the labour augmented k s model a laboratory for the analysis of institutional and policy regimes abstract in this work we discuss the research findings from the labour augmented schumpeter meeting keynes k s agent based model it comprises comparative dynamics experiments on an artificial economy populated by heterogeneous interacting agents as workers firms banks and the government the exercises are characterized by different degrees of labour flexibility or by institutional shocks entailing labour market structural reforms wherein the phenomenon of hysteresis is endogenous and pervasive the k s model constitutes a laboratory to evaluate the effects of new institutional arrangements as active passive labour market policies and fiscal austerity in this perspective the model allows mimicking many of the customary policy responses which the european union and many latin american countries have embraced in reaction to the recent economic crises the obtained results seem to indicate however that most of the proposed policies are likely inadequate to tackle the short term crises consequences and even risk demoting the long run economic prospects more objectively the conclusions offer a possible explanation to the negative path traversed by economies like brazil where many of the mentioned policies were applied in a short period and hint about some risks ahead

the less volatile u s economy a bayesian investigation of timing breadth and potential explanations using a bayesian model comparison strategy we search for a volatility reduction in u s real gross domestic product gdp growth within the postwar sample we find that aggregate real gdp growth has been less volatile since the early 1980s and that this volatility reduction is concentrated in the cyclical component of real gdp sales and production growth in many of the components of real gdp display similar reductions in volatility suggesting the aggregate volatility reduction does not have a narrow source we also document structural breaks in inflation dynamics that occurred over a similar time frame as the gdp volatility reduction

rational heuristics expectations and behaviors in evolving economies with heterogeneous interacting agents we analyze the individual and macroeconomic impacts of heterogeneous expectations and action rules within an agent based model populated by heterogeneous interacting firms agents have to cope with a complex evolving economy characterized by deep uncertainty resulting from technical change imperfect information coordination hurdles and structural breaks in these circumstances we find that neither individual nor macroeconomic dynamics improve when agents replace myopic expectations with less naive learning rules our results suggest that fast and frugal robust heuristics may not be a second best option but rather rational responses in complex and changing macroeconomic environments jel c63 d8 e32 e6 o4

testing dependence between gdp and tourism s growth rates abstract the main aim of this paper is to link the economic behaviour and statistical properties of gdp and tourism receipts growth rates through modelling the dependence to that end two developed economies such as the united kingdom non tourist oriented and spain tourist oriented and an emerging economy such as croatia tourist oriented are considered as case studies therefore a copula based garch approach is employed to describe the dependence structure between gdp and tourism receipts growth rates in this respect any causality and cointegration between tourism and gdp could justify public policies that promote a more efficient public resource allocation in the tourism industry additionally evidence of dependence between growth rates can justify the extent and direction of these policies results indicate that there is a significant asymmetric and positive dependence between tourism and gdp growth rates for the three countries studied though only for croatia is it time varying over time

exploiting ergodicity in forecasts of corporate profitability abstract theory suggests that competition tends to equalize profit rates through the process of capital reallocation and numerous studies have confirmed that profit rates are indeed persistent and mean reverting recent empirical evidence further shows that fluctuations in the profitability of surviving corporations are well approximated by a stationary laplace distribution here we show that a parsimonious diffusion process of corporate profitability that accounts for all three features of the data achieves better out of sample forecasting performance across different time horizons than previously suggested time series and cross sectional models as a consequence of replicating the empirical distribution of profit rates the model prescribes a particular strength or speed for the mean reversion of all returns which leads to superior forecasts of individual time series when we exploit information from the cross sectional collection of firms the new model should appeal to managers analysts investors and other groups of corporate stakeholders who are interested in accurate forecasts of profitability to the extent that mean reversion in profitability is the source of predictable variation in earnings our approach can also be used in forecasts of earnings and is thus useful for firm valuation

a statistical equilibrium model of competitive firms abstract we find that the empirical density of firm profit rates measured as returns on assets is markedly non gaussian and reasonably well described by an exponential power or subbotin distribution we start from a statistical equilibrium model that leads to a stationary subbotin density in the presence of complex interactions among competitive heterogeneous firms to investigate the dynamics of firm profitability we construct a diffusion process that has the subbotin distribution as its stationary probability density this leads to a phenomenologically inspired interpretation of variations in the shape parameter of the subbotin distribution which essentially measures the competitive pressure in and across industries our findings have profound implications both for the previous literature on the persistence of profits as well as for understanding competition as a dynamic process our main formal finding is that firms idiosyncratic efforts and the tendency for competition to equalize profit rates are two sides of the same coin and that a ratio of these two effects ultimately determines the dispersion of the equilibrium distribution

an interdisciplinary model for macroeconomics macroeconomic modelling has been under intense scrutiny since the great financial crisis when serious shortcomings were exposed in the methodology used to understand the economy as a whole criticism has been levelled at the assumptions employed in the dominant models particularly that economic agents are homogeneous and optimizing and that the economy is equilibrating this paper seeks to explore an interdisciplinary approach to macroeconomic modelling with techniques drawn from other natural and social sciences specifically it discusses agent based modelling which is used across a wide range of disciplines as an example of such a technique agent based models are complementary to existing approaches and are suited to answering macroeconomic questions where complexity heterogeneity networks and heuristics play an important role

a nonlinear approach to us gnp a univariate nonlinear model is estimated for us gnp that on many criteria outperforms standard linear models the estimated model is of the threshold autoregressive type and contains evidence of asymmetric effects of shocks over the business cycle in particular the nonlinear model suggests that the post 1945 us economy is significantly more stable than the pre 1945 us economy

great moderation and great recession from plain sailing to stormy seas many have argued that the great recession of 2008 marks the end of the great moderation of the eighties and nineties this paper shows this is not the case through painstaking empirical analysis of the data output volatility remains subdued despite the tumult created by the great recession this nding has important implications for policymaking since a lower volatility of output the hallmark of the great moderation is associated with lower recoveries jel classication c22 e32

the role of finance in environmental innovation diffusion an evolutionary modeling approach abstract the implementation of climate adaptation and mitigation policies depend on the development of green technologies whose diffusion is constrained by a number of barriers which prevent them to spread broadly and at a fast pace by means of an agent based computational model the paper investigates the macro and micro economic dynamics considering the role of a traditional commercial bank and a state investment bank that explicitly supports green investments simulation results emphasize that green finance matter and that the market diffusion of environmental innovation is more pronounced when the presence of the public investment bank is combined with strong consumers preferences oriented towards environmental quality the relevance of the paper is twofold besides contributing to the literature on the finance innovation nexus by considering the role of climate finance within a complex systems framework it provides a model that can be used as a tool to explore policies to foster environmental innovation diffusion

self organized criticality and economic fluctuations economists have long been interested in explaining the observed instability of economic aggregates though several reasons for variation in the pace of production are easily given such as exogenous variation in tastes or in production possibilities it is hard to see why there should be large variations in those factors that are synchronized across the entire economy instead it seems more likely to suppose that variations in demand or in production costs in different parts of the economy should be largely independent and hence that a law of large numbers would imply that significant variations in aggregate activity relative to the typical size of aggregate activity are not likely to occur an alternative approach proposes that economies possess intrinsically unstable dynamics which even in the absence of external shocks would result in persistent deterministic fluctuations this type of model implies however that aggregate fluctuations should involve motion on a low dimensional attractor while analysis of economic time series has not revealed structure of this kind another alternative proposes that the economy possesses multiple equilibria and that it can therefore switch between equilibria for arbitrary reasons this possibility suffers however from the difficulty that one must explain how people succeed in coordinating their expectations about the times at which a shift should occur here we explore another type of explanation which relies on an entirely different mechanism our proposal is that the effects of many small independent shocks to different sectors of the economy need not cancel out in the aggregate due to the presence of significantly nonlinear strongly localized interactions between different parts of the economy the type of macroscopic instability that can result has been studied by condensed matter physicists under the name of self organized criticality per bak and kan chen 1991 physicists have noted in several contexts the possibility of a critical state in which independent microscopic fluctuations can propagate so as to give rise to instability on a macroscopic scale this is a state in which chain reactions initiated by local disturbances neither damp out over a short distance the subcritical case nor propagate explosively so that the system cannot remain in that state the supercritical case as in the controlled nuclear fission that allows a reactor to generate power without exploding often this has seemed to depend upon parameters being carefully tuned to exactly their critical values in the case of a reactor an elaborate control mechanism is required to keep it near criticality more recently it has been argued that some systems may spontaneously evolve toward a critical state and return to it even if perturbed by an external shock the prototypical example of such selforganized criticality is a sandpile when the slope of the pile is nowhere too steep dropping on additional grains of sand at randomly chosen sites has no macroscopic effects as at most small numbers of grains will shift position in each case however randomly dropping on additional sand will eventually result in the slope of the pile increasing to a critical slope at which point large avalanches can occur in response to the dropping of a single additional grain of sand a sandpile with a slope that is initially greater than the critical slope also evolves toward it in this case through an immediate department of economics university of chicago 1126 east 59th st chicago il 60637 we thank per bak buz brock boyan jovanovic and paul krugman for discussions and the santa fe institute and the nsf for research support 1scheinkman 1990 surveys empirical work on this

is the business cycle characterized by deterministic chaos abstract tests are conducted on u s macroeconomic data for the presence of low dimensional deterministic chaos where deterministic chaos is defined as in grandmont s 1985 walras bowley lecture or in brock 1986 the idea is to test for evidence of endogenous instability causing the business cycle low order autoregressions are hard to reject with our methods evidence of chaos is weak but our tests may be too weak to detect it evidence of nonlinearity is present in employment 1950 i to 1983 iv unemployment 1949 i to 1982 iv monthly post war industrial production and pig iron production 1877 1937

sunspot driven fat tails a note abstract empirical growth rate distributions of major macroeconomic aggregates are typically non normal and exhibit fat tails we advance the idea that indeterminacies in standard rational expectations models can qualify as a source of high frequency extreme macroeconomic outcomes in a univariate setup we demonstrate the emergence of fat tailed behavior for an endogenous variable even though structural and sunspot shocks both follow normal distributions

cooperative and non cooperative exploitation of the arcto norwegian cod stock a two agent model for the exploitation of the arcto norwegian cod stock is developed to investigate the economic benefits that can be realized from the resource and the effect of exploitation on stock sustainability under cooperation and non cooperation the two agents are identified in this study as a trawl fishery versus a coastal fishery unlike in munro 1979 where conflicts in the management strategies of agents arise from differences in the perceptions of the discount factor fishing effort costs and consumer preferences here conflicts arise mainly from the differences in fishing gear and grounds and the age group of cod targeted by the two agents using a game theoretic framework we show that given available data the optimum optimorum is obtained under cooperation with side payments and no predetermined harvest shares in which case the coastal fishery buys out the trawl fishery however sensitivity analysis shows that if the price premium assumed for mature cod is taken away the trawl fishery takes over as the producer of the optimum optimorum

the uncertain trend in u s gdp abstract several recent papers conclude that gdp is trend stationary implying that all shocks are transitory we re examine the evidence in light of test size distortion due to data based lag selection and departures from the maintained hypothesis of temporal homogeneity and find both effects trigger false rejections of the unit root hypothesis when it is true and signal the presence of permanent shifts in trend that did not occur trend stationarity is not supported by the more homogeneous post war data but if imposed implies cycles of implausible duration and pattern 1997 output was 8 below trend

are output growth rate distributions fat tailed some evidence from oecd countries this work explores some distributional properties of aggregate output growth rate time series we show that in the majority of oecd countries output growth rate distributions are well approximated by symmetric exponential power densities with tails much fatter than those of a gaussian fat tails robustly emerge in output growth rates independently of i the way we measure aggregate output ii the family of densities employed in the estimation iii the length of time lags used to compute growth rates we also show that fat tails still characterize output growth rate distributions even after one washes away outliers autocorrelation and heteroscedasticity

scaling in economics a reader s guide this paper discusses examples of scaling laws in economics and finance it argues that these regularities in data are useful for disciplining theory formation estimation of the conditional predictive distribution and estimation of impulse response functions is a main goal of econometric work scaling type regularities give useful information on the underlying data generating process the ability of scaling laws to suggest lines of potentially fruitful research was illustrated by the suggestion of several speculative research projects in this paper most importantly the paper stresses the challenges that face empirical and theoretical researchers who wish to make use of scaling law type regularities to improve econometric identification of the underlying causal data generating mechanism copyright 1999 by oxford university press

why are distributions of firm growth rates tent shaped abstract recent empirical analyses on different datasets have revealed a common exponential behavior in the shape of the probability density of the corporate growth rates we present new evidence on this topic from the italian manufacturing industry and propose a very simple mechanism that under rather general assumptions provides a robust explanation for the observed regularities

nonlinear time series modelling an introduction recent developments in nonlinear time series modelling are reviewed three main types of nonlinear model are discussed markov switching threshold autoregression and smooth transition autoregression classical and bayesian estimation techniques are described for each model parametric tests for nonlinearity are reviewed with examples from the three types of model finally forecasting and impulse response analysis is developed

explaining the distribution of firm growth rates empirical analyses on aggregated datasets have revealed a common exponential behavior in the shape of the probability density of corporate growth rates we present clear cut evidence on this topic using disaggregated data we explain the observed regularities proposing a model in which firms ability to take up new business opportunities increases with the number of opportunities already exploited a theoretical result is presented for the limiting case in which the number of firms and opportunities go to infinity moreover using simulations we show that even in a small industry the agreement with asymptotic results is almost complete

structural reforms animal spirits and monetary policies abstract we use a new keynesian behavioral macroeconomic model to analyze how structural reforms affect the economy there are two types of structural reforms the first one increases price flexibility the second one increases competition in the labor market and raises potential output we find that in a rigid economy business cycle movements are dominated by movements of animal spirits increasing price flexibility reduces the power of animal spirits and the boom bust nature of the business cycle we study the trade offs between output and inflation volatility faced by the central bank we find that flexibility improves these trade offs making it easier for the central bank to stabilize output and inflation

do firms share the same functional form of their growth rate distribution a statistical test abstract we propose a hypothesis testing procedure to investigate whether the same growth rate distribution is shared by all the firms in a balanced panel or more generally whether they share the same functional form for this distribution without necessarily sharing the same parameters we apply the test to panels of us and european union publicly quoted manufacturing firms both at the sectoral and at the subsectoral naics level we consider the following null hypotheses about the growth rate distribution of the individual firms i an unknown shape common to all firms with all the firms sharing also the same parameters or with the firm variance related to its firm size through a scaling relationship and ii several functional shapes described by the subbotin family of distributions our empirical results indicate that firms do not have a common shape of the growth rate distribution at the sectorial naics level whereas firms may typically be described by the same shape of the distribution at the subsectorial level even if the specific shape may not be the same for different subsectors

gaussian demand and commodity bundling in an important and widely cited essay adams and yellen 1976 examine the use of package selling as a price discrimination device they consider a monopolist producing two goods with constant unit costs and facing buyers with diverse tastes the marginal utility of a second unit of either good is assumed to be zero for all buyers the two goods are independent in demand for all buyers so that any buyer s reservation price for the first unit of either good is independent of the market price of the other thus the maximum amount any buyer would pay for a bundle consisting of one unit of each good is the sum of the two reservation prices and buyers are completely described by the values of those two prices 2 resale markets are assumed away in order to obtain comparative results for alternative pricing strategies the distribution of reservation prices in the adams yellen framework is assumed to be bivariate normal implications of gaussian demand are explored pure bundling is shown to operate by reducing buyer diversity thus facilitating the capture of consumers surplus it generally makes buyers worse off than unbundled sales it is more profitable if average reservation prices are high enough mixed bundling combines advantages of both pure bundling and unbundled sales and it is generally strictly more profitable than either bundling which treats goods symmetrically seems most attractive under symmetric reservation price distributions i am indebted to severin borenstein for superb research assistance to the ford motor company for research support through a grant to m i t and to the harvard economics department for housing me as a visiting scholar while most of this research was performed of course only i can be held responsible for this essay s shortcomings 1 the first clear recognition of this possibility seems to have been by stigler 1968 but also see burstein 1960 2 paroush and peles 1981 relax the assumption that consumers purchase at most one unit of each good but they consider only two types of buyers both with linear demand functions they retain the assumption that demands are independent for all buyers telser 1979 and phillips 1981 use different frameworks to analyze bundling policies spence 1980 explores the relation between bundling across commodities as here and bundling multiple units of the same

the financial accelerator in an evolving credit network we model a credit network characterized by credit relationships connecting i downstream d and upstream u firms and ii firms and banks the net worth of d firms is the driver of fluctuations the production of d firms and of their suppliers u firms in fact is constrained by the availability of internal finance proxied by net worth to the d firms the structure of credit interlinkages changes over time due to an endogeneous process of partner selection which leads to the polarization of the network at the aggregate level the distribution of growth rates exhibits negative skewness and excess kurtosis when a shock hits the macroeconomy or a significant group of agents in the credit network a bankruptcy avalanche can follow if agents leverage is critically high in a nutshell we want to explore the properties of a network based financial accelerator

shifting trends segmented trends and infrequent permanent shocks abstract a stochastic trend model is considered in which permanent shocks occur infrequently and randomly we show that this model is observationally equivalent to shifting segmented deterministic trend models moreover we show that standard full sample time series methods are incapable of distinguishing between small frequent permanent shocks and large infrequent permanent shocks an outlier search however reveals substantial evidence of large infrequent shocks to the gnp deflator and that these shocks account for most of the persistence in the gnp deflator for real gnp evidence of infrequent permanent shocks is weaker

faraway so close coupled climate and economic dynamics in an agent based integrated assessment model abstract in this work we develop an agent based model that offers an alternative to standard computable general equilibrium integrated assessment models iams the dystopian schumpeter meeting keynes dsk model is composed of heterogeneous firms belonging to capital good consumption good and energy sectors production and energy generation lead to greenhouse gas emissions which affect temperature dynamics climate damages are modelled at the individual level as stochastic shocks hitting workers labour productivity energy efficiency capital stock and inventories of firms in that aggregate damages emerge from the aggregation of losses suffered by heterogeneous interacting and boundedly rational agents the model is run focusing on a business as usual carbon intensive scenario consistent with a representative concentration pathway 8 5 we find that the dsk model is able to account for a wide ensemble of micro and macro empirical regularities concerning both economic and climate dynamics simulation experiments show a substantial lack of isomorphism between the effects of micro and macro level shocks as it is typical in complex system models in particular different types of shocks have heterogeneous impact on output growth unemployment rate and the likelihood of economic crises pointing to the importance of the different economic channel affected by the shock overall we report much larger climate damages than those projected by standard iams under comparable scenarios suggesting possible shifts in the growth dynamics from a self sustained pattern to stagnation and high volatility and the need of urgent policy interventions

output growth and its volatility the gold standard through the great moderation this study examines the relationship between u s output growth and its volatility over the period 1876 i to 2012 ii we adjust the data for outliers and structural breaks we employ generalized autoregressive conditional heteroskedasticity garch and exponential garch egarch specifications normality and homoskedasticity appear only in the garch or egarch model that corrects for the outliers when including the break in the mean equation high volatility persistence remains after also accommodating the breaks in the variance equation the integrated garch effect proves spurious either for the symmetric or the asymmetric model finally our empirical results suggest that the finding of higher output growth volatility stimulating output growth and higher output growth reducing its volatility obtained from the symmetric garch in mean garch m model also proves spurious as a result of the emergence of an asymmetric effect our more appropriately specified asymmetric egarch m model suggests positive volatility in mean and level effects in the long period real gross national product series

booms and busts in economic activity a behavioral explanation booms and busts in economic activity are a regular occurrence they lead to a strong empirical regularity i e that output gaps and output growth are non normally distributed mainstream macroeconomic models explain this phenomenon by invoking exogenous shocks that are non normally distributed this is not a very satisfactory explanation as it shifts our ignorance one step further i propose an explanation based on a behavioral macroeconomic model in which agents are assumed to have limited cognitive abilities and thus develop different beliefs this model produces waves of optimism and pessimism in an endogenous way animal spirits and provides for a better endogenous explanation of the observed non normality in output movements i also analyze the implications for monetary policy

taking stock a rigorous modelling of animal spirits in macroeconomics this paper is a survey of the burgeoning literature that seeks to take the enigmatic concept of the animal spirits more seriously by building heterodox macro dynamic models that can capture some of its crucial aspects in a rigorous way two approaches are considered the discrete choice and the transition probability approach where individual agents face a binary decision and choose one of them with a certain probability these assessments are adjusted upward or downward in response to what the agents observe which leads to changes in the aggregate sentiment and the macroeconomic variables resulting from the corresponding decisions typical applications of the two approaches alternatively give rise to what will be called a weak and a strong form of animal spirits on the whole the literature included in this survey provides examples of applications of a modelling tool that demonstrates a considerable flexibility within a canonical framework

scaling the volatility of gdp growth rates abstract the distribution of shocks to gdp growth rates is found to be exponential rather than normal their standard deviation scales with gdp where 0 15 0 03 these macroeconomic results place restrictions on the microeconomic structure of interactions between agents

demand driven innovation and spatial competition over time the demand pull hypothesis regarding the process underlying innovation emphasizes a top down approach the initiation of an innovation is seen as coming from the firm s marketing or production people and the response as coming from the research staff the problem may be posed by members of the firm that deal directly with its customers or are involved with the manufacture of its products and a solution is provided by the research staff the alternative technology push hypothesis emphasizes a bottom up approach and has the research staff playing the active role of determining the nature of the innovation with the marketing and production staff playing a passive role it seems that neither hypothesis alone can account for the direction of innovative activity it is the interaction of technological opportunity and economic opportunity that is of ultimate importance moreover technological opportunity is judged to be responsible for the long run evolution of products while economic opportunity appears to account for more of the short run developments kamien and schwartz 1982