strategic alliances venture capital and exit decisions in early stage high tech firms abstract we study the trade offs that biotech start ups face in the private equity market when they choose between raising firm level capital from venture capitalists or project level capital from strategic alliance partners increased alliance activity makes future alliances more likely but future vc activity less likely in contrast venture capital vc activity makes both future alliance and future vc activity more likely both types of private capital raise the hazard of going public acquisition as an alternative to initial public offering is made more likely by increased vc activity but the link between acquisition probabilities and alliance activity is less clear cut these results highlight both the importance of alliance partners in resolving asymmetric information problems in the capital acquisition process and the potential conflict of interest between different sources of private equity

the control of technology alliances an empirical analysis of the biotechnology industry we examine the determinants of control rights in biotechnology alliances through three case studies and a quantitative analysis aghion and tirole 1994 argue that control rights will be assigned so as to maximize the value of the final output as long as the r d firm has sufficient financial resources consistent with this framework the allocation of control rights to the r d firm increases with the firm s financial resources the empirical evidence regarding the relationship between control rights and the stage of the project at the time the alliance is signed is more ambiguous

a method for solving general equilibrium models with incomplete markets and many financial assets abstract this paper presents a numerical method for solving stochastic general equilibrium models with dynamic portfolio choice the method can be applied to models with heterogeneous agents time varying investment opportunity sets and incomplete asset markets we illustrate the method using a two country model with production we check the accuracy of our method by comparing the numerical solution to a complete markets version of the model against its known analytic properties we then apply the method to an incomplete markets version where no analytic solution is available in all versions the standard accuracy tests confirm the effectiveness of our method

financial contracting theory meets the real world an empirical analysis of venture capital contracts we compare the characteristics of real world financial contracts to their counterparts in financial contracting theory we do so by studying the actual contracts between venture capitalists vcs and entrepreneurs the distinguishing characteristic of vc financings is that they allow vcs to separately allocate cash flow rights board rights voting rights liquidation rights and other control rights we describe and measure these rights we then interpret our results in relation to existing financial contracting theories we also describe the interrelation and the evolution across financing rounds of the different rights query 1 query 2

a generalization of the endogenous grid method abstract this paper extends carroll s 2005 the method of endogenous gridpoints for solving dynamic stochastic optimization problems national bureau of economic research technical working paper 309 endogenous grid method to perform value function iteration in models with more than one control variable we propose to mix the endogenous grid method with standard value function iteration to achieve higher efficiency we illustrate the method using the stochastic neoclassical growth model with and without labor leisure choice we report important gains in efficiency that make value function iteration an attractive computational method in terms of both computing time and accuracy

an approximate consumption function this paper proposes an approximation to the consumption function in the buffer stock model the approximation is based on the analytic properties of the consumption function in the buffer stock model in such model the consumption function is increasing and concave and its derivative is bounded from above and below we compare the approximation with the consumption function obtained using the endogenous grid point algorithm and show that using the former or the latter for estimating the euler equation leads to very similar results

markups and the real effects of volatility shocks this article studies the role of endogenous markups in the transmission of volatility shocks in real models i design a variant of a small open economy model with volatility shocks and firm dynamics that gives rise to endogenous markups i calibrate this model to match the business cycle facts in emerging economies and show that the impact of volatility shocks is substantially amplified if markups are endogenously time varying volatility shocks increase savings due to precautionary motives and markups which act as a wedge that endogenously decreases real wages and labor supply with further negative aggregate dynamics that are absent in the models with constant markups

tapping the supercomputer under your desk solving dynamic equilibrium models with graphics processors this paper shows how to build algorithms that use graphics processing units gpus installed in most modern computers to solve dynamic equilibrium models in economics in particular we rely on the compute unified device architecture cuda of nvidia gpus we illustrate the power of the approach by solving a simple real business cycle model with value function iteration we document improvements in speed of around 200 times and suggest that even further gains are likely

pricing risk in economies with heterogeneous agents and incomplete markets habit formation has been proposed as a possible solution to the equity premium puzzle this paper extends the class of models that support the habits explanation in order to account for heterogeneity in earnings wealth habits and consumption i find that habit formation does indeed increase the equity premium however contrary to earlier results the habit hypothesis does not imply a price for risk as largeas the one measured in the data there are three reasons for this first households in a habits economy modify their consumption savings decision second they modify their portfolio choice these two changes in behavior diminish the consumption fluctuations faced by households third the composition of the set of agents pricing risk in the economy changes so that relatively better self insured households end up pricing risk jel d52 g12 e21 c68

what do entrepreneurs pay for venture capital affiliation this study empirically evaluates the certification and value added roles of reputable venture capitalists vcs using a novel sample of entrepreneurial start ups with multiple financing offers i analyze financing offers made by competing vcs at the first professional round of start up funding holding characteristics of the start up fixed offers made by vcs with a high reputation are three times more likely to be accepted and high reputation vcs acquire start up equity at a 10 14 discount the evidence suggests that vcs extra financial value may be more distinctive than their functionally equivalent financial capital these extra financial services can have financial consequences a central issue for early stage high tech entrepreneurs is obtaining external resources when the assets of their start up are intangible and knowledge based particularly for entrepreneurs without an established reputation convincing external resource providers such as venture capitalists vcs to provide financial capital may be challenging the literature contains two main lines of research for overcoming this problem one research stream has concentrated on designing institutional structures to permit financing early stage ventures this contractual and monitoring based approach is aimed at solving potential agency problems between investors and entrepreneurs e g admati and pfleiderer 1994 lerner 1995 hellmann 1998 and kaplan and str omberg 2001 2002 2003 a second research stream has suggested that when the quality of a start up cannot be directly observed external actors rely on the quality of the start up s affiliates as a signal of the start up s own quality

a hardware approach to value function iteration abstract this paper proposes a novel approach for the computation of dynamic stochastic equilibrium models we design an fpga specialized in the computation of a bellman equation via value function iteration vfi our hardware approach exhibits significant speed gains vis a vis gpu based data parallelization techniques the speed gains arise from two layers of parallelism accessible to hardware developers instruction level and pipeline parallelism at the logical resources level by and large the paper documents significant computational speed gains from hardware specialization so far unexplored by the macroeconomic literature

second order approximation of dynamic models with time varying risk abstract this paper provides first and second order approximation methods for the solution of non linear dynamic stochastic models in which the exogenous state variables follow conditionally linear stochastic processes displaying time varying risk the first order approximation is consistent with a conditionally linear model in which risk is still time varying but has no distinct role separated from the primitive stochastic disturbances in influencing the endogenous variables the second order approximation of the solution instead is sufficient to get this role moreover risk premia evaluated using only a first order approximation of the solution will be also time varying

international risk cycles abstract recent work in international finance suggests that exchange rate puzzles can be accounted for if 1 aggregate uncertainty is time varying and 2 countries have heterogeneous exposures to a world aggregate shock we embed these features in a standard two country real business cycle framework and calibrate the model to equity risk premia in low and high interest rates countries unlike traditional real business cycle models our model generates volatile exchange rates a large currency forward premium excess comovement of asset prices relative to quantities and an imperfect correlation between relative consumption growth and exchange rates our model implies however that high interest rate countries have smoother quantities equity returns and interest rates than low interest rate countries contrary to the data

horizons of understanding a review of ray fair s estimating how the macroeconomy works ray fair s estimating how the macroeconomy works is the latest in a series of books by fair that build estimate and apply his macroeconometric model to study the u s economy in this book fair updates the model to incorporate the most recent data and uses it to analyze several important empirical questions such as whether the u s economy moved into a new age of high productivity in the last half of the 1990s and the dynamics of prices output and unemployment this review places his work in the context of the historical evolution of aggregate econometric models compares it with the current developments in the estimation of dynamic stochastic general equilibrium models and discusses some salient aspects of fair s contributions

interorganizational alliances and the performance of firms a study of growth and innovation rates in a high technology industry this paper investigates the relationship between intercorporate technology alliances and firm performance it argues that alliances are access relationships and therefore that the advantages which a focal firm derives from a portfolio of strategic coalitions depend upon the resource profiles of its alliance partners in particular large firms and those that possess leading edge technological resources are posited to be the most valuable associates the paper also argues that alliances are both pathways for the exchange of resources and signals that convey social status and recognition particularly when one of the firms in an alliance is a young or small organization or more generally an organization of equivocal quality alliances can act as endorsements they build public confidence in the value of an organization s products and services and thereby facilitate the firm s efforts to attract customers and other corporate partners the findings from models of sales growth and innovation rates in a large sample of semiconductor producers confirm that organizations with large and innovative alliance partners perform better than otherwise comparable firms that lack such partners consistent with the status transfer arguments the findings also demonstrate that young and small firms benefit more from large and innovative strategic alliance partners than do old and large organizations copyright 2000 john wiley sons ltd

government debt management the long and the short of it standard optimal debt management dm models prescribe a dominant role for long bonds and advocate against issuing short bonds they require very large positions in order to complete markets and assume each period that governments repurchase all outstanding bonds and reissue r r new ones these features of dm are inconsistent with u s data we introduce incomplete markets via small transaction costs which serves to make optimal dm more closely resemble the data r r are negligible short bond issuance substantial and persistent and short and long bonds positively co vary intuitively long bonds help smooth taxes over states and short bonds over time solving incomplete market models with multiple assets is challenging so a further contribution of this article is introducing a novel computational method to find global solutions

price level targeting and stabilisation policy a survey this paper surveys recent articles on the costs and benefits of price level targeting focusing its use as a tool for stabilisation policy it discusses how price level targeting can affect the short run trade off between output and inflation variability by influencing inflation expectations it reviews how assigning an explicit price level target to a central bank that is unable to commit to its future policies can improve economic performance it surveys other potential benefits and costs among the costs it underlines the importance of perfectly rational expectations for the optimality of price level targeting and an exacerbation of the time inconsistency problem

exact likelihood computation for nonlinear dsge models with heteroskedastic innovations abstract phenomena such as the great moderation have increased the attention of macroeconomists towards models where shock processes are not log normal this paper studies a class of discrete time rational expectations models where the variance of exogenous innovations is subject to stochastic regime shifts we first show that up to a second order approximation using perturbation methods regime switching in the variances has an impact only on the intercept coefficients of the decision rules we then demonstrate how to derive the exact model likelihood for the second order approximation of the solution when there are as many shocks as observable variables we illustrate the applicability of the proposed solution and estimation methods in the case of a small dsge model

the participation of new technology based firms in eu funded r d partnerships the role of venture capital this paper investigates the participation of new technology based firms ntbfs in eu funded r d partnerships we examine whether venture capital vc backed firms are more likely to enter these partnerships than their non vc backed peers and the role of the ownership and governance of the vc investor we resort to a mixed method approach we use qualitative information collected through interviews with managers of ntbfs and vc firms to better illustrate our deductively derived theoretical hypotheses that are then tested through a large scale econometric analysis the econometric analysis takes advantage of the vico dataset which includes longitudinal data on 8346 ntbfs from seven european countries observed from 1995 to 2008 out of which 758 were vc backed the econometric results show that vc backing has a strong positive impact on ntbfs participation in eu funded r d partnerships but the magnitude of this effect rapidly decreases with ntbfs prior experience of this type of partnership moreover the magnitude of the impact of vc backing considerably differs depending on the type of investor with bank and government vc exhibiting the strongest positive effects

debt overhang in a business cycle model abstract we study the macroeconomic implications of the debt overhang distortion on firms investment and labor decisions we show that the distortion arises when the levels of investment and labor are non contractible and chosen after the signing of the debt contract the financial friction manifests itself as investment and labor wedges that move counter cyclically increasing during recessions when the risk of default is high their dynamics amplify and propagate the effects of shocks to productivity government spending volatility and funding costs both the size and the persistence of these effects are quantitatively important

the uncertainty multiplier and business cycles abstract i study a business cycle model where agents learn about the fundamentals by accumulating capital during recessions agents invest less and this generates noisier estimates of macroeconomic conditions and an increase in uncertainty the endogenous increase in aggregate uncertainty further reduces economic activity and thus gives rise to a multiplier effect that amplifies aggregate fluctuations to discipline learning dynamics i parametrize the model so that it matches not only standard business cycle moments but also survey data on macroeconomic forecasts i find that the uncertainty multiplier amplifies output standard deviation by 16

venture capital investment cycles the impact of public markets abstract it is well documented that the venture capital industry is highly volatile and that much of this volatility is associated with shifting valuations and activity in public equity markets this paper examines how changes in public market signals affected venture capital investing between 1975 and 1998 we find that venture capitalists with the most industry experience increase their investments the most when public market signals become more favorable their reaction to an increase is greater than the reaction of venture capital organizations with relatively little industry experience and those with considerable experience but in other industries the increase in investment rates does not affect the success of these transactions adversely to a significant extent these findings are consistent with the view that venture capitalists rationally respond to attractive investment opportunities signaled by public market shifts

occbin a toolkit for solving dynamic models with occasionally binding constraints easily abstract the toolkit adapts a first order perturbation approach and applies it in a piecewise fashion to solve dynamic models with occasionally binding constraints our examples include a real business cycle model with a constraint on the level of investment and a new keynesian model subject to the zero lower bound on nominal interest rates compared with a high quality numerical solution the piecewise linear perturbation method can adequately capture key properties of the models we consider a key advantage of the piecewise linear perturbation method is its applicability to models with a large number of state variables

the method of endogenous gridpoints with occasionally binding constraints among endogenous variables we show how the method of endogenous gridpoints can be extended to solve models with occasionally binding constraints among endogenous variables very efficiently we present the method for a consumer problem with occasionally binding collateral constraints and non separable utility in durable and non durable consumption this problem allows for a joint analysis of durable and non durable consumption in models with uninsurable income risk which is important to understand patterns of consumption saving and collateralized debt we illustrate the algorithm and its efficiency by calibrating the model to us data

the effects of commodity price stabilization programs in this paper the authors analyze the effects of commodity programs in which the government attempts to support and stabilize price through open market purchases and sales specifically they as sess the effects of such programs on the u s soybean market using a rational expectations model that allows for private storage expected price responsive production and arbitrary support and release price s a salient feature of the model is that private storage and product ion behavior adjusts to changes in government policy stochastic simu lations of the market model demonstrate that price stabilization prog rams can reduce long run market price and destabilize producer revenu e copyright 1988 by american economic association

comparing solution methods for dynamic equilibrium economies this paper compares solution methods for dynamic equilibrium economies the authors compute and simulate the stochastic neoclassical growth model with leisure choice using undetermined coefficients in levels and in logs finite elements chebyshev polynomials second and fifth order perturbations and value function iteration for several calibrations the authors document the performance of the methods in terms of computing time implementation complexity and accuracy and they present some conclusions about their preferred approaches based on the reported evidence

optimal inflation persistence ramsey taxation with capital and habits ramsey models of fiscal and monetary policy featuring time separable preferences and a fixed supply of capital predict highly volatile inflation with no serial correlation in this paper we show that an otherwise standard ramsey model that incorporates capital accumulation and habit persistence predicts highly persistent inflation the result depends on increases in either the ability to smooth consumption or the preference for doing so the effect operates through the fisher relationship a smoother profile of consumption implies a more persistent real interest rate which in turn implies persistent optimal inflation our work complements a recent strand of the ramsey literature based on models with nominal rigidities in these latter models inflation volatility is lower than in the baseline model but continues to exhibit little persistence we quantify the effects of habit and capital on inflation persistence and also relate our findings to recent work on optimal fiscal policy with incomplete markets

multi country real business cycle models accuracy tests and test bench this paper describes the methodology used to compare the results of different solution algorithms for a multi country real business cycle model it covers in detail the structure of the model the choice of values for the parameters the accuracy tests used in the comparison and the computer program specifically developed for performing the tests

how misleading is linearization evaluating the dynamics of the neoclassical growth model this paper investigates the reliability of employing linearization to evaluate the dynamic adjustments to changes in productive government spending in a ramsey growth model if government expenditure is introduced as a flow and the dynamic adjustment is fast linearization may yield a reasonably good approximation to the true dynamics even for fairly large policy shocks if government expenditure assumes the form of a stock leading to more sluggish adjustment linearization may yield misleading predictions these errors occur at the beginning of the transition and weigh heavily in welfare calculations the implications for temporary shocks and the speed of convergence are also considered

solving an incomplete markets model with a large cross section of agents abstract this paper shows that perturbation methods can be applied to a dsge model with incomplete markets and a finite but arbitrarily large number of heterogeneous agents we develop a simple but general solution technique that handles many state and choice variables for each agent and thus has an extremely high dimensional state space the method is based on perturbations around a point at which the solution is known the novel idea is to exploit the symmetry of the problem to overcome the curse of dimensionality we use the analysis to demonstrate the impact of heterogeneity on macroeconomic quantities and the pricing of risk furthermore we set our technique apart from standard methods used in the literature

solving dsge portfolio choice models with dispersed private information abstract noisy rational expectations models in which agents have dispersed private information and extract information from an endogenous asset price are widely used in finance however these linear partial equilibrium models do not fit well in modern macroeconomics that is based on non linear dynamic general equilibrium models we develop a method for solving a dsge model with portfolio choice and dispersed private information we combine and extend existing local approximation methods applied to public information dsge settings with methods for solving noisy rational expectations models in finance with dispersed private information

envelope condition method with an application to default risk models we develop an envelope condition method ecm for dynamic programming problems a tractable alternative to expensive conventional value function iteration vfi ecm has two novel features first to reduce the cost of iteration on bellman equation ecm constructs policy functions using envelope conditions which are simpler to analyze numerically than rst order conditions second to increase the accuracy of solutions ecm solves for derivatives of value function jointly with value function itself we complement ecm with other computational techniques that are suitable for highdimensional problems such as simulation based grids monomial integration rules and derivative free solvers the resulting value iterative ecm method can accurately solve models with at least up to 20 state variables and can successfully compete in accuracy and speed with state of the art euler equation methods we nally use ecm to solve a challenging default risk model with a kink in value and policy functions c6 c61 c63 c68 dynamic programming value function iteration bellman equation endogenous grid envelope condition curse of dimensionality large scale sovereign debt default risk

euro area inflation persistence in an estimated nonlinear dsge model abstract we estimate the approximate non linear solution of a small dsge model on euro area data using the conditional particle filter to compute the model likelihood our results are consistent with previous findings based on simulated data suggesting that this approach delivers sharper inference compared to the estimation of the linearised model we also show that the non linear model can account for richer economic dynamics the impulse responses to structural shocks vary depending on initial conditions selected within our estimation sample

risk premium shocks and the zero bound on nominal interest rates there appears to be a disconnect between the importance of the zero bound on nominal interest rates in the real world and predictions from quantitative dsge models recent economic events have reinforced the relevance of the zero bound for monetary policy whereas quantitative models suggest that the zero bound does not constrain optimal monetary policy

time consistent control in non linear models abstract the paper shows how to use optimal control to compute optimal time consistent markovian government policies in nonlinear dynamic general equilibrium models it extends cohen and michel s 1988 results for the linear quadratic case the method involves replacing private agents costate variables with flexible functions of current state variables in the government s maximization problem the functions hold in equilibrium to an arbitrarily close approximation they can be found numerically by perturbation or projection methods a stochastic model of optimal public spending illustrates the technique

u s and u k interest rates 1890 1934 new evidence on structural breaks this paper presents econometric evidence on whether the founding of the federal reserve in 1914 caused a structural change from level stationarity to difference stationarity in u s and u k short term nominal interest rates we develop new econometric tests that allow for parameter transitions to test for a break of this kind and undertake a grid search analysis of dates and speeds for the change we find that u s nominal interest rates most likely evolved rapidly to difference stationarity in june 1917 for the united kingdom we fail to reject the null that u k interest rate series follow a difference stationary process over the entire period 1890 1934 our analysis differs from previous research on this topic in that we take care to explore statistical uncertainty around parameter estimates and incorporate higher order dynamics into our econometric analysis

three types of robust ramsey problems in a linear quadratic framework abstract this paper studies robust ramsey policy problems in a general discrete time linear quadratic framework when the ramsey planner faces three types of ambiguity this framework includes both exogenous and endogenous state variables in addition the equilibrium system from the private sector contains both backward looking and forward looking dynamics we provide recursive characterizations and algorithms to solve for robust policy we apply our method to a basic new keynesian model of optimal monetary policy with persistent cost push shocks we find that i all three types of ambiguity make optimal monetary policy more history dependent but with different reasons for each type and ii they deliver qualitatively different initial responses of inflation and the output gap following a cost push shock

volatility and welfare abstract this paper explores the relationship between volatility and welfare even though households prefer smooth streams of consumption and leisure welfare can be increasing in the volatility of an exogenous driving force if factor supply is sufficiently elastic we provide some analytical results for a model without capital and do some quantitative exercises in a model with capital and a variety of shocks welfare is greater in high shock volatility regimes under plausible parameter values augmenting the model with features that increase the elasticity of factor supply extends the range of parameters over which higher volatility results in greater welfare

examining the economic and environmental effects of emissions policies in china a bayesian dsge model abstract the purpose of this study is to build an energy emissions economy dynamic stochastic general equilibrium model to examine the economic and environmental effects of the carbon tax and carbon intensity target the model is calibrated to china s economy the results show that both the carbon tax and carbon intensity target policies have a negative effect on china s economy and environment however the carbon tax exerts more negative effects on the economy and environment than the carbon intensity target moreover the carbon tax shock lasts shorter than the carbon intensity target shock the findings additionally indicate that the effects of the increase in the productivity of energy sectors are greater than those of the increase in the productivity of other sectors thanks to the low carbon technology shock china s carbon dioxide emissions will reduce and output will increase taken together this study highlights the key policy implications associated with the results

robust animal spirits abstract in a real business cycle model an agent s fear of model misspecification interacts with stochastic volatility to induce time varying worst case scenarios these time varying worst case scenarios capture a notion of animal spirits where the probability distributions used to evaluate decision rules and price assets do not necessarily reflect the fundamental characteristics of the economy households entertain a pessimistic view of the world and their pessimism varies with the overall level of volatility in the economy implying an amplification of the effects of volatility shocks by using perturbation methods and monte carlo techniques we extend the class of models analyzed with robust control methods to include the sort of nonlinear production based dsge models that are popular in academic research and policymaking practice

wealth distribution and aggregate time preference markov perfect equilibria in a ramsey economy abstract we study markov perfect nash equilibria mpne of a ramsey cass koopmans economy in which households are aware of their influence on prices the ramsey conjecture fails to hold such that households other than the most patient one own positive wealth in the steady state this confirms results that have been derived in the same model using an open loop equilibrium concept in contrast to the competitive and the open loop equilibrium the steady state of the mpne depends on the utility functions of the households since the mpne cannot be determined analytically a high order least squares projection method is employed

macroprudential policy in the presence of external risks abstract we document the relevance of external risks shocks to the level and volatility of world interest rates in shaping economic activity in emerging market economies emes and characterize optimal macroprudential policy in response to these risks in a small open economy subject to financial crises low and stable interest rates reinforce overborrowing arising from a pecuniary externality generated by collateral constraints that depend on asset prices we show that this mechanism leads to greater exposure to crises typically accompanied by abrupt increases in interest rates and a persistent rise in their volatility as observed during sudden stops in emes a tax on international borrowing that implements a social planner s optimal policy can be decomposed into three factors the severity of future crises the ability of the planner to dampen future crises and the incidence of future crises we show that the effects of interest rate volatility on these factors implies that qualitatively the tax responds non monotonically with respect to the direction of volatility shocks and that quantitatively increasing macroprudential taxes is seldom the optimal response to an increase in interest rate volatility

fifth order perturbation solution to dsge models abstract this paper derives a fifth order perturbation solution to dsge models the paper develops a new notation that reduces the notational complexity of high order solutions and yields a faster code the new notation consists of new matrix forms of high order multivariate chain rules and a new representation of the model as a function of one vector variable the algorithm that implements the new notation is between 3 and 55 times faster than dynare depending on model size and solution order

using nonlinear model predictive control for dynamic decision problems in economics abstract this paper presents a new approach to solve dynamic decision models in economics the proposed procedure called nonlinear model predictive control nmpc relies on the iterative solution of optimal control problems on finite time horizons and is well established in engineering applications for stabilization and tracking problems only quite recently extensions to more general optimal control problems including those appearing in economic applications have been investigated like dynamic programming dp nmpc does not rely on linearization techniques but uses the full nonlinear model and in this sense provides a global solution to the problem however unlike dp nmpc only computes one optimal trajectory at a time thus avoids to grid the state space and for this reason the computational demand grows much more moderately with the space dimension than for dp in this paper we explain the basic idea of nmpc give a proof concerning the accuracy of nmpc for discounted optimal control problems present implementational details and demonstrate the ability of nmpc to solve dynamic decision problems in economics by solving low and high dimensional examples including models with multiple equilibria tracking and stochastic problems

learning and the great moderation we study a stylized theory of the volatility reduction in the u s after 1984 the great moderation which attributes part of the stabilization to less volatile shocks and another part to more difficult inference on the part of bayesian households attempting to learn the latent state of the economy we use a standard equilibrium business cycle model with technology following an unobserved regime switching process after 1984 according to kim and nelson 1999a the variance of u s macroeconomic aggregates declined because boom and recession regimes moved closer together keeping conditional variance unchanged in our model this makes the signal extraction problem more difficult for bayesian households and in response they moderate their behavior reinforcing the effect of the less volatile stochastic technology and contributing an extra measure of moderation to the economy we construct example economies in which this learning effect accounts for about 30 of a volatility reduction of the magnitude observed in the postwar u s data

an analysis of inflation and interest rates new panel unit root results in the presence of structural breaks abstract this paper investigates the order of integration of inflation and interest rates in a panel of 19 countries the results show that once multiple endogenous breaks are allowed for and appropriate critical values are used the series appear to be i 0

asset pricing implications of a new keynesian model to match the stylised facts of goods and labour markets the canonical new keynesian model augments the optimising neoclassical growth model with nominal and real rigidities we ask what the implications of this type of model are for asset prices using a second order numerical solution to the model we examine bond and equity returns the equity risk premium and the behaviour of the real and nominal term structure we catalogue the factors that are most important for determining the size of risk premia and the slope and level of the yield curve in a world of technology shocks only increasing the degree of real rigidities raises risk premia and increasing nominal rigidities reduces risk premia in a world of monetary policy shocks only both real and nominal rigidities raise risk premia the results indicate that the implications of the new keynesian model for average asset returns depend critically on the

network prominence bargaining power and the allocation of value capturing rights in high tech alliance contracts we suggest and provide empirical evidence that the bargaining power of alliance partners stemming from their prominence in alliance networks influences the ex ante allocation of value capturing rights in high tech alliance contracts network prominence can enhance the availability of alternative partners for a firm and thereby elevates the firm s bargaining power and enables the firm to receive i more value capturing rights vis a vis its partner i e more net value capturing rights and ii more rights to the unexpected outcomes vis a vis its partner we empirically investigate the content of research and development r d collaboration contracts between biotech and pharmaceutical firms and show that as the prominence of the client i e pharmaceutical firm increases it is able to attain i more net value capturing rights to outcomes within the area of collaboration and ii more rights to unexpected outcomes by contrast increased prominence of the r d firm i e biotech firm decreases both t

disappointment aversion term structure and predictability puzzles in bond markets we solve a dynamic equilibrium model with generalized disappointment aversion preferences and continuous state endowment dynamics we apply the framework to the term structure of interest rates and

perturbation solution and welfare costs of business cycles in dsge models abstract lucas 1987 argues that the removal of cyclical fluctuations would barely improve economic welfare he considers a risk averse consumer valuing exogenously given streams of consumption c t c e g t e 2 2 t driven by an iid sequence of draws t from a standard normal distribution this allows him to change the size 2 of the fluctuations without changing the mean of the process in production economies too uncertainty is typically introduced in form of multiplicative log normally distributed shocks so that mean preserving spreads can be analyzed in an analogous way however only few stochastic dynamic general equilibrium dsge models admit an analytic solution the most prevalent method to solve these models perturbation methods obtain an approximation to the stochastic model by perturbing the solution of the model s deterministic counterpart with respect to the uncertainty parameter yet widely available formulae to compute perturbation solutions are based only on the perturbation of t and do not adequately capture the additional deviation 2 2 in the mean between the stochastic model and its deterministic version we show within a model admitting an analytical solution that a second order approximation of the welfare criterion also requires to perturb the mean thus welfare measures based on the standard procedures for second order solutions are seriously biased by a purely exogenous mean effect we develop a general procedure of computing second order accurate approximations of welfare gains or losses in the canonical dsge model by extending the computation of second order solutions pioneered by schmitt grohe and uribe 2004 to allow for mean preserving increases in the size of shocks we apply our method to the model considered by cho et al 2015 and show that different from the results reported by these authors removing the cycle is always welfare improving welfare measures computed from weighted residuals methods confirm the logic behind our perturbation approach and verify the accuracy of our estimates

perturbations in dsge models an odd derivatives theorem abstract this paper extends a classical result in portfolio theory about the effect of risk on value functions to its effect more generally on policy functions if odd moments of shocks are zero up to some order then the odd order marginal effects on value and policy functions of introducing these shocks are zero as well mathematically all coefficients of corresponding odd order in the perturbation parameter are zero if shocks are symmetric e g normally distributed then this holds for all odd orders the main theorem 1 generalizes past results on perturbations and unifies their economic intuition 2 improves the computation of stochastic coefficients and 3 illustrates how to derive properties of high order perturbations through simple induction

near unit root small open economies abstract the marginal utility of wealth in incomplete markets small open economy models follows a unit root process i study the nonlinear properties of devices often used to remove the unit root and i find that they generate different dynamics when matching emerging markets models with endogenous discount factors reinforce consumption response to shocks and increase the countercyclicality of the trade balance to output ratio conversely models with debt frictions ameliorate the responses of consumption and trade balance hence to generate dynamics similar to those in emerging economies the debt frictions need to be small inducing a near unit root behavior in their euler equations this difference across models is hidden when matching developed economies because of consumption smoothing and the mild countercyclicality of the trade balance

agent based stock flow consistent macroeconomics towards a benchmark model abstract the paper moves from a discussion of the challenges posed by the crisis to standard macroeconomics and the solutions adopted within the dsge community although several recent improvements have enhanced the realism of standard models we argue that major drawbacks still undermine their reliability in particular dsge models still fail to recognize the complex adaptive nature of economic systems and the implications of money endogeneity the paper argues that a coherent and exhaustive representation of the inter linkages between the real and financial sides of the economy should be a pivotal feature of every macroeconomic model and proposes a macroeconomic framework based on the combination of the agent based and stock flow consistent approaches the papers aims at contributing to the nascent ab sfc literature under two fundamental respects first we develop a fully decentralized ab sfc model with several innovative features and we thoroughly validate it in order to check whether the model is a good candidate for policy analysis applications results suggest that the properties of the model match many empirical regularities ranking among the best performers in the related literature and that these properties are robust across different parameterizations second the paper has also a methodological purpose in that we try to provide a set or rules and tools to build calibrate validate and display ab sfc models

solving endogenous regime switching models abstract this paper solves rational expectations models in which structural parameters switch across multiple regimes according to state dependent endogenous transition probabilities assuming small shocks and smooth transition probabilities we apply a perturbation approach we first provide for conditions under which a unique bounded equilibrium exists we then compute first and second order approximations in a new keynesian model with monetary policy switching we document new effects of monetary policy switching when transition probabilities depend on inflation

inventory behavior and financial constraints theory and evidence we model the interaction of financial constraints capacity constraints and the response of production and inventory to cost and demand shocks the model predicts that in response to favorable shocks financially constrained firms are unable to build inventory as rapidly as are unconstrained firms however because the favorable shocks gradually ease the financial constraints constrained firms continue to build inventory and eventually carry surplus inventory relative to unconstrained firms to unfavorable states this allows them to deplete inventory more aggressively in response to unfavorable shocks our empirical evidence provides broad support for the model s predictions

survival of businesses using collaborative relationships to commercialize complex goods authors with many theoretical and managerial perspectives argue that businesses commercializing technologically complex goods benefit when they collaborate closely with other businesses collaboration is viewed as a means for businesses to overcome competency limitations and to achieve the close configuration of components required for complex goods we predict that collaborative relationships often assist businesses to produce complex goods but that the relationships might also cause problems for the collaborating businesses we find that firms using development oriented and marketing oriented collaborative relationships in the hospital software systems industry are less likely to shut down than businesses that follow independent approaches when the environment changes gradually but businesses using collaborative relationships are sometimes susceptible to being acquired by other firms following a sudden environmental shock businesses with collaborative relationships for activities central to the shock became more likely to shut down while businesses with collaborative relationships for activities outside the focus of the shock became more likely to survive the study critically evaluates and tests the widely stated but little tested argument that interfirm collaboration is usually beneficial the results address the issue of whether organizational choices affect comparative business performance

venture capitalist certification in initial public offerings this paper provides support for the certification role of venture capitalists in initial public offerings consistent with the certification hypothesis a comparison of venture capital backed ipos with a control sample of nonventure capital backed ipos from 1983 through 1987 matched as closely as possible by industry and offering size indicates that venture capital backing results in significantly lower initial returns and gross spreads in effect the presence of venture capitalists in the issuing firms serves to lower the total costs of going public and to maximize the net proceeds to the offering firm in addition we document that venture capitalists retain a significant portion of their holdings in the firm after the ipo the ability of third party specialists to certify the value of securities issued by relatively unknown firms in capital markets that are characterized by asymmetric information between corporate insiders and public investors has attracted much academic interest in recent years several authors including james 1990 blackwell marr and spivey 1990 and barry muscarella peavy and vetsuypens 1991 have developed and tested models based at least in part on the formal certification hypothesis presented in booth and smith 1986 a related body of work represented by deangelo 1981 beatty and ritter 1986 titman and trueman 1986 johnson and miller 1988 carter 1990 simon 1990 and carter and manaster 1990 has examined how investment bankers and auditors help resolve the asymmetric information inherent in the initial public offering ipo process in this paper we examine whether the presence of venture capitalists as investors in a firm going public can certify that the offering price of the issue reflects all available and relevant inside information we hypothesize that venture capitalists can perform this function that it will be an economically

supply constraints and housing market dynamics abstract although the volatility of house prices is often ascribed to demand side factors constraints on housing supply have important and little studied implications for housing dynamics i illustrate the strong relationship between the volatility of house prices and the regulation of new housing supply i then employ a dynamic structural model of housing investment to investigate the mechanisms underlying this relationship i find that supply constraints increase volatility through two channels first regulation lowers the elasticity of new housing supply by increasing lags in the permit process and adding to the cost of supplying new houses on the margin second geographic limitations on the area available for building houses such as steep slopes and water bodies lead to less investment on average relative to the size of the existing housing stock leaving less scope for the supply response to attenuate the effects of a demand shock my estimates and simulations confirm that regulation and geographic constraints play critical and complementary roles in decreasing the responsiveness of investment to demand shocks which in turn amplifies house price volatility

venture capitalists and cooperative start up commercialization strategy this paper examines the possible impact of venture capital vc backing on the commercialization direction of technology based start ups by asking to what extent if at all do vc funded start ups engage in cooperative commercialization strategies strategic alliances or technology licensing or both relative to a comparable set of start ups and with what consequences to address these questions i assemble a novel data set that matches firms receiving a federal research and development subsidy through the u s small business innovative research program to vc funded firms by observable characteristics in five technology intensive industries these data allow decoupling of cooperative activity resulting from start up development via the passage of calendar time from that due to association with vcs an analysis of the 696 start ups in the sample split by an external funding source suggests substantial boosts in both cooperative activity associated with vc backed firms and in the likelihood of an initial public offering

networks as the pipes and prisms of the market1 this article draws an analytical distinction between two types of market uncertainty egocentric which refers to a focal actor s uncertainty regarding the best way to convert a set of inputs to an output desired by a potential exchange partner and altercentric which denotes the uncertainty confronted by a focal actor s exchange partners regarding the quality of the output that the focal actor brings to the market given this distinction the article considers how the value of structural holes and market status vary with these two types of uncertainty the article proposes that the value of structural holes increases with egocentric uncertainty but not with altercentric uncertainty in contrast the value of status increases with altercentric uncertainty but declines with egocentric uncertainty thus actors with networks rich in structural holes should sort into markets or market segments that are high in egocentric uncertainty high status actors should sort into markets that are low in egocentric

the scarring effect of recessions abstract according to the conventional view recessions improve resource allocation by driving out less productive firms this paper posits an additional scarring effect recessions impede the developments of potentially superior firms by destroying them during their infancy a model is developed to capture both the cleansing and the scarring effects a key ingredient of the model is that idiosyncratic productivity is not directly observable but can be learned over time when calibrated with statistics on entry exit and productivity differentials the model suggests that the scarring effect dominates the cleansing effect and gives rise to lower average productivity during recessions