estimation methods in portfolio selection and the effectiveness of short sales restrictions uk evidence forecasting the mean returns vector and the covariance matrix is a key feature in implementing portfolio theory the performance of the bayes stein method for forecasting these parameters for use in the markowitz model with and without short sales was compared with that of seven other estimation methods and three alternative portfolio selection techniques this paper represents the first large scale empirical investigation of the usefulness of the bayes stein approach using historical data this data was drawn from the london stock exchange in contrast to earlier studies the relative performance of bayes stein was mixed while it produced reasonable estimates of the mean returns vector there were superior methods e g overall mean for estimating the covariance matrix when short sales were permitted when short sales were prohibited actual portfolio performance was clearly improved although there was little to choose between the various estimation methods

getting big too fast strategic dynamics with increasing returns and bounded rationality neoclassical models of strategic behavior have yielded many insights into competitive behavior despite the fact that they often rely on a number of assumptions including instantaneous market clearing and perfect foresight that have been called into question by a broad range of research researchers generally argue that these assumptions are good enough to predict an industry s probable equilibria and that disequilibrium adjustments and bounded rationality have limited competitive implications here we focus on the case of strategy in the presence of increasing returns to highlight how relaxing these two assumptions can lead to outcomes quite different from those predicted by standard neoclassical models prior research suggests that in the presence of increasing returns tight appropriability and accommodating rivals in some circumstances early entrants can achieve sustained competitive advantage by pursuing get big fast gbf strategies rapidly expanding capacity and cutting prices to gain market share advantage and exploit positive feedbacks faster than their rivals using a simulation of the duopoly case we show that when the industry moves slowly compared to capacity adjustment delays boundedly rational firms find their way to the equilibria predicted by conventional models however when market dynamics are rapid relative to capacity adjustment forecasting errors lead to excess capacity overwhelming the advantage conferred by increasing returns our results highlight the risks of ignoring the role of disequilibrium dynamics and bounded rationality in shaping competitive outcomes and demonstrate how both can be incorporated into strategic analysis to form a dynamic behavioral game theory amenable to rigorous analysis

exchange rate adjustment and oligopoly pricing behaviour this paper sets out a general theoretical structure for analyzing price adjustments to cost changes within asymmetric oligopolistic markets the theory implies that contrary to the usual assumption exchange rate changes may leave prices unaltered this is explored by an empirical examination of the european car market intracountry changes in car prices and the huge differences in u k and european car prices are both examined the empirical results are in line with the theoretical implications changes in relative supply costs are more likely to be converted into changes in price cost margins than prices within a national oligopolistic market copyright 1989 by oxford university press

a search theoretic model of legal and illegal currency abstract using a search theoretic model of money we explore the conditions under which two currencies domestic and foreign will co exist despite legal restrictions on the use of foreign currency for internal trade we study how changes in government policy i e its enforcement of currency laws through fines or the rate of enforcement affects the acceptability of illegal currency the equilibrium value of both currencies and the implicit exchange rate first we construct a model with indivisible goods to show conditions under which legal currency is fully acceptable but illegal currency circulates with varying acceptability we then introduce bargaining to determine prices in legal and illegal currency we show that some enforcement polices can create multiple equilibria while others will not also some methods of enforcement are capable of driving the illegal currency out of circulation while others are not

the determinants of growth the growth theories of the 1950s and 1960s emphasized capital accumulation and technical progress as explanations of growth more recently theoretical attention has focused on the understanding of progress in terms of learning human capital in the tradition of k arrow and investment in research following h uzawa these newer developments have made some but only limited progress the experience of developing countries suggests that the agenda should be broadened to include the efficiency of factor use infrastructure broadly interpreted and sectoral allocation these aspects together with the kaldorian concern for dynamic increasing returns provide substantial promise for future research copyright 1991 by royal economic society

incentive problems and the pattern of international risk sharing abstract this paper analyzes the implications of moral hazard and a lack of contract enforcement for risk sharing across countries and regions we demonstrate that both incentive problems can considerably restrict efficient risk sharing however we show that the cross sectional risk sharing component is much more affected than the intertemporal component we argue that this may help to explain several stylized facts of international risk sharing such as the low degree of insurance against permanent shocks

a search theoretic approach to monetary economics the essential function of money is its role as a medium of exchange the authors formalize this idea using a search theoretic equilibrium model of the exchange process that captures the double coincidence of wants problem with pure barter one advantage of the framework described here is that it is very tractable the authors also show that the model can be used to addre ss some substantive issues in monetary economics including the potenti al welfare enhancing role of money the interaction between specializat ion and monetary exchange and the possibility of equilibria with multip le fiat currencies copyright 1993 by american economic association

home bias in equity portfolios inflation hedging and international capital market equilibrium we test whether the home bias in equity portfolios is caused by investors trying to hedge inflation risk the empirical evidence is consistent with this motive only if investors have very high levels of risk tolerance and equity returns are negatively correlated with domestic inflation we then develop a model of international portfolio choice and equity market equilibrium that integrates inflation risk and deadweight costs using this model we estimate the levels of costs required to generate the observed home bias in portfolios consistent with different levels of risk aversion for a level of risk aversion consistent with standard estimates of the domestic equity market risk premium these costs are about a few percent per annum greater than observable costs such as withholding taxes thus the home bias cannot be explained by either inflation hedging or direct observable costs of international investment unless investors have very low levels of risk aversion article published by oxford university press on behalf of the society for financial studies in its journal the review of financial studies

revisiting the home bias puzzle downside equity risk deviations from normality in financial return series have led to the development of alternative portfolio selection models one such model is the downside risk model whereby the investor maximizes his return given a downside risk constraint in this paper we empirically observe the international equity allocation for the downside risk investor using nine international markets returns over the last 34 years the results hold for both daily and monthly data and also from an international perspective due to greater downside risk investors may think globally but instead act locally the model s results therefore provide an alternative view of the home bias puzzle

beyond capital fundamentalism harrod domar and the history of development economics the origins of capital fundamentalism the notion that physical capital accumulation is the primary determinant of economic growth have been often ascribed to harrod s and domar s proposition that the rate of growth is the product of the saving rate and of the output capital ratio it is argued here that development planners in the 1950s reinterpreted and adapted the growth formula to their agenda in order to calculate capital requirements development economists at the time lewis hirschman rostow and others were aware that harrod s and domar s growth models addressed economic instability based on keynesian multiplier analysis which differed from their concern with long run growth in developing economies harrod eventually applied his concept of the natural growth rate to economic development he claimed that the growth of developing economies was determined by their ability to implement technical progress not by capital accumulation subject to diminishing returns domar pointed out that the incremental capital output ratio was more likely a passive result of the interaction between the propensity to save and technological progress instead of a causal factor in the determination of growth

secondary currency an empirical analysis abstract many cases exist of multiple currency usage throughout history as two leading examples secondary currencies were widespread during both the great depression in the united states and the 2002 recession in argentina what are the determinants of multiple currency usage and what is the effect on economic activity both issues are empirically addressed using individual level surveys collected by the authors in argentina during 2002 and 2003 the evidence supports the theoretically predicted determinants of secondary currency acceptability put forth in monetary theory in particular findings show that the acceptability of the secondary currency increases when the supply of national currency is low the relative transaction cost of the secondary currency is low and the individual trading technologies are less effective moreover the acceptability of the secondary currency has real effects on economic activity among those who use the secondary currency the monthly income gain is more than 15 of the average argentine s monthly income excluding trades of used goods this amounts to a 0 6 increase in gdp

community currencies and sustainable development a systematic review community or complementary currency systems have spread all around the world most often they have been promoted as tools to foster sustainable development albeit they differ in terms of specific objectives while many case studies have tried to assess the actual impact of these systems there has been no global analysis summarizing their global impact this paper aims to fill the gap by exploring whether complementary currencies contribute to the three pillars of sustainable development we use the systematic review methodology on an original dataset gathering most academic publications on the topic in english french and spanish our main findings suggest that community currencies mostly contribute to social sustainability and that their economic benefits are somewhat limited due to their small scale and the lack of awareness on their scope moreover very few studies explicitly identify environmental outcomes finally this review reveals some limits regarding current methods for impact assessment in this field therefore it encourages more standardization to provide greater accuracy and strengthen the legitimacy of community currencies in order to foster their continued development

post keynesian economics towards coherence this paper provides a comprehensive survey of post keynesian economics it argues that post keynesian economics has passed through the important initial stage of mounting a concerted critique of mainstream economics the focus however is on the stage reflected in current post keynesian research which the paper argues is concerned with elaborating a distinctive coherent approach that takes precedence over critique several traditions upon which post keynesian economics relies are identified institutionalism is proposed as an additional contributing tradition a novel aspect of the paper it is recognized however that more research is necessary to complete the post keynesian approach c 1996 academic press limited copyright 1996 by oxford university press

search bargaining money and prices the goal of this paper is to extend existing search theoretic models of fiat money which until now have assumed that the price level is exogenous by explicitly incorporating bilateral bargaining this allows us to determine the price level endogenously and leads to additional insights concerning the role of money for example we find that monetary equilibria are generally inefficient in the sense that output and prices differ from the solution to a social planner s problem although the difference can become small as the discount rate or search friction vanishes we also find that there exist nonstationary inflationary equilibria

endogenous asymmetric information and international equity home bias the effects of portfolio size and information costs equity home bias is one of the major puzzles in international finance this paper investigates the impact of asymmetric information on equity home bias in a rational expectation model where portfolio managers differ in their levels of initial portfolio size and information acquisition is endogenous the model characterizes the information acquisition and investment decisions made by each portfolio manager and the resulting equilibrium we find that portfolio managers with larger portfolio size acquire information about the foreign asset this is consistent with new evidence linking the degree of home bias across portfolio managers to portfolio size

money demand and the effects of fiscal policies this paper reexamines the choice of the scale variable in the money demand function a variety of evidence suggests that consumer spending is a better scale variable than gnp changing the money demand specification along these lines can profoundly affect the standard keynesian analysis of a tax cut copyright 1986 by ohio state university press

is a plumber or a new financial architect needed to end global international liquidity problems how one interprets volatility in the international financial markets and therefore chooses a policy stance regarding these markets depend on the underlying economic theory that one explicitly or implicitly utilizes to explain the role of financial markets in a market oriented entrepreneurial economy there are two major alternative theories of financial markets 1 the classical efficient market theory hereafter emt and 2 keynes s liquidity preference theory hereafter lpt each produces a different set of policy prescriptions emt advocates call for a liquidity plumber to patch up some short run stresses in today s efficient international financial flow system lpt proponents believe that the current system is structurally flawed consequently it will require an architect to build a new international financial structure on more solid foundations

critical survey savings and economic growth in neoclassical theory in neoclassical economics economic growth depends upon savings the paper discusses problems with this conventional view and how these have been tackled from pre solowian authors up to the recent new or endogenous growth theory egt these difficulties became particularly clear with the solow swan model of growth in which the savings rate did not affect the rate of growth in the absence of exogenous circumstances savings would only depress the marginal productivity of capital forcing the economy towards a stationary state the paper interprets egt as an attempt to react to this gloomy theoretical prospect the paper examines various difficulties with this attempt

complementary credit networks and macroeconomic stability switzerland s wirtschaftsring abstract the swiss wirtschaftsring economic circle credit network founded in 1934 provides residual spending power that is highly counter cyclical individuals are cash short in a recession and economize by greater use of wir credits a money in the production function mipf specification implies that transactions in wir form a stabilizing balance that makes up for the lack of ordinary currency thus unlike the ordinary money wir money is negatively correlated with gdp in the short run this implication is confirmed by empirical estimates such credit networks play a stabilizing role that should be considered in monetary policy

local clearing unions as stabilizers of local economic systems a stock flow consistent perspective various examples of complementary currencies have recently emerged in europe in response to the impact of the 2007 financial crisis they have been variously labelled as social local and alternative money but their economic meaning has still to be discussed on the one hand they have been hailed as innovative tools for socio territorial policies with a focus on localist anti globalist and anti capitalist values on the other the emphasis on the value of currencies as instruments of alternative territorial development runs the risk of overshadowing issues concerning the specific features of such projects the first part of this paper puts forward an interpretation of the current situation as a crisis of the liquidity principle and suggests that the principle of clearing instead represents the primary point of reference for any institutional arrangement aimed at restoring a balanced relationship between lenders and borrowers a critical review of known european complementary monetary circuits is followed by examination of the sardex clearing system the paper then goes on to argue by means of a stock flow consistent model that complementary monetary circuits can serve to stabilise local economic systems in particular a local clearing union for local exchanges has the effect of stabilising the profits of firms while attenuating the impact of the credit crunch at same time

trade credit and the bank lending channel the bank lending channel theory posits that during monetary contractions banks restrict some firms loans thus reducing their desired investment independently of interest rates previous research finds small firms reduce while large firms accelerate loan growth we find that small firms increase trade credit a substitute credit indicating a strong loan demand it supports the bank lending channel they do not voluntarily cut bank loans since they increase a less desirable alternative using trade credit is propitious since unlike commercial paper investigated by previous researchers it is widely used by the small firms suffering the loan decline surprisingly we also find large firms increase trade credit a puzzle since they are typically assumed to have wide access to other credit using individual manufacturing firm data we find the reasons large firms use trade credit are financial in nature those without a bond rating increase trade credit that is without access to open market credit as relatively few firms have this mark of quality it implies that more firms are affected by credit constraints than previously believed

keynesian economic policies for the new millennium in this paper we outline an approach to economic policy in which there is an emphasis on the need for both demand side and supply side policies to secure full employment our approach can be considered keynesian in the sense that its policy implications arise from the perception of the role of aggregate demand in setting the level of economic activity and the lack of automatic forces leading a market economy to full employment our conception of the operations of a market economy is briefly outlined in section 2 this we further elaborate upon in section 3 by considering the constraints on achieving full employment that operate in a market economy this leads into section 4 in which we outline and analyse the nature of keynesian policies relating both to the demand and supply side of the economy the final main section 5 considers some of the constraints and ways of overcoming them on the implementation of the type of keynesian policies which we are advocating there are two key elements of keynes 1936 on which we draw the first is the contention that a laissez faire market economy will not usually generate full employment the obstacles to the achievement of full employment are not some imperfections like monopolistic competition or trade union activity which could potentially be removed through government action cf shapiro 1996 it is rather that a laissez faire market economy would exhibit elements of instability and does not usually generate a level of aggregate demand consistent with full employment the second is that a less unequal distribution of market power income and wealth is another desirable goal in its own right and a vehicle for increasing general prosperity as keynes 1936 remarked the outstanding faults of the economic society in which we live are its failure to provide for full employment and its arbitrary and inequitable distribution of wealth and incomes p 372

lessons for international asset allocation on the positive side and despite rumors to the contrary there is little evidence that either stock or bond markets have become more volatile worldwide second correlations between markets remain low on the negative side however correlations do appear to increase when market volatility increases that is just when the diversification potential offered by low correlations is most needed furthernore while currency risk remains a small although signifcant component of total equity risk its contribution to fixedincome risk appears to be increasing

money barter and convergence to the competitive allocation menger s problem abstract this paper explores the propensity of a bilateral exchange economy to get stuck away from the competitive allocation even when the competitive prices have been established this is menger s problem necessary and sufficient conditions for a menger problem are found to relate to the presence of corner solutions when money is introduced convergence can be established

on money as a medium of exchange we analyze economies in which individuals specialize in consumption and production and meet randomly over time in a way that implies that trade must be bilateral and quid pro quo nash equilibria in trading strategies are characterized certain goods emerge endogenously as media of exchange or commodity money depending both on their intrinsic properties and on extrinsic beliefs there are also equilibria with genuine fiat currency circulating as the general medium of exchange we find that equilibria are not generally pareto optimal and that introducing fiat currency into a commodity money economy may unambiguously improve welfare velocity acceptability and liquidity are discussed

how many cheers for the tobin transactions tax this paper seeks to evaluate the strength of the case for a financial transactions tax judged against the three rationales which have been proposed for such a tax the excessive volume of short term foreign exchange transactions and their effects on exchange rate volatility the revenue raising potential of the tax and the possible enhancement of the autonomy of national economic policy to which it might lead copyright 1997 by oxford university press

reading keynes in buenos aires prebisch and the dynamics of capitalism keynes had a profound influence on prebisch in terms of the diagnosis about the main failures of market economies and the need to pursue pro active and anti cyclical policies however prebisch was critical of some aspects of keynes s general theory of employment interest and money in particular on the theory of interest and the multiplier his attitude can be explained by a difference in the object and method of analysis prebisch s interests focussed on dynamics and the cycle themes that were peripheral to keynes s central message prebisch s keynesian influence and his rejection of some aspects of keynes s magnum opus explains why at the same time that prebisch is often described as the latin american keynes he is portrayed as concerned mainly with the long run development problem of latin america and without proper consideration to demand factors as fundamental determinants of output and employment

the emergence of economic organization abstract a model of decentralized markets is studied in which transactors follow simple adaptive rules transactions are coordinated by specialist trading firms that bear the costs of market disequilibrium starting from an initially autarkic situation in which none of the institutions that support exchange exist computer simulation shows that for a wide range of parameter values a fully developed market economy will emerge spontaneously moreover in virtually every case where a market economy develops one of the commodities traded will emerge as a universal medium of exchange being traded by every firm and changing hands in every act of exchange

beyond microfoundations post walrasian macroeconomics about the authors preface 1 overview david colander part i the post walrasian macroeconomic vision 2 taking markets seriously groundwork for a post walrasian macroeconomics robert clower and peter howitt 3 towards a not too rational macroeconomics axel leijonhufvud 4 the macrofoundations of micro david colander part ii the underpinnings of post walrasian macroeconomics 5 the evolution of macroeconomics the origins of post walrasian economics perry mehrling 6 chaos theory and post walrasian macroeconomics j barkley rosser jr 7 marshallian general equilibrium analysis david colander part iii modelling a post walrasian economy 8 heterogeneity aggregation and a meaningful macroeconomics robert j martel 9 walras complexity and post walrasian macroeconomics david m reaume 10 team coordination problems and macroeconomic models john bryant 11 competitive market disequilibrium a post walrasian analysis of investment john bryant part iv new structuralist macroeconomics vs post walrasian macroeconomics 12 endogenizing the natural rate of unemployment phelps s structural slumps and the post walrasian framework hans van ees and harry garretsen 13 post walrasian macroeconomic policy david colander and hans van ees part v appendix literature survey an annotated bibliography on the macro foundation of post walrasian economics hans van ees and harry garretsen name index subject index

imperfect financial integration and asymmetric information competing explanations of the home bias puzzle this paper shows that imperfect financial integration and informational asymmetries are not competing theories but rather complementary ideas to a single explanation of the home bias puzzle we develop a rational expectations model of asset prices with investors that face informational constraints and find that informational advantages arise endogenously as a response to small financial frictions we also present empirical evidence that i international financial frictions are correlated to observed patterns of us investors attention and that ii the attention us investors allocate to foreign stocks helps explain home bias towards those countries even after controlling for financial integration levels ce memoire montre que l integration financiere imparfaite et l information asymetrique ne sont pas des theories concurrentes mais plutot des idees complementaires a l interieur d une resolution unifiee de l enigme du biais en faveur du marche domestique on developpe un modele d anticipations rationnelles des prix des actifs face a des investisseurs confrontes a des contraintes informationnelles et on decouvre que les avantages informationnels emergent de maniere endogene en reponse a de petites frictions financieres on montre empiriquement que i les frictions financieres internationales sont co reliees aux patterns d attention observes des investisseurs des etats unis et que ii l attention portee par les investisseurs americains aux marches financiers etrangers aide a expliquer le biais en faveur du marche domestique de ces pays meme apres avoir pris en compte les niveaux d integration financiere

investment and technical progress models in which the growth rate is exogenous provide no role for government in determining growth in our model growth is associated with investment through externalities from learning by watching rather than with the level of the capital stock presumption of a technical progress function with first increasing and then decreasing returns leads to multiple steady state growth equilibria there is also an explicit role of government policy in setting tax rates on output it follows that two economies with identical structures and stochastic tax policies may exhibit very different growth paths over sustained periods although the stationary distribution of growth rates is the same given the desirability in principle of subsidizing investment various practical methods are considered copyright 1992 by oxford university press

wage inequality and the new economy many economists have argued that the observed increase in wage inequality in developed economies over the past 30 years is due to skill biased technical progress in this paper we put forward a somewhat different technology based argument namely that the increased inequality was caused by technical change linked to the pervasive innovation wave associated with the new economy this technical change was not skill biased in the usual sense but rather raised the reward to adaptability this alternative approach based on the notion of general purpose technology can shed light on a number of outstanding puzzles on the evolution of wage inequality both between and within educational groups

growth and productivity a model of cumulative growth and catching up individually neither the cumulative growth approach of the post keynesian tradition nor the catching up theory of neoclassical derivation are able to account for the chief stylized facts of comparative economic growth a pooled cross section econometric model that integrates these two approaches is developed and tested by the authors over the period 1950 88 for a group of nine oecd countries for a group of nine latin american countries and for a group of seven east asian countries purchasing power parities for 1985 are employed to measure productivity levels the growth record of the oecd countries is satisfactorily assessed by the model the catching up effect is found to be relevant in explaining productivity growth in the oecd area and in east asia but not in latin america this differential outcome finds explanation in terms of the relative strength of dynamic increasing returns copyright 1997 by oxford university press

firm size wage differentials in switzerland evidence from job changers using information on job changes and search behavior of workers and controlling for endogenous mobility we study firm size wage differentials in switzerland we find that the observed cross sectional firm size premium cannot be explained exclusively by worker heterogeneity almost 50 of the cross section differential is a firm size effect this abstract was borrowed from another version of this item

a utility based comparison of some models of exchange rate volatility abstract when estimates of variances are used to make asset allocation decisions underestimates of population variances lead to lower expected utility than equivalent overestimates a utility based criterion is asymmetric unlike standard criteria such as mean squared error to illustrate how to estimate a utility based criterion we use five bilateral weekly dollar exchange rates 1973 1989 and the corresponding pair of eurodeposit rates of homoskedastic garch autoregressive and non parametric models for the conditional variance of each exchange rate garch models tend to produce the highest utility on average a mean squared error criterion also favors garch but not as sharply

searching for a will o the wisp an empirical study of the nairu in canada abstract this paper demonstrates the uncertainty surrounding estimates of the non accelerating inflation rate of unemployment nairu a reduced form phillips curve is used to develop a generic model of the nairu which nests competing hypotheses about the specific form of the inflation unemployment relationship empirical results for the canadian economy show that the range of prime age male nairu s generated by statistically satisfactory and economically reasonable estimating equations covers almost the entire range of canadian post war prime age male unemployment experience estimates of the nairu depend heavily on the form of the estimating equation the operational definition of key variables and the data sample period

time to ditch the nairu the concept of a natural rate of unemployment or nonacceleratinginflation rate of unemployment nairu has ruled macroeconomics for about 25 years yet it is still controversial a wide range of views exists over how the nairu should be estimated a fact that in itself raises questions about the practical usefulness of the concept this essay presents a brief for no confidence in four parts first the theoretical case for the natural rate is not compelling second the empirical evidence for a vertical phillips curve and the associated hypothesis that lowering unemployment past the nairu leads to unacceptable acceleration of inflation is weak and has become much weaker in the past decade third viewed collectively attempts to estimate the location of the nairu have become a professional embarrassment disagreements remain on too many basic issues fourth adherence to the concept as a guide to policy has major costs and negligible benefits conversely the risks of dropping the natural rate hypothesis are minor while the benefits from a sustained pursuit of full employment could be substantial

capital formation and unemployment this paper criticizes the current enthusiasm for labour market policies as the main route to employment creation in oecd countries such policies are normally seen as a means of encouraging more employment on existing capital stock this approach is one sided and downplays the equally important task of increasing productive capacity with more investment in productive capacity conventional labour market policies for increasing employment would be more effective and some might be unnecessary the paper analyses the role of capital stock within the framework of a simple nairu model based on previous work by the author it also presents some empirical evidence copyright 1995 by oxford university press

policy implications of endogenous growth theory harrod domar growth theory sanctioned the overriding importance of capital accumulation in the quest for enhanced growth since budgetary surpluses could substitute for domestic savings fiscal policy became identified as the primary growth instrument government had a role to play the influence of harrod domar economics was far reaching development agencies gave great prominence to the need to raise savings ratios in doing so they were reflecting the spirit of contemporary development doctrine lewis i954 i958 rostow i960 and fei and ranis i964 had pinpointed the raising of the savings ratio as the key to understanding the process of development and the take off into sustained growth in advanced market economies concerned with the apparent success of soviet economic growth similar sentiments were expressed and the strict fiscal easy money prescription for economic growth was frequently advocated the introduction of the neo classical growth model especially in the contributions of solow i956 and swan i956 provided the necessary antidote to the excessive claims made for capital accumulation in neoclassical one sector models the ultimate determinant of the growth rate is shown to be the autonomously determined rate of population expansion fiscal policy is thus rendered an irrelevancy in the pursuit of higher growth per se although it may still have a part to play in the more esoteric pursuit of golden rules to achieve golden ages what the early harrod domar and neo classical formulations of growth theory possessed in common was the belief that the third ingredient in growth namely technical progress was an exogenously determined fortuitous and costless occurrence descending like manna from the heavens even though it was recognised that technical progress could be the dominant element in the growth equation especially following the publication of solow i957 there was no satisfactory account of the determinants of technical change indeed in the neo classical growth model with exogenous population expansion and exogenous technical change there was virtually no role for government to play discussion turned to the rather sterile issue of whether government intervention could speed up the process of adjustment in the event of some temporary disturbance from the steady state path but there was no growth policy as such this essentially unsatisfactory position has continued until very recent times the present paper offers an attempt to detail recent contributions which seek to rectify this situation and to draw out the more important implications for economic policy

the ecology of money a critical assessment abstract this paper assesses the proposal to transform the monetary system into an ecology of money that is into a system made of a large diversity of complementary currencies its central aim is to examine whether this proposal could provide a systemic solution to both the ecological and financial crises as several authors most notably lietaer and douthwaite have argued to this end it analyses the two main arguments in favour of this proposal first it focuses on the claim that an ecology of money would be more resilient and less prone to crisis than the present monetary system it shows that this argument suffers from several conceptual flaws and argues that it fails to provide sufficient normative reasons to favour an ecology of money second this paper analyses the claim that an ecology of money could help defeat the monetary growth imperative that supposedly plagues our economies the paper raises serious doubts about the existence of such an imperative and questions the claim that an ecology of money could contribute to weaken it in a significant way

a rational explanation for home country bias abstract while modern portfolio theory predicts that investors should diversify across international markets corporate equity is essentially held by domestic investors french and poterba 1991 french k poterba j 1991 investor diversification and international equity markets american economic review 81 222 226 suggest that in order for this bias to be justified investors must hold optimistic expectations about their domestic markets and pessimistic expectations about their foreign markets tesar and werner 1995 tesar l l werner i m 1995 home bias and high turnover journal of international money and finance 14 467 492 find existing explanations for the home equity bias unsatisfactory and conclude that the issue poses a challenge for portfolio theory we develop a model that incorporates both the foregone gains from diversification and the informational constraints of international investing and shows that home equity bias is consistent with rational mean variance portfolio choice specifically we prove that the nature of estimation risk in international markets can be responsible for this phenomenon we show that when the cross market variability in the estimation errors of international markets means far exceeds the cross market variability in the means themselves domestic dedication dominates international diversification an examination of 11 international markets returns over the last 25 years from the perspective of german japanese and us investors provides evidence consistent with this explanation

money and the commons an investigation of complementary currencies and their ethical implications the commons is a concept increasingly used with the promise of creating new collective wealth in the aftermath of the economic and financial crises finance and money have been criticized and redesigned to serve the collective interest in this article we analyze three types of complementary currency cc systems community currencies inter enterprise currencies and cryptocurrencies we investigate whether these systems can be considered as commons to address this question we use two main theoretical frameworks that are usually separate the new commons in organization studies and the common good in business ethics our findings show that these monetary systems and organizations may be considered as commons under the common good framework since they promote the common interest by creating new communities nevertheless according to the new commons framework only systems relying on collective action and self management can be said to form commons this allows us to suggest two new categories of commons the social commons which fit into both the new commons and the common good frameworks and the commercial commons which fit the common good but not the new commons framework this research advances a new conceptualization of the commons and of the ethical implications of ccs

transitional dynamics and economic growth in the neoclassical model neoclassical transitional dynamics are a central element of standard macroeconomic theory quantitative experiments with the fixed savings rate models of the 1960s showed lengthy transitions thus potentially rationalizing sustained differences in growth rates across countries the authors investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households lengthy transitions occur only with very low intertemporal substitution generally when one tries to explain sustained economic growth with transitional dynamics there are extremely counterfactual implications these result from the fact that implied marginal products are extraordinarily high in the early stages of development copyright 1993 by american economic association

history versus equilibrium and the theory of economic growth a model of cumulative causation is developed and the limits of this model as a characterization of historical rather than equilibrium long run growth outcomes are discussed an extension of the model which postulates that cumulative causation occurs in the context of technological and institutional regimes is proposed outcomes in the extended model are shown to be more influenced by history than those in the original model the extended model also addresses a number of recent criticisms of cumulative causation copyright 1997 by oxford university press

international portfolio diversification with estimation risk international portfolio diversification has long been advocated as a way of enhancing average returns while reducing portfolio risk for the investor who considers diversifying into foreign securities this proposition however relies on the assumption that the required inputs to the classical mean variance analysis are known with certainty typically expected returns variances and covariances are simply replaced by their ex post sample values and the optimal portfolio is derived without mentioning the uncertainty inherent in these parameter values but the rational investor should take this uncertainty into account when forming expectations and probably will consider estimators that are less subject to estimation error than the classical sample mean this paper investigates alternative estimators of expected returns and their implications for the alleged gains from diversification an important observation is the crucial influence that errors in estimating expected returns have on portfolio analysis a closer examiprevious studies of international portfolio diversification have relied on ex post meanvariance analysis without considering the problem of estimation risk typically past averages are substituted for expected returns and no allowance is made for the uncertainty inherent in these parameter values first i demonstrate the shortcomings of such an approach and second i investigate another method of estimating expected returns initially proposed by stein by shrinking the sample averages toward a common mean i find that the out of sample performance of the optimal portfolio is substantially increased one of the implications of this method is that the classical conclusions vastly overestimate the possible gains in average returns instead benefits from diversification are more likely to accrue from a reduction in risk this paper draws on part of my dissertation at the university of chicago i am grateful to arnold zellner michael mussa george constantinides and especially john bilson for useful discussions and comments numerous improvements were also suggested by the referee this research received the generous financial support of the college interuniversitaire d etudes doctorales dans les sciences du management

the conduct of monetary policy nowadays the central bank of a country is the monopoly supplier of legal tender currency the commercial banks are committed to making their deposits convertible at par into such currency so the banks need to keep reserves in the form of currency and deposits at the central bank the central bank primarily conducts its policy by buying and selling financial securities e g treasury bills or foreign exchange in exchange for its own liabilities i e open market operations academic economists generally regard such operations as adjusting the quantitative volume of the banks reserve base and hence of the money stock with rates prices in such markets simultaneously determined by the interplay of demand and supply central bank practitioners almost always view themselves as unable to deny the banks the reserve base that the banking system requires and see themselves as setting the level of interest rates at which such reserve requirements are met with the quantity of money then simultaneously determined by the portfolio preferences of private sector banks and non banks this difference in perceptions is discussed again in section iii whether the monetary policy operations of central banks should be viewed primarily in terms of quantity or rate setting actions though of course one is the dual of the other these had allowed inflation and inflationary expectations to become entrenched by the end of the i970s a selection of representative statistics for a number of the leading industrialised countries is given in table i below this table indicates a common pattern among the countries of interaction between interest rates inflation and the growth of output the first period i969 78 is marked by high inflation negative real interest rates and slightly above average growth the second period i979 82 by very high nominal and high real interest rates high but falling inflation and very low output growth the final period i983 7 is marked by much lower inflation lower nominal but still high real interest rates and a recovery in output growth in some cases to above average rates in contrast the relationship in these countries between the growth of their chosen key monetary aggregate and nominal incomes appears much weaker also see clinton and chouraqui i987 especially p 7 whether measured in terms of monetary growth or in terms of real interest rates i e after adjustment for prospective future inflation policy during the

tying trade flows a theory of countertrade with evidence a countertrade contract ties an export to an import usually countertrade is criticized as a form of bilateralism and reciprocity and thus as an inefficient form of international exchange in this paper the authors argue that there are circumstances in which the tying of two technologically unrelated trade flows may be efficiency enhancing they show that countertrade can be an efficient institution in international trade that solves moral hazard problems and restores creditworthiness of highly indebted countries the authors test the implications of their model using a sample of 230 countertrade contracts copyright 1995 by american economic association

increasing returns and the foundations of unemployment theory current approaches to macroeconomic theory divide roughly into two basic schools of thought one approach typically associated with rational expectations views the economy as basically at or near walrasian market clearing equilibrium in which case it becomes very difficult to explain away convincingly the undeniable persistence at times of involuntary unemployment another approach views the underemployed economy as being in a state of temporary fixed price disequilibrium in which case aside from having to repress suspicions that the essence of effective demand failure might not have to do with prices fixed at wrong values there is a lot of rationalising to be done about why profitable adjustments are so slow this paper argues that something like an internally consistent theory of steady state involuntary unemployment is possible and even plausible the cornerstone of this third approach is increasing returns to scale which blocks unemployed agents from breaking out of a low level equilibrium trap unless there is overall coordination or stimulation a simple model is presented which contains the basic ideas

symposium on keynesian economics today no book in economics has been more praised more vilified or more discussed than the general theory of employment interest and money by john maynard keynes keynes wrote the book in the midst of a depression so great that it was clear to all observers that the economy was not working well in the united states the unemployment rate reached a peak of 25 percent in 1933 and it remained above 14 percent for the rest of the decade indeed the severity and persistence of the depression threatened the very existence of free market economies in the general theory keynes offered a diagnosis and treatment of this malady the book sparked a revolution in economics what is left of the keynesian revolution today the 1970s were a hard time for keynesians as the phillips curve seemed to disappear so did the burgeoning consensus in macroeconomics keynes had emphasized how shifts in aggregate demand cause economic fluctuations but in the 1970s shifts in aggregate supply seemed at least as important critics questioned whether keynesian macroeconomics could be built on solid microeconomic foundations and new classical macroeconomics took a turn on center stage but intellectual ideas ebb and flow most economists were not willing to embrace theories of the business cycle based on continuous market clearing it is therefore not surprising that keynesian ideas surged again to prominence in the 1980s the first two papers in this symposium discuss two strands of new keynesian economics like keynes new keynesians begin with the premise that persistent unemployment and economic fluctuations are central and continuing problems recessions and depressions represent market failure on a grand scale coming in the wake of the new classical revolution new

how to haggle and to stay firm barter as hidden price discrimination barter transactions conducted openly by established corporations play an increasingly significant role in the u s economy the model developed here helps explain why firms use barter and yields predictions concerning the circumstances under which barter is likely to occur it is shown that when two firms barter goods used as inputs price discrimination occurs this price discrimination is hidden from the firms other customers because the real values of the transacted goods to the barterers are different from the accounting prices used in the transaction since price discrimination that is observed by potential customers might have an adverse effect on the selling firm s future bargaining power barter will have value as a means of hiding price discrimination

estimation risk in portfolio selection the mean variance model versus the mean absolute deviation model konno and yamazaki konno h k yamazaki 1992 mean absolute deviation portfolio optimization model and its applications to tokyo stock market management sci 39 519 531 propose the mean absolute deviation mad model as an alternative to the mean variance mv model they claim it retains all the positive features of the mv model saves the investor computing time and does not require the covariance matrix this paper shows that ignoring the covariance matrix results in greater estimation risk that outweighs the benefits in both models estimation error is more severe in small samples small observations relative to the number of assets and for investors with high risk tolerance the mv model s lower estimation risk is most striking in small samples and for investors with a low risk tolerance

the benefits of lending relationships evidence from small business data this paper empirically examines how ties between a firm and its creditors affect the availability and cost of funds to the firm we analyze data collected in a survey of small firms by the small business administration the primary benefit of building close ties with an institutional creditor is that the availability of financing increases we find smaller effects on the price of credit attempts to widen the circle of relationships by borrowing from multiple lenders increases the price and reduces the availability of credit in sum relationships are valuable and appear to operate more through quantities rather than prices

money reform and the eurozone crisis panacea utopia or grassroots alternative the economic crisis that broke out in 2007 2008 and the ongoing crisis in the eurozone has given a new urgency to discussions about alternatives to capitalism and a new salience to proposals for monetary reform and for grassroots economic alternatives using marx and engel s concept of utopianism as an analytical tool to distinguish between what is the work of cranks and what of brave heretics the paper examines four monetary responses to the crisis 1 positive money s call for a state monopoly on money issuance 2 the reintroduction of national currencies in particular the drachma 3 proposals for state issued parallel currencies and 4 grassroots or subaltern money networks of various types the paper argues that the dominance of neoliberal ideology at a european union level means that proposals for monetary reform at the international and national level are unlikely to be taken seriously by elites and consequently seem utopian in marxian terms there seems to be little political will to engage with the complexities of and potential opportunities of a more diverse monetary architecture within the eurozone and a perceived need to discipline potentially irresponsible governments like greece s syriza although responsible actors in the north of the eurozone get more leeway the potential of grassroots alternatives is also too often overstated while alternative currency networks developed as part of the greek crisis are not particularly well developed alternative currency networks could work as sites of innovation normalising the idea that there are progressive alternatives to eurozone breakup

what is the opportunity cost of mean variance investment strategies an analytical framework is set up to evaluate the foregone opportunity cost of mean variance investment strategies a parametric structure of the joint distribution of security returns for which mean variance investment strategy is suboptimal is specified for all constant absolute risk aversion investors the optimal strategy its corresponding mean variance alternative and the foregone opportunity cost of mean variance investment strategy are analytically derived and operationalized empirically when the investor s opportunity set includes the riskless asset the premium to replace the mean variance investment strategy by its optimal one does not exceed 0 05 cents on an invested dollar regardless of the investor s risk aversion when the riskless asset is denied the opportunity costs of mean variance investment strategies increase with the degree of risk aversion

firm size earnings and displacement risk rudolf winter ebmer analogous to the well documented firm size wage differential there also exists a differential in layoff risk according to firm size using austrian data i discuss several reasons for this puzzle including on the job training and workers heterogeneity if less stable and also less able workers select themselves into small unstable and low paying firms predicted layoff risk of workers can be used as a proxy for heterogeneity of workers and therefore be included in wage regressions doing this one half of the size earnings premium can be explained jel j31 j63 i introduction large employers pay more numerous empirical studies have documented this relationship 1 but they have not been able to explain it in a very careful study brown and medoff 1989 1056 look at ten possible reasons for this puzzle only to conclude our bottom line is that the size wage differential appears to be both sizable and omnipresent our analysis leaves us uncomfortably unable to explain it or at least the part of it that is not explained by observable indicators of labor quality neither compensating differentials for working conditions nor product market power or the threat of unionization were able to explain the size premium brown and medoff 1989 also found size effects for piece rate workers for unionized workers 2 and in longitudinal samples 3 where they controlled by first differencing for unobserved heterogeneity of the individuals given this wide interest in the effects of employer size on earnings very little research has been done concerning size differentials in turnover are the jobs in big firms not only higher paid but also more stable this would reinforce the puzzle of firm size once more anderson and meyer 1994 look at separation rates without distinguishing between quit and layoff and find highly decreasing turnover rates with firm size for permanent separations but no size effect on temporary separations 4 brown and medoff 1989 as well as others find quit rates to decline with firm size which speaks against compensating wage differentials arguments idson 1996 explicitly looks at the issue of long term employment relationships in large establishments which may be possibly due to the greater capacity of large employers to provide job mobility within the enterprise and the lower probability of business failure facing larger firms rebitzer 1986 argues that the observed higher job tenure in large plants is in a ccordance with labor market segmentation theory the aim of this article is to provide further evidence for a size layoff relationship using austrian data i try to consider several explanations for this regularity especially on the job training and the hypothesis of selective recruitment of workers into large and small firms following one hypothesis small employers attract less stable and capable employees a pattern that would cause only a spurious size layoff relationship on the other hand if workers with a relatively low stock of human capital sort themselves into relatively inefficient firms with unstable employment prospects then the size wage effect itself may be upwardly biased which was noted by mayo and murray 1991 the plan of the article is as follows section ii presents institutional details on wage bargaining and employment protection legislation in austria the data for the empirical study are discussed in section iii results for size wage and size layoff relationships are presented in section iv section v looks at the interaction between firm size layoff risk and wage determination section vi concludes ii wage bargaining institutions and job security legislation in austria wage bargaining in austria is very centralized even though only about 60 of workers are organized in unions bargaining outcomes are extended to all workers unionized or not a works council has to be established under the austrian labor law in all establishments employing at least five adult workers but usually the actual existence of a works council is positively determined by both firm size and firm age

gains from international diversification 1968 85 returns on portfolios of stocks and bonds this paper applies the multi period investment model to a universe of international securities on the basis of the simple probability assessment approach our principal findings are 1 the gains from including non u s asset categories in the universe were remarkably large in some cases statistically significant especially for the highly risk averse strategies 2 the gains from removing the no leverage constraint were more substantial than they were in the absence of non u s securities and 3 there is strong evidence of market segmentation in that the optimal levels of investment in u s securities were mostly zero in the presence of the non u s asset categories