anticipated monetary policy in canada some new evidence abstract in this note i examine the policy ineffectiveness proposition for canada using monthly income data due to milbourne et al 1988 i find that anticipated monetary policy altered the evolution of real output in canada recent work by ambler and phaneuf 1988 can be used to attribute this result to a purely new keynesian model of the business cycle although this inference is found to be fragile with respect to the choice of the level of significance used in the hypothesis tests

money anticipated changes and policy effectiveness the lucas sargent wallace l s w proposition states that expected policy changes have no influence on real economic variables even in the short run see robert lucas 1972 and thomas sargent and neil wallace 1975 one form of empirical test of the l s w proposition the neutrality proposition began with robert barro s 1977 1978 seminal articles supporting the neutrality proposition however more recent papers including those by david small 1979 john makin 1982 and frederic mishkin 1982a b have reexamined the relationships between anticipated and unanticipated money vs output unemployment and inflation and have found evidence suggesting that anticipated monetary changes do have real effects all of the above cited studies use expectations procedures which estimate for example a money growth equation over the entire period under consideration however this approach assumes that when expectations are being formed at the beginning of the period economic agents have the relevant information for the entire period in this note i reexamine the impact of expected vs unexpected monetary changes focusing on the informational restrictions actually faced by economic agents when formulating expectations the structure of the model used here is similiar to the models of barro and mishkin a measure of real output is assumed to be a function of a policy variable and a vector of predetermined variables the policy variable can be decomposed into anticipated and unanticipated components algebraically

supplier relations and the market context a theory of handshakes abstract this paper analyzes the degree of formality in industrial procurement contracts impose cost discipline on suppliers but stifle cooperative innovation noncontractual procurement provides cooperation but poor cost discipline however cost discipline comes naturally when there is not much vertical integration because the promise of finding an alternative buyer to use as a bargaining threat enhances the supplier s incentive to make efficiency enhancing investments thus highly integrated industries use contracts while less integrated industries do business on handshakes in the latter cooperative innovations flourish this may help explain some international comparisons and changes in business practices observed over time

agents ability to manage information in centralized markets comparing two wholesale fish markets abstract in this paper we perform an empirical investigation to detect if and how agents behavior changes with the amount of available information they have to this aim we use data from two wholesale fish markets of different thicknesses we tackle the issue by investigating features such as the dynamics of the structure of attendance in auctions the varieties of fish presentations during the seller s turn and the presence of long term relationships between buyers and sellers we perform the investigation in this way instead of focusing on the dispersion and dynamics of prices to prevent unobserved quality differences of the traded fish varieties from biasing the results of the analysis the results of our investigation are consistent with a situation in which the magnitude of phenomena like buyers loyalty to sellers and agents following rules of thumb increases with the market thickness

anticipated and unanticipated money a case study of malaysia the paper tests the lsw proposition that unanticipated policy changes affect real economic variables by using malaysian data over the period 1970 1 1990 4 the empirical evidence changes in fiscal policy and balance of payments do not affect real output thus lending support to the proposition on the other hand anticipated monetary policy and inflation influence output in the short run lending support to mishkin s views of the economy and rejecting the lsw proposition in addition the long run neutrality proposition is not supported by the data moreover unanticipated changes in inflation do influence real output in the short run lending support to the lsw proposition however unanticipated changes in monetary policy balance of payments and fiscal policy do not influence real output lending support to the classical view of the economy and rejecting the lsw proposition furthermore the monetarist s view that inflation is a monetary phenomenon is rejected the findings also show that unanticipated

reverse importing and asymmetric trade and fdi a networks explanation abstract this paper considers the impact of business and social networks on international trade and fdi i propose that differences in the strength of network effects across countries can produce asymmetric trade and investment flows that may lead to trade friction a firm from a country with strong network effects has a cost advantage in selling to buyers from its own country this advantage results in lower inward fdi lower total imports but larger volumes of reverse imports into the country with strong network effects the model s predictions match observed asymmetric trade and investment flows that sometimes lead to us japan trade friction

a little bit more evidence on the natural rate hypothesis from the u k abstract the evidence for the neutrality of anticipated changes in monetary policy in the u k over the period 1963q1 1982q1 is examined breaks in the stochastic process generating the money stock are used to identify the model the results are generally unfavourable to the proposition that only unanticipated money matters

prices output and the balance of payments in an open economy with rational expectations abstract the paper outlines an open economy version of the lucas competitive equilibrium rational expectations model it analyses the determination of output prices exports imports and the exchange rate under fixed and floating exchange rate regimes where information on the current exchange rate is used to infer the current values of foreign and domestic monetary shocks output is influenced by both foreign and domestic monetary shocks but independent of systematic foreign and domestic monetary growth under both exchange rate regimes flexible exchange rates insulate the domestic economy from systematic foreign monetary growth

investments holdup and the form of market contracts the authors analyze incomplete contracts to induce efficient investment with exogenous switching costs fixed price contracts are efficient generate some rigidity in prices are renegotiated intermittently by possibly small amounts and when inflation is positive generate asymmetric responses to shocks all consistent with evidence on prices and wages with two sided specific investments efficiency requires prices to have sufficient escalator clauses to avoid renegotiation as observed in many long term contracts a third case with one sided specific investments can generate take or pay contracts and explain why firms sometimes pay for specific investments that appear to benefit employees directly

forward and futures contracts as preharvest commodity marketing instruments empirically significant differences between forward and futures contracts evidence their imperfect substitutability as preharvest marketing instruments certain combinations of market conditions make the two types of contracts complementary rather than interchangeable forwards and futures differ conceptually because of lumpiness marking to market and basis of these differences basis constitutes the most important factor although lumpiness may affect smaller producers it represents an inconsequential detail for larger traders in given years interest income cost resulting from futures margin requirements may reach important absolute amounts relative to size of basis and price changes this factor fails to attain a magnitude of practical significance

allocation of attention within venture capital firms in this article we use a simple queuing network to model the process through which entrepreneurs receive venture capital funding our model focuses in particular on the allocation of venture capitalists attention between pre and post investment activities and on the degree of selectivity in deciding which ventures to fund based upon this model we develop expressions for the financial performance of the venture capital process both overall and also from the perspectives of the entrepreneurs investors managers and venture capitalists involved for these financial measures we derive the optimal allocation of attention between pre and post investment activities and the optimal proportion of venture proposals to accept further analysis shows how these different financial measures and optimal values respond to changes in the business climate more interestingly our analysis also shows where and to what extent the different parties could be expected to agree or disagree on how best to manage the process

money and output in latin america some tests of a rational expectations approach abstract this paper deals with the relationship between money and output in sixteen latin american countries making use of the framework of analysis elaborated by robert barro for the united states three closely interrelated hypotheses are tested 1 that the growth of the money supply is predictable in that it differs from a random walk with trend 2 that only the part of money growth which is not predicted will affect real output in the short run and 3 that as lucas has argued the slope of the phillips curve is smaller in size for countries where money and prices are less predictable

income velocity and the variability of money growth evidence from less developed countries this paper examines whether the variability of money growth caused changes in income velocity of money in 30 less developed countries time series data show year to year variations in income velocity of money in these countries for the 1961 1990 period empirical results based on causality but complemented by variance decomposition tests show that money growth is the most important determinant in explaining the variability in income velocity in at least 20 of the 30 developing countries examined in this study in addition the causality results show that inflation rate granger causes income velocity of money in 21 countries but the variance decomposition results show inflation rate to be relatively more important in explaining the variability of velocity in eight countries similarly while real income granger causes velocity of money in 18 countries the results of the variance decomposition tests show real income to be relatively more important as a determinant of income velocity in two countries over

money in the production function revisited this note provides a test of whether real balances can be viewed as a factor input contrary to nguyen 1986 and sinai and stokes 1981 it is shown that real balances are a valid factor of production within the confines of a ces production function

does anticipated aggregate demand policy matter further econometric results a heated debate has arisen over what modigliani has dubbed the macro rational expections mre hypothesis this hypothesis embodies two component hypotheses 1 rational expectations and 2 short run neutrality i e that anticipated changes in aggregate demand will have already been taken into account in economic agents behavior and will thus evoke no output or employment response together these component hypotheses imply that deterministic feedback policy rules will have no effect on business cycle fluctuations the irrelevance of these types of policy rules is inconsistent with much previous macro theorizing as well as with the views of policymakers it is thus an extremely controversial proposition which requires a wide range of empirical research this paper is a sequel to a previous paper by the author that paper developed a methodology for testing the mre hypothesis and found that anticipated money growth does matter to the business cycle this paper extends the analyses to cases where the rate of nominal gnp growth or the inflation rate rather than money growth is the aggregate demand variable the empirical results are also negative on the mre hypothesis and its corresponding policy ineffectiveness proposition this abstract was borrowed from another version of this item

optimal innovation of futures contracts this article presents a simple model of the innovation of new futures contracts by transaction volume maximizing futures exchanges in incomplete markets under uncertainty with mean variance preferences and proportional transactions costs we characterize the set of nash equilibria for a number of exchanges simultaneously or sequentially choosing contracts the optimal monopolistic contract design is shown to be pareto optimal an example shows the failure of pareto optimality for aparticularnash equilibrium likewise in a monopolistic multiperiod setting an example shows the failure of pareto optimality given an incentive for the exchange to induce turnover

the influence of unanticipated money growth on real output some cross country estimates two major propositions can be deduced from the theories of the business cycle developed in 4 14 15 161 1 monetary growth affects real output only if it is unanticipated 2 the impact on output of unanticipated monetary growth declines the more unpredictable monetary growth becomes proposition 1 has been tested on u k data in 2 3s on u s data in 5 6 7 and on canadian data in 19 the best known but somewhat informal test of proposition 2 is contained in 15 on data from a cross section of eighteen countries l in this paper we apply the method described in 3 to test proposition 1 using data from a range of countries furthermore we develop and discuss a formal method of testing proposition 2 and apply that method to the same data our main conclusion is that neither proposition can be decisively rejected

financial market efficiency the decomposition of anticipated versus unanticipated money growth and further tests of the relation between money and real output note probably the most controversial empirical findings in macroeconomics in the last decade stem from robert barro s investigations into the relative effects of unanticipated versus anticipated money growth on unemployment and real output these studies generally proceed by decomposing observed money growth into what is defined to be its anticipated and unanticipated components and then test the restriction that only the unanticipated money measure has important effects for unemployment and real output in black box reduced form real side equations that include determinants of the natural rates of unemployment and real output as additional explanatory variables l the results of these tests for the annual postwar u s data generally cannot reject the hypothesis that only unanticipated money growth is important for the determination of aggregate real activity 2 anticipated money growth is found to be neutral for unemployment and real output these results are important because they give empirical support to the assertion that the apparent nonneutrality of observed money growth does not provide any firm basis for the efficacy of a systematic countercyclical monetary policy it should be clear that a crucial problem in testing for the neutrality nonneutrality of anticipated unanticipated money growth lies in developing an appropriate decomposition of observed money growth into its anticipated and unanticipated parts small 13 mishkin 8 and weintraub 14 among others have

multistage financing of technical start up companies in silicon valley abstract financing remains an issue that entrepreneurs face long after their initial financing has been obtained in technical companies that face changing customers competitors and technology the need to finance new products to replace earlier products can be of vital importance to growth and survival venture capital firms that invest in technical companies also recognize the need for subsequent financing to maintain growth and thus protect the initial investment this research explored both the venture capitalist s and the entrepreneur s viewpoints the principal questions asked in the research were 1 how are subsequent rounds of investment considered and made by venture capitalists and 2 what problems occur in the entrepreneur s search for subsequent funding a combination of in depth interviews and mailed questionnaires was used in the research to obtain responses from a sample of venture capitalists and entrepreneurs in silicon valley this approach produced observations on the venture capitalists methods of making risk return trade offs and on the reasons why entrepreneurs face problems in obtaining funding for second new products specifically it was found that venture capital firms reduce the risk associated with funding young companies by showing preferences for certain stages of financing or for funding single versus multiple round investments these preferences appear to be idiosyncratic and entrepreneurs must be careful to deal with venture capitalists whose tendencies are consistent with the entrepreneurs goals it was also found that a major problem faced by entrepreneurs seeking funding for second products is the effort required for the search this effort takes away from their ability to perform day to day management activities at a crucial time in the growth of the firm implications are drawn for improving the effectiveness of entrepreneurs and venture capitalists efforts as well as for future research

why there are organized futures markets i shall present an explanation of the existence of organized futures markets with more predictive power than the two prevailing rival views my explanation briefly is this an organized futures market facilitates trade among strangers one of the rival prevailing views is a defense of futures trading it asserts that an organized futures market furnishes legitimate businessmen with a means of hedging so that they can obtain insurance against price risk the other prevailing view is an attack on organized futures markets it asserts that such markets enable speculators to manipulate prices to the detriment of outsiders who are less well informed and to the detriment of legitimate businessmen such as farmers the attack on organized futures markets likens them to gambling casinos the defense sees them as a form of insurance neither the attack nor the defense is valid the correct explanation is closely related to why we conduct trade using money instead of by barter

the entrepreneur s search for capital abstract the popular media have been inundated with stories of the spectacular success of start up companies whose very existence let alone their meteoric growth would not have been possible without the infusion of venture capital by comparison there is a dearth of scientific research on the topic of venture capital in this article we take a systematic look at entrepreneurs in search of risk capital this inquiry is based upon five data bases including surveys of venture capitalists and entrepreneurs we have tracked 193 ventures which were denied venture capital surveyed 179 new high technology companies in northern california and reviewed the dun bradstreet credit reports of 145 new ventures in california in sic codes related to the high tech sector with follow up interviews of 86 of these 145 start ups

contract duration and relationship specific investments empirical evidence from coal markets this paper examines the importance of specific relationship investments in determining the duration of coal contracts negotiated between coal suppliers and electric utilities data for 277 coal contracts are used to perform the analysis the results provide strong support for the view that buyers and sellers make longer commitments to the terms of future trade at the contract execution stage and rely less on repeated bargaining when relationship specific investments are more important

negotiating cultures in corporate procurement abstract in a repeated procurement problem the incumbent can undertake a relationship specific investment that generates opportunity costs of switching for the buyer we investigate the impact of the negotiating culture on investment incentives favoritism in the procurement contract allocation and buyer profit we compare a stylized competitive negotiating culture with a stylized protective culture the cultures differ in the way the buyer uses the entrance threat to exert pressure on the incumbent our main result is that the relative performance of the cultures depends non monotonically on the expensiveness of the investment

contractual form and market thickness in trucking a central proposition of the transaction costs literature is that firms will substitute more complicated contractual arrangements for simple spot arrangements when transactions involve relationship specific investments i investigate this proposition by testing whether simple spot arrangements are less common when local trucking markets are thin i find that doubling the thickness of the market increases the likelihood that simple spot arrangements govern transactions by about 30 for long hauls i find weaker evidence of relationships between local market thickness and contractual form for short hauls hauls for which quasi rents are particularly small contracts protect quasi rents over a surprisingly large range but they play a less important role as quasi rents decrease

downstream r d raising rivals costs and input price contracts we analyze the incentives for cost reducing r d by downstream firms in a two tier market structure by increasing the demand for an input downstream r d allows the upstream firm to raise its input price this lowers the benefit of r d to a downstream firm but raises its rivals costs as a result a downstream oligopolist may invest more in r d than a downstream monopolist a phenomenon that is absent in a purely horizontal r d setting fixed price agreements where the input price remains unchanged following downstream r d promote innovation by eliminating the opportunistic behavior of the input supplier and are welfare enhancing

a disequilibrium model of rational expectations for the u k so far the new classical model and the policy ineffectiveness proposition have been tested essentially within an equilibrium framework and disequilibrium methods of estimation have been used to estimate the labor market models in this paper the authors develop an aggregate goods market model for the united kingdom in which the new classical rational expectations hypothesis and the disequilibrium approach are integrated their estimates of the model show that the structural parameters are well determined and price adjustment in the united kingdom is very sluggish therefore the new classical policy ineffectiveness proposition is not valid for the united kingdom copyright 1991 by royal economic society

anticipated monetary policy and real output evidence from latin american countries this paper is an empirical investigation of the effects of anticipated and unanticipated monetary policies on real output for 13 ldcs in latin and central america the well know mishkin econometric procedure is applied to the annual imf date for the decomposition of actual money growth into anticipated and unanticipated components and the evidence of significant relation between anticipated money supply and real output for each country is reported the results derived in this paper thus provide additional empirical support for the validity of the non classical rational expectations macro models of fisher and phelps and taylor

assessing venture capital investments with noncompensatory behavioral decision models abstract this article examines the prospect of a decision support system for the assessment of venture capital investments it approaches the task of developing decision models from the perspective of the venture capitalist thus venture capitalists have played an active role in defining the predictor variables and in providing data on their own investments venture capitalists and recent research underscore the importance of the entrepreneur in new ventures and the predictor variables selected reflect this bias the literature is now replete with studies demonstrating the superiority of multiattribute actuarial models over human judgment for diverse decision environments ranging from medical science to finance this class of behavioral decision models consists of the simultaneous consideration of several attributes relevant to a decision actuarial models of this kind can be applied to attribute and decision data based on the decision maker s judgments i e expected outcomes before the events transpire termed judgment based models they can also be applied to data on past events or actual outcomes where known termed environment based models again it needs to be emphasized that actuarial models whether based on the decision maker s judgments or on the environment usually outperform the decision maker these general principles are applied here among actuarial models a particular subclass of models is called noncompensatory in these models a low value for one attribute cannot be compensated by a high value for another attribute as an example in selecting a place kicker in football athletic skills other than kicking ability are irrelevant in this study two types of noncompensatory actuarial models conjunctive and disjunctive are used to model both venture capitalists judgments and the environment interviews with venture capitalists reveal that some place strong emphasis on one or two attributes in judging a potential investment this type of decision making behavior indicates a disjunctive decision process at the same time there can be a tendency to ensure that a prospective investment is satisfactory at a minimum the entrepreneur s tenacity courage is a redundant variable that is sublimated in desire for success and enthusiasm capacity for work

keiretsu and relationship specific investment a barrier to trade this article develops a model of informal procurement within japanese keiretsu so as to consider effects on intermediate good imports such as auto parts parts suppliers make relationship specific investments that benefit the automaker and prices are determined by bargaining after investment has been sunk although this investment raises efficiency it limits the range of imports to less important parts such as tailpipes and it is possible that no parts are imported despite lower foreign costs lack of information concerning investment rents combined with counterintuitive responses of imports to changes in output and costs could create unwarranted perceptions of a trade barrier

real effects of anticipated and unanticipated money some problems of estimation and hypothesis testing abstract the paper addresses two issues that arise in estimation and testing of the real effects of anticipated and unanticipated money first it is shown that identification of the effects of unanticipated or unperceived monetary growth on real output is possible only if the a priori restriction is imposed that monetary growth does not depend on unanticipated or unperceived output second the existing empirical work of barro and others does not allow for three known channels through which money can affect real variables these are 1 past and present anticipations of future monetary growth the inflation tax channel 2 expectations of monetary growth in a given period conditioned at various preceding dates the fischer phelps taylor effect and 3 past and present revisions in forecasts of future monetary growth the presence of the first of these would mean that alternative open loop monetary growth rules have real effects the presence of the other two implies that monetary feedback rules can have real effects omission of the first channel can lead to biased estimates of the effects of past anticipated monetary growth potentially serious observational equivalence problems are associated with the other two

venture capital in transition a monte carlo simulation of changes in investment patterns abstract this article examines the nature of the investment process which has historically generated high returns for venture capital funds and the impact on fund returns of perceived changes in management practice and the structure of the industry the article outlines some policy implications for fund managers investors and the general management of corporations the authors have investigated the investment process and the changes in the nature of the process through the use of a monte carlo simulation model information gathered from interviews with fund managers and the available published data on venture fund performance including proprietary surveys was used to develop and calibrate the model the model replicates the relatively high average fund returns and distribution of returns for funds through the early 1980s the model simulates a multistaged investment process which draws on a pool of investment opportunities which have a log normal distribution of returns and a low zero average return the model readily permits the exploration of the impact of management and industry practices on fund returns the conditions identified by the authors which led to high rates of return on the part of venture capital funds include 1 1 multistaged investment or commitment of funds on an incremental basis with evaluation of venture performance before commitment of additional fund 2 2 objective evaluation of venture performance with the clear distinguishing of winners from losers 3 3 parlaying funds or having the confidence to commit further funds to ventures identified as winners 4 4 persistence of returns from one round to the next which implies that valuable information is gained from previous rounds of investment in the same venture 5 5 long term holding of investment portfolios for a period sufficient for geometric averaging of compound returns to cause the winners to take over or raise portfolio returns taken together these conditions have permitted venture capital funds to historically realize strong average returns with a few of them realizing extraordinary returns the article also explores the consequences of what some believe is happening in the industry a trend toward holding investments for shorter periods increased competition both for investments and later in the product market arena and a growing lack of loyalty between investors and investees all of these conditions and their indirect consequences were shown by the model to negatively impact the limited partners in the venture capital funds while general partners given the structure of fees and the distribution of investment returns generally realized a reasonable to extraordinary return the article outlines a number of management and investment policy implications for investors and fund managers

the division of markets is limited by the extent of liquidity spatial competition with externalities liquidity considerations will limit the number of markets in a competitive economy welfare implications are ambigious since liquidity is a positive externality there may be too little liquidity per market at a noncooperative equilibrium and too many markets compared to the surplus maximizing market structure but liquidity is also self reinforcing given an existing equilibrium new markets may not open because nobody wants to use a new market with low liquidity there may be too few markets to achieve efficiency a nondiscriminating monopolist will operate smaller and more numerous markets compared to optimality as well as to the equilibrium of independent auctioneers copyright 1988 by american economic association

does anticipated monetary policy matter another look recent work by mishkin 1982a 1982b and gordon 1982 tests the lucas sargent wallace henceforth lsw policy ineffectiveness proposition with econometric methods this work generally finds support for the alternative proposition that there is some short term influence of anticipated demand policy or anticipated money growth on output as mccallum 1982 has pointed out one difficulty with these studies is they presume movements in output and employment are best represented as stationary fluctuations around deterministic trends in constrast to evidence given by nelson and plosser 1982 which suggests these variables are nonstationary processes that have no tendency to return to a deterministic path if these series are nonstationary processes then the distribution theory implicit in the hypothesis tests of the gordon and mishkin studies does not apply and their results are open to question also as mccallum 1982 p 4 points out the methods of overcoming the observational equivalence difficulty sargent 1976 are not entirely satisfying in these studies in effect gordon and mishkin are forced to make some untested restrictions in order to distinguish the anticipated from the unanticipated components

disaggregate supply evidence for the uk 1989 disaggregate supply evidence for the uk applied economics vol 21 no 10 pp 1397 1409

money output granger causality revisited an empirical analysis of eu countries in this paper the evidence collected in the large literature on testing for granger causality from money to output is revisited using a broad data base of 14 eu countries plus canada the us and japan and quarterly data from the mid 1960s to mid 1990s a number of hypotheses from this literature is evaluated it is found that very few general conclusions can be sustained for instance in most countries it is not the case that the use of data in levels creates a bias in favour of finding granger causality effects of money on output compared to using differences neither does the significance of money lags decline when increasing the number of variables included in the model what appears to be robust though is that allowing for asymmetries clearly increases the likelihood of finding significant causality effects based on the granger causality test results a number of country groups are obtained using cluster analysis which are characterized by a similarly behaviour with respect to the money output

prudent margin levels in the finnish stock index futures market futures market officials are confronted with the difficult task of setting appropriate margin levels that must balance the costs of trader default and the benefits of increased market liquidity one way to guard against default is prudent margin setting practices designed to protect futures positions from extreme price movements the objective of this research is to extrapolate the probabilities of encountering extreme price movements by applying statistical extreme value theory to the finnish stock index futures market the extreme value technique is found to be appropriate since it generates theoretical margin violation probabilities that closely follow the empirical probability distribution the extrapolated results provide decision makers information on extreme events that have not yet occurred

the effect of firm formation and growth on job creation in the united states abstract this paper demonstrates the importance of new firm formation to economic growth it begins by providing data that describe the united states as having had greater employment growth than most developed nations of the world over the last 25 years and focuses upon why job growth in the united states has exceeded that of other nations job creation by firm size we first examine the data on the relative contribution of small and large firms to u s job growth by summarizing research that is uniformly expressed in two year periods and defines small firms as those with less than 100 employees conclusive evidence emerges that small firms are the major sources of net new creation firm entry exit rates and economic growth further understanding of small firm job creation is obtained when we examine firm entry and exit data here we find that firm entry rates vary considerably from period to period range 10 4 12 5 whereas exit rates remain relatively stable from period to period range 9 6 10 4 thus variation in entrepreneurial activity the formation of new firms is the major cause of net increases in the number firms in both the united states and the united kingdom net firm increases are positively related to overall economic activity firm entry exit and job creation further exploration of this correlation can be conducted by examining job creation and loss defined by source entries expansions exits and contractions the data for 1976 through 1984 shown here demonstrate that new entries account for 74 0 of the 50 8 million new jobs created expansions of existing firms accounted for 26 0 small firms less than 500 employees produced 54 6 of the entry jobs and 56 8 of the expansion jobs on the other hand job losses totaled 33 8 million 79 0 due to exits and 21 0 to contractions small firms account for 53 6 of the jobs lost from exits and 47 8 of those lost from contractions overall small firms account for 60 5 of the 17 0 million net new jobs given the data that show correlation between net firm formation rates and economic growth the finding that entry rates vary more than exit rates and the finding that new entries create most of the new jobs it can be concluded that firm formation especially small firm formation is a significant factor in economic growth increases in small firm formation rates have a significant effect on net job creation schumpeter s model and observed market turbulance another finding from this data on job creation by entry expansion exit and contraction is the large amount of job creation and destruction activity taking place for the period studied three jobs were created and two jobs destroyed for each net new job created this describes a turbulent job market with many workers moving from job to job the labor markets are much less stable that normally envisioned this observed phenomenon fits well with schumpeter s theory of capitalism he proposes that capitalistic growth occurs because entrepreneurs use innovations to form new firms which enter existing markets when successful these growing new firms destroy existing market structures causing decline of established firms while creating increased demand and producing overall economic growth if schumpeter is correct one would expect to find high rates of firm formation and failure and large numbers of jobs created by new firms while many jobs are lost by exits and contractions of established firms the findings reported here show this government policy affects on entry exit our results also show that formation of small new firms is a necessary requirement for economic growth historically however government policy has not considered small firm entry as a central issue thus government policies can and have had a negative effect on entry rates and therefore upon economic growth rates furthermore high rates of new firm formation cause a great deal of turbulence in labor markets with three jobs created and two lost for every one net new job such labor turbulence may be seen by policy makers as undesirable as it entails considerable worker movement from job to job as such policy makers have recently proposed policies to protect workers from job loss due to contractions and exits however such protection policies as demonstrated in recent european experience will also construct barriers to entrepreneurial entry the result may be a decline in small firm entry and a decline in economic growth instead of protecting specific jobs appropriate policies are those that facilitate movement of workers from job to job adequate unemployment compensation for short term unemployment fully vested and portable pension plans and retraining programs are examples of policies that allow the labor market to remain flexible while reducing the negative effect on those who lose jobs

unanticipated money output and prices in greece in this paper we estimate and test a small neoclassical macromodel for greece the model incorporates the natural rate hypothesis in that only unanticipated inflation can affect real output and is monetarist in nature as the demand for output is derived from the demand for money function the restrictions implied by the model cannot be rejected by either single equation or simultaneous equation tests thus we find little evidence against the proposition that no monetary policy rule can affect real output once it becomes anticipated and that the elasticity of prices with respect to money is unity

financial innovation the last twenty years and the next the word revolution is entirely appropriate for describing the changes in financial institu tions and instruments that have occurred in the past twenty years the major impulses to successful financial innovations have come from regulations and taxes the outlook for the future is for a slowing down of the rate of financial innovation but much growth and improvement are still in prospect

does anticipated monetary policy matter more evidence this note provides more evidence on whether anticipated monetary policy alters the evolution of real output in the united states the results are shown to be sensitive to the model selection criterion used to choose the design matrix

currency hedging and goods trade abstract a puzzle in empirical international finance is the difficulty in finding a large and negative effect of exchange rate volatility on international trade a common explanation is the availability of hedging instruments this paper examines the empirical validity of this explanation using data on over 1000 country pairs which countries have currency hedging instruments is not perfectly observable this paper deals with the problem by specifying an endogenous regime switching regression there are two main findings first there is no evidence in the data to support the validity of the hedging hypothesis second for country pairs with large trade potential exchange rate volatility deters goods trade to an extent much larger than that typically has been documented in the literature without using the switching regression specification

econometric issues in macroeconomic models with generated regressors the paper critically reviews the literature on the econometric issues raised by the use of generated regressors gr in empirical models the economic rationale for the use of gr is considered with examples being drawn from several macroeconomic examples including new classical macroeconomic ncm models which postulate monetary neutrality various estimation methods are discussed for models which include surprise or unexpected terms and the strengths and weaknesses of each approach are investigated drawing upon the work of mcaleer and mckenzie 1991 situations where the typically inefficient two step estimation 2se method will be efficient are highlighted problems of model misspecification and measurement errors are also investigated an empirical section highlights some of the dangers of using uncorrected 2se estimation results through a careful consideration of many recent attempts to test the ncm monetary neutrality hypothesis copyright 1993 by blackwell publishers ltd

the effects on output of anticipated and unanticipated money growth a case study of an oil producing country the new classical macroeconomic hypotheisis regarding the effecs of money growth on real variables sugggests that the anticipated changes in money supply on real variables are neutral irrespective of the time horizon whereas the unanticipated changes in the money supply although neutral in the long run exert significant influence on real variables in the short run this proposition has produced unsettled empirical results the present study attempts to verify empirically the new classical hypothesis in the case of a developing oil producing middle eastern country iraq our study suggests that the anticipated components of money growth rates have positive and significant influence on real variables the results of this study do not lend support to the new classical hypothesis instead they suggest that a steady growth rate of money supply that is fully anticipated by economic agents builds confidence by reducing errors in expectation regarding the behaviour of the money supply and provides easier ac

a quarterly model of unanticipated monetary growth output and the price level in the u k 1963 1978 abstract this paper develops and estimates using quarterly data from 1963 to 1978 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in the money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were favourable to the model specification in particular anticipated monetary growth was found to have no significant effect on output

keiretsu and relationship specific investment implications for market opening trade policy abstract this paper considers the implications of relationship specific investment within keiretsu for policies aimed at opening the japanese market for intermediate goods such as auto parts both vies applied to parts and vers restricting japanese exports of autos cause the keiretsu to import a wider range of parts but of a relatively unimportant type such as seat covers since keiretsu investment and output fall the total value of us parts exports may actually fall for a given value of these exports a vie is less costly for us consumers and japanese producers but a ver is preferred by us automakers

on interest rate innovations and anticipated monetary policy abstract in this note i investigate whether anticipated money matters by following mccallum s 1983 suggestion that nominal interest rates be included in a var system estimated on data spanned by a policy of interest rate targeting the evidence is in favour of gordon s 1982 natural rate hypothesis gradual price adjustent model of policy ineffectiveness ambler and phaneuf 1988 have shown the results can be interpreted as evidence in favour of contract based models of the business cycle

cross regime evidence of macroeconomic rationality rational expectations macromodels predict that the short run effects of monetary shocks on real output x should be negatively related across policy regimes to the variability of such shocks this paper presents cross regime tests of this and related propositions based on a sample of 47 countries the within regime estimates reveal a consistent pattern of positive short run real output effects with neutrality of money holding in the long run the cross regime tests show that x is negatively related to the variance of monetary shocks positively related to the variance of real output shocks negatively related to the variance of velocity shocks and unrelated to either the mean or variance of anticipated money growth

trade and market thickness effects on organizations globalization by raising the number of buyers available to each seller and the number of sellers available to each buyer raises the thickness or the effective number of participants of every market market thickness can have subtle effects on incentives and organizations alleviating hold up problems resulting in less vertical integration more informal contracting and more cooperative and innovative relationships with subcontractors however it can also weaken long run relationships distorting relationship specific investments and risk sharing this paper surveys the theory and empirical evidence indicating when market thickness helps and when it hurts jel f15 l14 l22

consumption smoothing in island economies can public insurance reduce welfare abstract in this paper we study the effects of certain types of public compulsory insurance arrangements for aggregate shocks on private allocations in environments with limited commitment we show that this type of insurance can improve the wellbeing of private situations but it can also deteriorate it we also describe how different characteristics of the environment affect the role of public insurance using data on the mexican progresa program we document the impact that some government programs have in crowding out private transfers

the potential of actuarial decision models abstract venture capitalists vcs are considered experts in identifying high potential new ventures gazelles vc backed ventures survive at a much higher rate than those ventures backed by other sources kunkel and hofer 1991 sandberg 1986 timmons 1994 thus the vc decision process has received tremendous attention within the entrepreneurship literature nonetheless vc backed firms still fail at a surprisingly high rate 20 moreover another 20 of the vc s portfolio fails to provide any return to the vc therefore there is room for improvement in the vc investment process the three staged investment process often begins with venture screening first vcs screen the hundreds of proposals they receive to assess which deserve further consideration those ventures that survive the initial stage are then subjected to extensive due diligence finally the vc and entrepreneur negotiate terms of the investment considering the amount of time that due diligence and negotiation of terms may take it is imperative that vcs minimize their efforts during screening so that only those ventures with the most potential proceed to the next stage yet at the same time the screening process should also be careful not to eliminate gazelles prematurely vcs are in a quandary how can they efficiently screen venture proposals without unduly rejecting high potential investments the answer may be to use actuarial decision aides to assist in the screening process actuarial decision aides are models that decompose a decision into component parts or cues and recombine those cues to predict the potential outcome for example an actuarial model about the vc decision might decompose a venture proposal into decisions about the entrepreneurial team the product the market etc the sub component decisions are than recombined to reach an overall assessment of the venture s potential such models have been developed in a number of decision domains e g bank lending psychological evaluations etc and been found to be very robust specifically these models often outperform the very experts that they are meant to mimic the current study had 53 practicing vcs participate in a policy capturing experiment the participants examined 50 ventures and judged each venture s success potential would the venture ultimately succeed or fail likewise identical information about each venture was input into two different types of actuarial models one actuarial model a bootstrap model used information factors that vcs had identified as being most important to making a good investment decision the second actuarial model was derived by roure and keeley 1990 the roure and keeley model best distinguished between success and failure in a study of 36 high technology ventures the bootstrap model outperformed all but one participating vc he achieved the same accuracy rate as the bootstrap model the roure and keely model although less successful than the bootstrap model outperformed over half of the participating vcs the implications of this study are that properly developed actuarial models may be successful screening decision aides the success of the actuarial models may be attributed to their consistency across different proposals and time the models always weight the information cues the same vcs as are all human decision makers may often be biased by differing salient information cues that cause them to misinterpret or ignore other important cues for example a vc may overlook product weaknesses if s he is familiar with the entrepreneur putting forth a particular proposal although the current study developed a generalized actuarial model each vc firm could create screening models that fit it s particular decision criteria the models could then be used by junior associates or lower level employees to perform an initial screen of received venture proposals thereby freeing senior associates time

a model of venture capitalist investment activity the paper describes the activities of venture capitalists as an orderly process involving five sequential steps these are 1 deal origination the processes by which deals enter into consideration as investment prospects 2 deal screening a delineation of key policy variables which delimit investment prospects to a manageable few for in depth evaluation 3 deal evaluation the assessment of perceived risk and expected return on the basis of a weighting of several characteristics of the prospective venture and the decision whether or not to invest as determined by the relative levels of perceived risk and expected return 4 deal structuring the negotiation of the price of the deal namely the equity relinquished to the investor and the covenants which limit the risk of the investor 5 post investment activities the assistance to the venture in the areas of recruiting key executives strategic planning locating expansion financing and orchestrating a merger acquisition or public offering 41 venture capitalists provided data on a total of 90 deals which had received serious consideration in their firms the questionnaire measured the mechanism of initial contact between venture capitalist and entrepreneur the venture s industry the stage of financing and product development ratings of the venture on 23 characteristics an assessment of the potential return and perceived risk and the decision vis i vis whether to invest the modal venture represented in the database was a start up in the electronics industry with a production capability in place and seeking 1 million median in outside financing there is a high degree of cross referrals between venture capitalists particularly for the purposes of locating co investors factor analysis reduced the 23 characteristics of the deal to five underlying dimensions namely 1 market attractiveness size growth and access to customers 2 product differentiation uniqueness patents technical edge profit margin 3 managerial capabilities skills in marketing management finance and the references of the entrepreneur 4 environmental threat resistance technology life cycle barriers to competitive entry insensitivity to business cycles and down side risk protection 5 cash out potential future opportunities to realize capital gains by merger acquisition or public offering the results of regression analyses showed expected return to be determined by market attractiveness and product differentiation r2 0 22 perceived risk is determined by managerial capabilities and environmental threat resistance r2 0 33 finally a discriminant analysis correctly predicted in 89 4 of the cases whether or not a venture capitalist was willing to commit funds to the deal on the basis of the expected return and perceived risk the reactions of seven venture capitalists who reviewed the model s specification were used to test its validity

default market microstructure and changing trade patterns in forward markets a case study of north sea oil abstract default or credit risk is a central difference between forward and futures markets empirical tests have found little difference between forwards and futures prices but these tests have been conducted on markets where such risk is minimal e g foreign exchange so that even if default risk is in general an important difference between forward and futures trading they would have been unable to detect its effects in contrast this paper presents a case study of a market for forward delivery of a type of crude oil from the north sea that experienced widespread and well documented defaults when the spot price of the underlying commodity plunged from roughly 30 to roughly 10 per barrel in a short period of time in early 1986 the defaults were by relatively small lightly capitalized trading companies firms that neither produce nor consume the physical commodity because information on defaults in financial markets is scarce the paper describes the circumstances surrounding the default episode in some detail the market survived the default episode with market microstructure unaltered and still flourishes despite the successful introduction of a futures market in the same commodity by the london international petroleum exchange patterns of trade changed however the paper examines the hypothesis that investment banks which entered the market following the default period provided intermediation services to market participants thereby substituting to an extent for a clearinghouse taking advantage of the information on the buyer and seller in each transaction the paper presents nonparametric tests for changing patterns of forward trade

using cost observation to regulate firms the paper emphasizes the use of accounting data in regulatory or procurement contracts when the supplier 1 has superior information about the cost of the project and 2 invests in cost reduction the main result states that under risk neutrality the supplier announces an expected cost and is given an incentive contract linear in cost overruns this optimal contract moves toward a fixed price contract as the announced cost decreases an investment choice is then introduced and the use of a rate of return regulation is studied

commodity bonds and consumption risks this paper analyzes the economic role of commodity bonds by examining the nature of the demand for these securities i show that while commodity bonds protect against relative price changes they do so by introducing variability into the future real income stream this variability limits the desirability of using commodity bonds to provide price insurance for future consumption however this variability may allow commodity bonds to hedge risks to consumption caused by stochastic changes in income the analysis also suggests that it is this income insurance rather than price insurance that is important in hedging risks to future consumption in 1863 the confederate states of america csa took the unusual step of issuing bonds payable in bales of cotton in 1980 the sunshine mining company took the unusual step of issuing bonds payable in ounces of silver although the csa commodity bond offering proved to be of an isolated and rather shortlived nature recent developments suggest that commodity bond offerings like that of sunshine mining may become more commonplace for example both mexico and the british oil and gas corporation have issued petroleum bonds and the reagan administration has proposed issuing oil indexed bonds to finance the strategic oil reserve france has experimented with gold bonds as have several private companies commodity indexed debt also has appeared outside of organized bond markets shared appreciation mortgages for example represent a debt indexed to the price of housing even bank loans can be indexed to underlying commodities as evidenced by the oil indexed loans between japanese banks and the soviet union 2 such developments suggest that debts linked to a wide variety of commodity indices are certainly feasible this paper analyzes the economic role of commodity bonds by considering the nature of the demand for these securities because commodity bonds can hedge graduate school of management cornell university this paper has benefitted greatly from discussions with david easley seymour smidt and piet sercu i would also like to acknowledge the extremely valuable comments of an anomymous referee 1 for discussion of the reagan petroleum bond plan see a new plan to finance oil reserve new york times january 15 1981 devious device to trim a budget new york times february 6 1981 and building an oil reserve the thrifty way new york times february 16 1981 britain s oil bonds are discussed in oil bonds may not bring riches world business weekly october 27 1980 gold bonds are featured in gold indexed bond is costly for france new york times june 30 1980 hot seller bonds indexed to oil and gold business week august 3 1979 and sale of gold bonds in europe planned new york times january 28 1981 2 numerous articles on such indexed loans have appeared in the wall street journal see for example wsj february 15 1979 p 33 june 11 1979 p 18 august 15 1979 p 29 april 7 1980 p 7 april 8 1980 p 35 and may 14 1981 p 31

money in the aggregate production function reexamination and further evidence money has traditionally been studied within the framework of utility theory rather than production theory recently attempts have been made to study money within the neoclassical production theory and in fact allow the demand for money to be obtained in the same way as the demand for labor and capital e g see dennis and smith 1978 nadiri 1969 the elrst empirical study to examine money in the u s aggregate production function was that of sinai and stokes 1972 they estimated a cobb douglas production function with capital labor and various deelnitions of real money balances using u s data over the period 1929 67 their conclusion was that money was a signielcant input and that its contribution to output was mistakenly attributed to technical change i e the time trend coefelcient lost its significance when money was added to the production function most of the later studies e g khan and kouri 1979 short 1979 that lent further support to the sinai stokes paper have also used u s data over the period 1929 67 the purpose of this paper is to reexamine previous evidence as well as to provide further results on the role of money in the aggregate production function the results obtained in this paper cast doubts on the previous conclusion that money should be included as an input along with capital and labor in the aggregate production function a brief discussion of the theoretical and empirical literature dealing with

a test of price sluggishness in the simple rational expectations model u k i950 i980 a recurrent feature of the empirical output and price equations derived from simple rational expectations models is that the effects of nominal shocks persist for a long period of time in barro s i977 a unemployment equation unanticipated monetary growth influences unemployment with lags of up to 2 years in his price equation barro i 98 i unanticipated money has a lag of up to 5 years in the price equation fitted to uk data by attfield et al i 98i real money balances influence prices with a one year lag and unanticipated monetary growth influences them with a 2 year lag of course the existence of lags is neither necessary nor sufficient for the negation of the neutrality proposition of rational expectations models lucas i975 sargent 1979 and blinder and fischer i98i have provided rationales for the existence of lags in the supply equation and demonstrated their consistency with the neutrality proposition similarly the work of attfield et al i98i has indicated that lagged adjustments in the demand for money are also consistent with neutrality in both cases the combination of lagged adjustments with perfectly flexible market clearing prices yields all the neutrality propositions of the models of lucas and others however it is also the case that traditional keynesian type models with sluggish price adjustment imply lags in output and price equations the final equations with keynesian type lags may look very similar to the equations derived by lucas barro and others but their implications about the effectiveness of policy may be very different in the model with sluggish price adjustment supply is not equal to demand so some other rule will have to be found to determine employment and output anticipated monetary policy may be able to influence real economic variables if the employment and output rules are not specifically designed to offset the effects of anticipated policy for this reason a strong test of the neutrality proposition should be able to differentiate between different sources of lags and be able to identify them empirically if the test consists merely of a reduced form equation that identifies the lags and a rationalisation of them that is consistent with the neutrality proposition it can provide only weak evidence which may also be consistent

co integrated money in the production function evidence and implications the notion of money as a factor of production has been debated both theoretically and empirically by a number of researchers in the past four decades however the empirical support for money as an input along with labour and capital has been mixed and thus the issue appears to be unsettled recent developments in econometrics regarding co integration and error correction provide a rich environment in which the role of money in the production function can be reexamined in a co integrated space this article presents empirical evidence indicating that different definitions of money simple sum or the divisia m2 play an input role in the cobb douglas production function

does anticipated monetary policy matter an econometric investigation a heated debate has arisen over the policy ineffectiveness proposition associate with the work of lucas sargent and wallace it postulates that anticipated aggregate demand policy will have no effect on business cycle fluctuations so that one deterministic feedback policy rule is as good as any other from the point of view of stabilizing the economy this paper develops a methodology for empirically analyzing rational expectations models displaying this neutrality result and then applies it to the important question of whether anticipated monetary policy matters to the business cycle

forecasting rational expectations and the phillips curve an empirical investigation abstract the rational expectations version of the phillips curve is empirically evaluated for switzerland using a wide variety of specifications it turns out that the results are highly sensitive to measurement of both the natural rate and expectations of nominal variables no reliable phillips curve seems to exist in addition information on the relative quality of different forecasting schemes is obtained for a number of important macroeconomic variables

macroeconomic policy and aggregate fluctuations in a semi industrialized open economy greece 1951 1980 abstract in this paper we model the effects of macroeconomic policy in a semi industrialized open economy greece is our case but the model could apply to other similar economies with tightly controlled financial markets and comprehensive foreign exchange restrictions where both the exchange rate and interest rates are administered prices the model consists of three equations which determine output the price level and the trade balance it is largely non keynesian but through the real exchange rate it allows for anticipated monetary policy to affect real output the model is estimated by fiml and its various restrictions cannot be rejected a policy simulation suggests that even friedman s x money growth rule would ensure greater macroeconomic stability in the 1970s than the monetary policy that was actually followed

money and the bias of technical progress in the literature on the behaviour of a monetary economy it has been suggested that in addition to its role as a medium of exchange the role of money in production should be recognized explicityliy however on this latter point there is some disagreement as to the mechanism by which it affects production for example mundell 1971 bailey and friedman 1969 attribute direct productivity to money and consequently sugest that is should be treated as a separate facto of production on the other hand brunner and meltzer 1971 perlman 1971 stein 1971 gabor and pearce 1958 saving 1972 and moroney 1970 emphasize the role of money as an innovational factor while the reasoning varies the basic idea is that the use of money enhances efficiencies of capital and labour in other words money acts as an input augmenting factor in a recent paper subrahmanyam and cosimano 1979 using data on the indian economy for 1950 51 1969 70 and the ces production function framework have tried to test t

monetary and public debt shocks tests and efficient estimates in an article in the jmcb barro 1 defined a form of intertemporal efficiency for the behavior of marginal tax rates and expected tax rates given certain additional conditions on government expenditures barro s definition of efficiency implied that particular relationships and time paths would characterize federal deficits in that paper two of the seven predicted relationships were tested 1 the sign of the relationship between the deficit and the ratio of output to its trend value and 2 the effect of anticipated inflation on the deficit those tests were performed under the joint assumptions of the rational expectations hypothesis reh and predictable policy irrelevance or structural neutrality sn with regard to both monetary and debt policies in this paper barro s tests of the efficiency hypothesis are reexamined within a wider context by means of the statistically efficient full information maximum likelihood fiml method 4 6 1 specifically by allowing the imposition of cross equation and within equation parameter constraints the fiml method makes it possible to a directly test the reh and sn propositions jointly and separately

money in the production function a new keynesian dsge perspective this article checks whether money is an omitted variable in the production process by proposing a microfounded new keynesian dynamic stochastic general equilibrium model in this framework real money balances enter the production function and money demanded by households is differentiated from that demanded by firms using a bayesian analysis our model weakens the hypothesis that money is a factor of production however the demand of money by firms appears to have a significant impact on the economy even if this demand has a low weight in the production process

the role of liquidity in futures market innovations i characterize the optimal design of a new futures market an innovation by an exchange in the presence of market frictions futures markets am characterized by both the contract and the level of trader participation both can be determined by an exchange a game in which exchanges simultaneously design markets is c onsidered and a particular equilibrium not necessarily unique is constructed a game in which exchanges sequentially design markets and incur design costs is also considered and the generically unique equilibrium is constructed the nature of equilibrium with multiple exchanges is discussed in these simultaneous and sequential settings illustrating the role played by liquidity considerations both in market design and in the nature of competition between exchanges

unanticipated monetary growth output and the price level u k 1946 1977 abstract this paper develops and estimates using annual data from 1946 1977 a three equation model of the u k economy in which output is affected only by unanticipated monetary growth whereas the price level is influenced by both anticipated and unanticipated changes in money supply expectations of monetary growth are assumed to be muth rational the model was estimated using efficient procedures and tests of the over identifying restrictions were generally favourable to model specification some features of the price equation are unsatisfactory and the results in this section must be considered tentative

the evolution of new technology ventures over 20 years patterns of failure merger and survival abstract relatively few studies of entrepreneurs have examined the evolution of business ventures over a long period of time this paper summarizes the fate of 250 technology based companies founded in northern california during the 1960s the three outcomes studied are failure merger and continued operation in addition interviews with a dozen founders of firms that survived the entire 20 year period shed light on the founders own interpretations of why they succeeded by 1988 50 of the firms in the sample had failed 32 had merged or been acquired and 18 had survived as independent businesses there was a steady and occasionally sharp erosion in the number of survivors throughout the period a striking finding was that fully 78 of the surviving firms in 1988 still had one or more of the original founders in place among the factors predicting failure were product market problems such as product timing difficulties problems of product design or inappropriate distribution channels financial difficulties such as initial undercapitalization or problems with the venture capital relationship and managerial key employee problems such as imbalance in the management team or succumbing to the trappings of success the firms in the data base which were subsequently merged or acquired exhibited a number of macro and micro characteristics from a macro point of view the merger acquisition rates seem to have been lower than the national rate in the late 1960s higher in the later 1970s and similar in the 1980s from a micro point of view discernible patterns existed among acquired firms such as size and year since founding interviews with surviving founders suggested that relations between founders banking and credit problems attempted takeovers and international expansion were among the key crises that had to be overcome by the surviving firms of particular interest was the diversity of motives for founding the business reported by the survivors in addition to the desire to achieve wealth or to be independent we heard mentioned loyalty to a product or technology which would otherwise disappear and commitment to satisfying a customer group also noted were founders who indicated that their career as an entrepreneur came about primarily by accident five themes emerging from the interviews were characterized by the surviving founders as business lessons learned 1 know yourself 2 love your product 3 honor your customer 4 treat your people well and 5 keep your integrity the interviews in conjunction with the data on surviving firms are useful in expanding our understanding of the type of person that starts a business and why some start ups succeed over the long term particularly noteworthy is the number affirms who survived without ever growing larger theories of long term entrepreneurial success may need to take risk aversion into account

an analysis of the implications of omitting variables from the monetary growth equation in a model of real output and unanticipated money growth abstract for a barro type model of output and unanticipated monetary growth the paper derives the conditions under which the underlying true model can be tested when the model actually being estimated has been misspecified in the sense that important explanatory variables have been omitted from the money growth equation

price inertia and policy ineffectiveness in the united states 1890 1980 this paper introduces a new approach to the empirical testing of the lucas sargent wallace lsw policy ineffectiveness proposition which compares the lsw hypothesis with an alternative that states that prices respond fully in the long run but only gradually in the short run to nominal aggregate demand disturbances the empirical equations estimated for a new set of quarterly data extending back to 1890 exhibit uniformly high responses of real output and low responses of price changes to anticipated changes in nominal gnp the paper compares and tests three alternative methods of introducing persistence effects into the lsw framework

sources of technical innovation in the network of companies providing chemical process plant and equipment abstract the purpose of this paper is to explore issues concerning technological innovation in the network of firms linked to the chemical industry with particular reference to the process plant contracting industry while technological and economic maturity inhibit the research and development activities of plant contractors little evidence was found of contractors adopting novel strategies to capture special advantage from technology developed by equipment manufacturing firms it is suggested that the changing economic and technological environment is creating a climate where new or closer contractor equipment manufacturer relationships should receive greater attention appropriate alliances between contractors and equipment manufacturers can not only help to reduce plant design procurement and erection costs but also offer a means to counter the competitive threat from more specialist firms in particular the large equipment manufacturers that possess their own project contracting skills furthermore collaboration in niche and technology fusion type innovation offers a means of generating scope for technological competitive advantage whilst sharing cost and risk whilst contractor equipment manufacturer alliances are one option the nature of the market demands operating company involvement to facilitate commercialisation

an analysis of the economic justification for consolidation in a secondary security market abstract this paper considers whether all trading in a listed security should be required to go through an exchange to this end the incentives for a brokerage firm to offer in house execution services are discussed and an analytical framework is developed which shows that under idealized conditions fragmentation of the market through in house execution services would not result in any overall deterioration of market performance characteristics however when some of the idealized conditions are relaxed the market fragmentation arising from in house execution causes the gains to some customers to be more than overcome by the losses to others the analysis which also takes account of the desirability of enforcing reasonable trading priority rules such as priority by price and time across all traders yields several public policy implications for some unlikely scenarios it would be possible through appropriate commission sharing and a perfectly operating intermarket trading system for optimal overall market performance to be consistent with the market fragmentation inherent in in house execution services however for most realistic scenarios fragmentation would cause a deterioration in the quality of the market thus it seems desirable to require that all trading go through a central exchange with a consolidated limit order book

comment upon a new classical model of the postwar uk the results presented by attfield demery and duck 1981 in the european economic review 18 p 367 385 are replicated the model is re estimated to take account of the policy switch to floating exchange rates in 1972 with rather less than favourable results a major problem being misspecification of the monetary growth equation