new perspectives on capital sticky prices and the taylor principle abstract our main result is that dynamic new keynesian dnk models with firm specific capital feature a substantial amount of endogenous price stickiness we use this insight to assess the desirability of alternative interest rate rules and make the case for combining active monetary policy with interest rate smoothing and or some responsiveness of the nominal interest rate to real economic activity the key mechanism behind our results is also useful from a positive point of view the feature of firm specific capital increases the empirical appealingness of dnk models as documented by a growing body of literature

investment and interest rate policy abstract the paper s theorems reverse two standard results of new keynesian economics simply by appending endogenous investment to a benchmark imperfect competition sticky price model our results are a a passive interest rate rule where the monetary authority responds to inflation by lowering the real interest rate implies local equilibrium uniqueness whereas an active rule does not generate a locally unique equilibrium b a temporary exogenous increase in the nominal interest rate causes a temporary increase in output and investment extensions of the benchmark model including generalized preferences and alternative interest rate rules are also examined journal of economic literature classification numbers e12 e31 e52

closing the regional equity capital gap the role of informal venture capital there is evidence from a number of countries that small firms encounter a shortage of long term investment finance particularly at start up and initial growth expansion of the institutional venture capital industry has done little to fill this equity gap on account of its preference for making large investments in established companies and management leveraged buyouts moreover the supply of venture capital exhibits a high level of spatial concentration initiatives by state provincial and local governments most notably in economically lagging regions to increase the supply of risk capital for start ups and early stage businesses have at best provided a very partial and often costly solution a more appropriate approach to increasing the supply of start up and early stage finance is to facilitate the more efficient operation of theinformal venture capital market informal investors or business angels are private investors who provide risk capital directly to new and growing businesses in which they have no family connection most business angels are unable to find sufficient investment opportunities and so have substantial uncommitted funds available there is also considerable scope for expanding the population of business angels the most cost effective means of closing the equity gap is therefore for the public sector to underwrite the operating costs of business introduction services whose objective is to overcome the two main sources of inefficiency in the informal venture capital market namely the invisibility of business angels and the high search costs of angels seeking investment opportunities and entrepreneurs seeking investors by the provision of a channel of communication between informal investors and entrepreneurs seeking finance

interest rates inflation and federal reserve policy since 1980 this paper characterizes federal reserve policy since 1980 as one that actively manages short term nominal interest rates in order to control inflation and evaluates this policy using a dynamic stochastic sticky price model of the united states economy the results show that the fed s policy insulates aggregate output from the effects of exogenous demand side disturbances and by calling for a modest but persistent reduction in short term interest rates following a positive technology shock helps the economy to respond to supply side disturbances as it would in the absence of nominal rigidities

developing the informal venture capital market a review of the department of trade and industry s informal investment demonstration projects 1 this paper summarizes the key findings from the final review and evaluation of five informal investment demonstra tion projects department of trade and industry crown copyright is reproduced with the permission of thecontroller of hmso

micro equity for sustainable development selection monitoring and exit strategies of micro angels abstract sustainable development requires balancing environmental social and financial concerns this requires investors to select and monitor entrepreneurs who would balance these triple concerns at the same time there has been considerable attention to small is beautiful and micro investors have stepped in to look for such eco entrepreneurs to the classical institutional logic of economic returns they add the logic of social returns as well as the logic of environmental and local safeguards this study looks at investment clubs in france which have been coping with this balance of people planet and profitability for the last three decades we study their preferences in the selection process for investment projects in the entrepreneurs monitoring process as well as their exit strategies using principal components analysis we find that a large number of selection criteria can be regrouped into underlying factors that take into account two out of the three major dimensions of sustainable development at a time we find that four factors lie beneath the criteria used by the micro angels in the monitoring process we have also been able to establish a one to one correspondence between four of the six major exit strategies and four selection factors suggesting a prior relationship between selection process criteria and preferred exit strategies

money new keynesian macroeconomics and the business cycle abstract we show in this paper that the typical modern business cycle cannot be reduced to the real business cycles archetype a monopolistic competition model with price adjustment costs affected by technological and monetary shocks better mimics the economic fluctuations in two countries with very different cyclical properties namely france and the united states in our model monetary shocks are necessary to reproduce the standard deviation of output the money output correlation the labour productivity worked hours relative standard deviation the labour productivity worked hours correlation and the mark up output correlation with two independent shocks one real more specifically defined than the solow residual and one nominal the model gives an answer to some empirical puzzles which were left unexplained by traditional rbc models

financing the small firm this study presents a framework to delineate financing the small firm special consideration is given to small firms unique financing sources such as trade and bank credit entrepreneur s own resources informal investment and venture capital the small firm has limited or no access to many traditional debt and equity markets that supply long term financing to the corporate world and therefore operates in segmented and imperfect financial markets the links between small firms financing opportunities and managerial goals are traced from the start up stage through establishing a mature firm as the small firm matures it operates in a broader financial market this study establishes the foundation for future empirical research

who bankrolls high tech entrepreneurs abstract where do new technology based firms ntbfs raise outside equity capital to answer that question financial histories were collected from 284 technology based firms founded in new england between 1975 and 1986 financial histories included the year of each round of financing the source the amount and the stage of the financing the 284 firms represented 27 of 1 073 new england ntbfs founded between 1975 and 1986 contained in corptech s corporate technology database one hundred seven 38 were launched with no outside equity investors one hundred seventy seven firms 62 raised 671 million in 445 rounds of equity financing private individuals excluding the founding management team and their relatives were the most common source of equity capital providing 177 rounds of financing for 124 firms ninety firms raised equity from venture capital funds in 173 rounds of financing fewer than 40 firms raised capital from any other single source nonfinancial corporations public stock offerings and other the sample firms raised 76 million from private individuals but almost five times that amount 370 million from venture capital funds public stock offerings accounted for 122 million for all investors the size of a round of financing tended to increase with the stage of the financing overall a typical round of individual investor financing was under 500 000 a typical round of financing from venture capital funds was between 1 million and 3 million public stock offerings typically exceeded 4 million seed and start up financing accounted for 60 of the rounds and 54 of the dollars provided by private individuals as compared to 28 of the rounds and 20 of the dollars provided by venture capital funds the most significant outcome of this research is the conclusion that private individuals and venture capital funds play complementary rather than competing roles in the financing of ntbfs this complementary relationship has two dimensions size and stage at all stages venture capital funds tend to invest substantially more dollars per round than do private individuals second compared to a significantly higher propensity to invest at the seed and start up stages than other investors private investors appear to have longer exit horizons and less risk aversion in fact private individuals provided the seed capital that launched the majority of ntbfs in the sample

the design of monetary and fiscal policy a global perspective abstract we study the emergence of multiple equilibria in models with capital and bonds under various monetary and fiscal policies we show that the presence of capital is indeed another independent source of local and global multiplicities even under active policies that yield local determinacy we also show how a very similar mechanism generates multiplicities in models with bonds and distortionary taxation we then explore the design of monetary policies that avoid multiple equilibria we show that interest rate policies that respond to the output gap while potentially a source of significant inefficiencies may be effective in preventing multiple equilibria and costly oscillatory equilibrium dynamics

house prices and credit constraints making sense of the us experience most us house price models break down in the mid 2000s due to the omission of exogenous changes in mortgage credit supply associated with the sub prime mortgage boom from house price to rent ratio and inverted housing demand models previous models lack data on credit constraints facing first time home buyers incorporating a measure of credit conditions the cyclically adjusted loan to value ratio for first time buyers into house price to rent ratio models yields stable long run relationships more precisely estimated effects reasonable speeds of adjustment and improved model fits

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

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

price level determinacy with an interest rate policy rule and rational expectations abstract this paper reconsiders a result obtained by sargent and wallace namely that price level indeterminacy obtains in their model if the monetary authorities adopt a feedback rule for the interest rate rather than the money stock it is shown that the indeterminacy vanishes if the interest rate rule is chosen so as to have a desired effect on the expected quantity of money demanded this holds even if considerable weight is given in the choice of a rule to the aim of smoothing interest rate fluctuations

constructing and estimating a realistic optimizing model of monetary policy abstract a dynamic stochastic general equilibrium dsge model with real and nominal both price and wage rigidities succeeds in capturing some key nominal features of u s business cycles additive technology shocks as well as multiplicative shocks are introduced and shown to be crucial monetary policy is specified as an interest rate targeting rule following developments in the structural vector autoregression var literature the interaction between real and nominal rigidities is essential to reproduce the liquidity effect of monetary policy the model is estimated by maximum likelihood on u s data and its fit is comparable to that of an unrestricted first order var besides producing reasonable impulse responses and second moments this model replicates a feature of u s business cycles never captured by previous research with dsge models that an increase in interest rates predicts a decrease in output two to six quarters in the future

the growth and geographical anatomy of venture capitalism in the united kingdom martin r l 1989 the growth and geographical anatomy of venture capitalism in the united kingdom reg studies 23 389 403 the 1980s have seen the emergence and rapid growth of venture capitalism in the uk this paper examines this growth both in terms of the spatial organization of the venture capital industry and the regional distribution of venture capital investment the picture that emerges is of an industry which is over centralized in the london area and which in the course of its recent development has tended to concentrate investment in the already more prosperous southeastern and adjacent parts of the country while local venture capital markets are beginning to become established in northern britain it will be some time before the existing regional imbalance is likely to be redressed martin r l 1989 la croissance et la distribution geographique du capital risque au royaume uni reg studies 23 389 403 les annees 1980 ont temoigne de la naissance et de l essor du capital risque au

the size of the informal venture capital market in the united kingdom despite its undoubted importance to the financing of entrepreneurial ventures there are few reliable measures of the size of the informal venture capital market this paper reviews three methods used to generate such estimates market based approaches firm based approaches and the capture recapture approach and develops an alternative approach that is based on scaling up from the visible segment of this market represented by business angel networks this methodology is applied to provide the first formal estimate of the size of the informal venture capital market in the united kingdom informal venture capital investment is shown to broadly equate to the amount of institutional venture capital provided to start up and early stage ventures reflecting the smaller average size of investments in the informal venture capital market however eight times as many businesses raise finance from business angels than from institutional venture capital funds

sources of growth abstract distributive shares are commonly identified with sector or marginal factor productivity in value terms and after deflating these values by prices with physical productivity as well in this paper it is argued that this approach yields incorrect or misleading views on the true sources of or contributions to growth even more serious the identification may lead to mistaken policies designed to foster or accelerate growth in reality distributive shares in the national accounts have little to do with physical productivity or the sources of growth

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

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

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

what drives micro angel investments despite of the significant role of informal venture capital in the financing of new entrepreneurial ventures there is little research explaining the factors determining the propensity of individuals to make microangel investments building on two theoretical frameworks a social psychological theory of planned behavior and an economic theory on the determinants of demand for risky assets in household portfolios we develop a set of hypotheses predicting the propensity of individuals to make informal investments in new businesses owned by others in our analysis we test whether the determinants of micro angel investments are similar when investing in a business owned by a close family member versus more distant business the hypotheses are tested using data from 6007 interviews of finnish adults carried out in the global entrepreneurship monitor program in 2000 2002 the findings show that the theoretical frameworks have more power in explaining investments in firms not owned by close family members the study provides new understanding of the differences in the drivers of different types of micro angel investments

capital and macroeconomic instability in a discrete time model with forward looking interest rate rules abstract we establish the necessary and sufficient conditions for local real determinacy in a discrete time production economy with monopolistic competition and a quadratic price adjustment cost under forward looking policy rules for the case where capital is in exogenously fixed supply and the case with endogenous capital accumulation using these conditions we show that i indeterminacy is more likely to occur with a greater share of payment to capital in value added production cost ii indeterminacy can be more or less likely to occur with constant capital than with variable capital iii indeterminacy is more likely to occur when prices are modelled as jump variables than as predetermined variables iv indeterminacy is less likely to occur with a greater degree of steady state monopolistic distortions and v indeterminacy is less likely to occur with a greater degree of price stickiness or with a higher steady state inflation rate in contrast to some existing research our analysis indicates that capital tends to lead to macroeconomic instability by affecting firms pricing behavior in product markets rather than households arbitrage activity in asset markets even under forward looking policy rules

have uk venture capitalists a bias against investment in new technology based firms abstract this paper addresses the important question for innovation policy of whether or not uk venture capital firms show a bias against investing in technology based new and young enterprises the evidence from uk and us industry statistics indicates that pro rate american venture capital invest nearly three times as much finance into technology based start up and early stage investments as their uk counterparts when later stage mbo lbo investments are removed from the data us venture capital firms are also more likely to invest at the earlier stages of investment while the uk industry has increasingly come to be dominated by management buy outs buy ins and other later stage refinancing activities in 1991 a postal survey was conducted of 40 investing firms from a population of 75 uk venture capitalists which currently invest or are prepared to consider investing in technology based companies the sample was segregated into generalist funds and technology specialists depending on the percentage greater or less than 50 of technology based investee companies within the venture capitalists current portfolios the results confirmed that technology projects had to meet more rigorous selection criteria than non technology projects in undertaking technology based project evaluations investors imposed higher investment return hurdle rates at each stage of investment other than seed capital technology based projects were also more frequently required to address minimum markets greater than the uk alone when compared to other investment categories no material bias was found between the actions of generalist and specialist funds towards technology based projects the ratio of technology based projects offered to technology based projects accepted was similar for both groups

investment and interest rate policy a discrete time analysis this paper analyzes the restrictions necessary to ensure that the interest rate policy rule used by the central bank does not introduce local real indeterminacy into the economy it conducts the analysis in a calvo style sticky price model a key innovation is to add investment spending to the analysis in this environment local real indeterminacy is much more likely in particular all forward looking interest rate rules are subject to real indeterminacy

business angel networks and the development of the informal venture capital market in the u k is there still a role for the public sector business angel networks bans provide a channel of communication between private venture capital investors business angels and entrepreneurs seeking risk capital most operate locally on a not for profit basis with their costs underwritten by the public sector however the recent establishment of bans by private sector organisations in the u k has led to a questioning of the government s continuing role in the financing of bans this paper demonstrates that there are significant differences between public sector and other not for profit bans and private sector commercially oriented bans in terms of the investments that they facilitate private sector bans are primarily involved with larger later stage deals whereas investments made through not for profit bans are generally smaller involve start ups and other early stage businesses and are local the emergence of private sector bans has therefore not eliminated the need for public sector support for locally oriented networks