adopting new technologies and develops proposals for the design of credit programs that reduce these risks agronomic and socioeconomic data are combined through simulation and mathematical programming to analyze problems of decision making under risk for developing countries the results will assist iii the design of new rural financial institutions conducive to the adoption of new production technologies by subsistence

one money for europe lessons from the us currency union currency union barry eichengreen the creation of a monetary union in europe is often justified by the desire to reap the full benefits of economic integration the complete removal of capital controls raises a large number of issues the case for free capital mobility is strong but not overwhelming it hinges on issues of technology transport costs market structure and labour mobility and in the end is an empirical matter for which us experience may provide useful information policy making institutions differ in important respects however the us tradition of fiscal federalism for example has no ec wide counterpart yet its functions seem a desirable feature of a monetary union in particular it is shown to play an important role in absorbing regional disturbances mostly via the tax system us experience also suggests that a currency union creates pressure for fiscal policy harmonization affecting both taxes and spending although a currency union fundamentally alters the balance of payments adjustment process the potential problem of depressed regions remains a serious one given the increased tightness of the external constraint the limited extent of labour mobility and other features of european labour markets solutions based on us experience include extensive swap facilities and a european version of fiscal federalism

an inquiry into the sources of macroeconomic fluctuations abstract this paper attempts to decompose the sources of fluctuations in quarterly employment by industry and region into 1 an aggregate national shock 2 region specific shocks 3 industry specific shocks and 4 idiosyncratic factors the empirical analysis is motivated by a dynamic theory of the business cycle the empirical methodology is the engle watson dynamic mimic model implemented via the em algorithm the work is motivated as an attempt to compare empirically aggregate single factor theories of the cycle with real business cycle theories emphasizing industrial or regional shocks

something to talk about social spillovers in movie consumption we exploit the randomness of weather and the relationship between weather and moviegoing to quantify social spillovers in movie consumption instrumenting for early viewership with plausibly exogenous weather shocks captured in lasso chosen instruments we find that shocks to opening weekend viewership are doubled over the following five weekends our estimated momentum arises almost exclusively at the local level and we find no evidence that it varies with either ex post movie quality or the precision of ex ante information about movie quality suggesting that the observed momentum is driven in part by a preference for shared experience and not only by social learning

information acquisition and the adoption of new technology the profitability of a new technology is rarely known with certainty at its announcement date consequently prior to making an adoption decision it behooves the firm considering the adoption of this innovation to reduce the level of uncertainty associated with its profitability the firm accomplishes this by sequentially gathering information updating its prior estimate of profitability in a bayesian manner quantifying the uncertainty regarding the innovation permits application of dynamic programming techniques criteria are derived which tell the firm when to stop collecting information and make the adoption decision it will be shown that it is optimal for the firm to continue to collect information until its estimate of profitability crosses one of two thresholds upon crossing the upper threshold the firm adopts the technology whereas the firm rejects the technology if the lower threshold is crossed the model predicts that even the manager who behaves optimally will occasionally adopt unprofitable technologies and reject profitable ones

when to adopt a service innovation nash equilibria in a competitive diffusion framework abstract we study the optimal timing of adoption of a service innovation that a new entrant firm brings to a market populated by two incumbent firms our analysis is based on a model of competitive diffusion dynamics that extends the monopolistic bass model to include customer churn processes as well as a potential market expansion driven by the innovation we obtain expressions for the time trajectories of the customer bases i e the numbers of customers that use old and new service processes for the competing firms as well as sharper closed form characterizations for the setting with a stable market and homogeneous imitation process in modeling competitive dynamics we consider settings where incumbents anticipate a potential failure of the innovation we use the trajectories for the customer bases to model an optimal adoption response problem faced by one of the incumbent firms when the adoption time for the other incumbent can be anticipated or is pre announced and analyze this problem in the absence of market expansion or intra generational customer churn using the optimal response results we provide the nash equilibrium analysis of the adoption decisions by competing incumbent firms and derive sufficient conditions for the now now now never and never never adoption equilibria we use the trading volume data from the foreign exchange markets to estimate the parameters of the competitive diffusion dynamics for our model and to conduct a numerical investigation of the impact of the uncertainty associated with the success of the innovation on the incumbents nash equilibrium adoption times

on the diffusion of new technology a game theoretic approach this paper is an attempt at a rigorous albeit not exceedingly general analysis of the diffusion of new technology in particular consider an industry composed of two firms each using the current best practice technology the firms are assumed to be operating at nash equilibrium output levels generating a market price given demand and profit allocations when a cost reducing innovation is announced each firm must determine when if ever to adopt it based in part upon the discounted cost of implementing the new technology and in part upon the behavior of the rival firm if either firm adopts before the other it can expect to make substantial profits at the expense of the other firm on the other hand the discounted sum of purchase price and adjustment costs may decline with the lengthening of the adjustment period as various quasi fixed factors become more easily variable therefore although waiting costs the firm more in terms of foregone profits it may save money on the cost of purchasing the new technology thus the firm must weigh the costs and benefits of delaying adoption as well as take account of its rival s strategic behavior

the influence of perceived uncertainty on entrepreneurial action in emerging renewable energy technology biomass gasification projects in the netherlands emerging renewable energy technologies cannot break through without the involvement of entrepreneurs who dare to take action amidst uncertainty the uncertainties that the entrepreneurs involved perceive will greatly affect their innovation decisions and can prevent them from engaging in innovation projects aimed at developing and implementing emerging renewable energy technologies this article analyzes how perceived uncertainties and motivation influence an entrepreneur s decision to act using empirical data on biomass gasification projects in the netherlands our empirical results show that technological political and resource uncertainty are the most dominant sources of perceived uncertainty influencing entrepreneurial decision making by performing a dynamic analysis we furthermore demonstrate that perceived uncertainties and motivation are not stable but evolve over time we identify critical factors in the project s internal and external environment which influence these changes in perceived uncertainties and motivation and describe how various interactions between the different variables in the conceptual model internal and external factors perceived uncertainty motivation and previous actions of the entrepreneurs positively or negatively influence the decision of entrepreneurs to continue entrepreneurial action we discuss how policymakers can use these insights for stimulating the development and diffusion of emerging renewable energy technologies

impact of bayesian learning and externalities on strategic investment we investigate the interplay between learning effects and externalities in the problem of competitive investments with uncertain returns we examine a game theoretic duopoly investment model in which i a firm can learn about the profitability of the investment by observing the performance of the first mover and ii externalities exist between the investments of two firms we find a region of a war of attrition between the two firms in which the interplay between externalities and learning gives rise to counterintuitive effects on investment strategies and payoffs in particular we find that contrary to the conventional war of attrition where an increase in benefits for the follower generally delays the first move an increase in the rate of learning which tends to benefit the follower can hasten the first investment this paper was accepted by james smith decision analysis

rural credit markets and institutions in developing countries lessons for policy analysis from practice and modern theory this article presents evidence of the failure of government intervention in rural credit markets of ldcs in the past three decades it then shows how lessons for policy analysis can be drawn from modern theory particularly those theories focussing on credit rationing in competitive markets and interlinking of credit contracts with labor and land contracts the article outlines the policy implications of these theories and finds them insufficient to account for the empirical evidence it contends that a more systematic and rigorous analysis of institutions and institutional environments is essential for understanding and implementing effective policy reforms of rural credit markets it presents suggestions for undertaking such an analysis

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

credit constraints and smallholder dairy production in the east african highlands application of a switching regression model abstract accurate assessment of farmers credit constraint condition is important in order to understand the circumstances under which credit would have its greatest impact in this study a switching regression model was used to determine the impact of credit on smallholder dairy farms in the east african highlands using farm level data from ethiopia and kenya farmers were classified as credit constrained or credit non constrained based on their responses from the farm level surveys no consistent relationship was found between farmers credit constraint condition and their borrowing status most of the variation in milk output per farm was explained by the number of crossbred milking cows in the dairy herd as credit is likely to facilitate investment in crossbred dairy cows it will have substantial impacts on smallholder dairy farms especially if it is targeted to credit constrained farms

international real business cycles we ask whether a two country real business cycle model can account simultaneously for domestic and international aspects of business cycles with this question in mind we document a number of discrepancies between theory and data the most striking discrepancy concerns the correlations of consumption and output across countries in the data outputs are generally more highly correlated across countries than consumptions in the model we see the opposite

a multi level panel star model for us manufacturing sectors we introduce a multi level smooth transition model for a panel of time series which can be used to examine the presence of common nonlinear business cycle features across many variables the model is positioned in between a fully pooled model which imposes such common features and a fully heterogeneous model which allows for unrestricted nonlinearity we introduce a second stage model linking the parameters that determine the timing of the switches between business cycle regimes to observable explanatory variables thereby allowing for lead lag relationships across panel members we discuss representation estimation by concentrated simulated maximum likelihood and inference we illustrate our model using quarterly industrial production in 19 us manufacturing sectors and document that there are subtle differences across sectors in leads and lags for switches between business cycle recessions and expansions copyright 2005 john wiley sons ltd

market incompleteness and the equity premium puzzle evidence from state level data abstract this paper investigates the importance of market incompleteness by comparing the rates of risk aversion estimated from complete and incomplete markets environments for the incomplete markets case we use consumption data for the 50 us states we find that the rate of risk aversion under the incomplete markets setup is much lower furthermore including the second and third moments of the cross sectional distribution of consumption growth in the pricing kernel lowers the estimate of risk aversion these findings suggest that market incompleteness ought to be seen as an important component of solutions to the equity premium puzzle