the growth of business firms facts and theory we refer to the framework developed by ijiri and simon 1977 and to the notion of independent submarkets sutton 1998 to provide a simple candidate explanation for the shape of the firm growth distribution based on a model of proportional growth at the level of both the introduction of new products by firms and their size dynamics we exploit the features of a unique longitudinal data set which covers the entire distribution of products and firms in the worldwide pharmaceutical industry to test the model at different levels of aggregation as well as at different time lags econometric investigations show that the model s predictions are in good agreement with empirical evidence jel l11 l65

the effects of fiscal policies when incomes are uncertain a contradiction to ricardian equivalence this paper shows that when future earnings are uncertain the substitution of deficit fin ance for tax finance or the introduction of an unfunded social secur ity program can raise consumption even if all bequests reflect inter generational altruism an operative bequest motive therefore need not imply ricardian equivalence this conclusion follows from the result derived in the paper that the uncertainty of future income makes t he existence of a future bequest uncertain to the prospective donor copyright 1988 by american economic association

theoretical approaches to monetary disinflation abstract during the 1980s many countries adopted tight monetary policies to reduce high inflation rates which were the legacy of the 1970s as inflation threatens to rise at the beginning of this decade this paper provides a survey of the 1980s literature which sought to provide theoretical understandings of how monetary disinflation is achieved four models are presented monetarist neo keynesian new classical and post keynesian each model s explanation of the recession which accompanies the monetary disinflation is outlined as well as possible policy measures to reduce the extent of the recession and to hasten the return to full employment

empirical patterns of firm growth and r d investment a quality ladder model interpretation we present a partial equilibrium model of endogenous firm growth with r d investment and stochastic innovation as the engines of growth drawing on the quality ladder models in the macro growth literature and the literature on patent races and the discrete choice models of product differentiation the model fits a number of empirical patterns well including i a skewed size distribution of firms with persistent differences in firm sizes ii firm growth independent of firm size as stated in the so called gibrat s law and iii r d investment proportional to sales

government intervention as a bequest substitute abstract a subsequent generations model is used in order to characterize consumption allocation under the future generation s income uncertainty altruistic concerns towards future generations give rise to precautionary bequests which act as a hedge on risk it is shown that given a first order correlation between mean future income and the present generation s income government can provide a pareto improvement through a tax transfer policy with universal participation this policy acts as a substitute for precautionary bequests distributional aspects of government tax transfer policy are also discussed

imperfect annuity markets unintended bequests and the optimal age structure of social security benefits the social security program now provides a constant real benefit throughout each retirees lifetime this paper examines whether total welfare would rise if benefits were lower in early retirement years when most individuals have some saving with which to finance consumption and higher in later years when the uncertainty of survival and the absence of actuarially fair private annuities makes the availability of social security benefits more important the analysis shows that there is a potentially important difference between the structure of benefits that would be preferred by the current population of workers and retirees and the structure of benefits that would maximize the steady state level of social welfare this difference reflects the role of unintended bequests the provision of higher benefits to older retirees reduces individually optimal savings and therefore the level of unintended bequests while those bequests may have no value to the retirees they are clearly of value to the young workers who will receive those bequests more generally the system of level benefits raises the steady state level of the capital stock and of total real income the present paper provides an explicit analysis of a case in which the current workers want benefits to increase with age while the social security system that maximizes steady state welfare would provide higher benefits to young retirees than to the very old this abstract was borrowed from another version of this item

new evidence on the ricardian equivalence theorem a multicointegration approach this paper derives major theoretical constructs which underlie richardian equivalence and using multicointegration methodology empirically tests whether they bear out results indicate that government spending and revenues are cointegrated however the cointegrating scalar is less than one therefore in order for government to obey its intertemporal budget constraint debt and government revenue must be multicointegrated they are not additional evidence indicates that saving and debt may be weakly cointegrated the findings suggest that failure of richardian equivalence may be due to public rather than private sector failure

measures of per capita hours and their implications for the technology hours debate structural vector autoregressions give conflicting results on the effects of technology shocks on hours the results depend crucially on the assumed data generating process for hours per capita we show that the standard measure of hours per capita and productivity have significant low frequency movements that are the source of the conflicting results hodrick prescott hp filtered hours per capita produce results consistent with those obtained when hours are assumed to have a unit root we show that important sources of the low frequency movements in the standard measure are sectoral shifts in hours and the changing age composition of the working age population when we control for these low frequency components to determine the effect of technology shocks on hours using long run restrictions we get one consistent answer hours decline in the short run in response to a positive technology shock we further extend the analysis by examining the effects of demographic controls on the impulse responses to investment specific technology shocks our results are less conclusive

random earnings differences lifetime liquidity constraints and altruistic intergenerational transfers abstract this paper develops a model of private savings behavior in which households care about their descendants cannot have negative net worth and have lifetime earnings depending on random draws from an exogenous distribution of abilities the elements interact very lucky parents are likely to leave large estates constrained children are unusually likely to receive intergenerational transfers the paper proves the existence of a stationary cross sectional distribution of wealth endogenously determines where liquidity constraints will bind and shows that the long term interest rate must be such that ricardian neutrality fails its last section generates several illustrative numerical simulations

fiscal policy in the aftermath of 9 11 this paper investigates the nature of u s fiscal policy in the aftermath of 9 11 we argue that the recent declines in the government surplus and tax rates cannot be accounted for by either the state of the u s economy as of 9 11 or as the typical response of fiscal policy to a large exogenous rise in military expenditures our evidence suggests that had tax rates responded in the way they normally do to a large fiscal shock aggregate output would have been lower and the surplus would not have changed by much our results do not bear directly on the desirability of the decline in tax rates or the surplus after 9 11

consumption adjustment under time varying income uncertainty we study the effect of income uncertainty on consumption in a model that includes precautionary saving in contrast to previous studies we focus on time series variation in income uncertainty our time series measure of income uncertainty is constructed from a panel of forecasts we find evidence of precautionary saving in that increases in income uncertainty are related to increases in aggregate rates of saving we also find evidence that anticipated income growth rates have less explanatory power for consumption growth rates after conditioning on income uncertainty the evidence indicates the presence of forward looking consumers who gradually adjust precautionary savings in response to changing income uncertainty

macroeconomic effects of budget deficits further international evidence abstract this paper investigates the effects of budget deficits on money growth inflation investment and real output growth using annual data from a sample of 32 countries the findings can be summarized as follows i deficits are generally not monetized and therefore they do not produce inflation via monetary expansions ii deficits are not inflationary even through their alleged aggregate demand effects iii deficits are negatively correlated with the rate of growth of real output but this may just reflect their countercyclical nature and iv increased deficits do appear to retard investment usually after one or two years jel e63 h62

the footprint of evolutionary processes of learning and selection upon the statistical properties of industrial dynamics evolutionary theories of economic change identify the processes of idiosyncratic learning by individual firms and of market selection as the two main drivers of the dynamics of industries are such processes able to account for the statistical regularities which industrial structures and dynamics display in this work we address this question by means of a simple multi firm model formalizing the mechanisms of learning and selection as such despite its simplicity the model is able to robustly reproduce an ensemble of empirical stylized facts including ample heterogeneity in productivity distributions persistent market turbulence and fat tailed distribution of growth rates

ricardian equivalence long run leviathan abstract this paper presents a heterogenous overlapping generations with altruism model in which intergenerational discounting is stochastic the model nests three popular macroeconomics models those of ramsey economic journal 38 152 1928 543 559 diamond american economic review 55 1965 1126 1150 and a variant of the blanchard journal of political economy 93 2 1985 223 247 buiter the economic journal 98 391 1988 279 293 weil journal of public economics 38 2 1989 183 198 model it is shown that under a mild condition originally derived by weil journal of monetary economics 19 3 1987 377 391 the long run capital intensity is robust to practically every popular theoretical criticism of the standard ricardian model these criticisms include the imperfect inheritability of time preference parameters and hence finite horizons on the part of all households myopia in the form of overly discounting the future borrowing constraints distortionary labor taxation exchange strategic bequest motives common cultural constraints egalitarian bequests and primogeniture endogenous fertility and joy of giving while precautionary saving can theoretically violate long run neutrality the asymptotic capital intensity is still bounded below by preference parameters the overall conclusions are sharply at odds with those found in most articles dealing with the theoretical foundations of ricardian equivalence

income uncertainty and ricardian equivalence this note characterizes the nature of ricardian equivalence failure when either the old generation s or the young generation s income is uncertain and the nonnegativity constraint on bequests is binding in some states of nature assuming a positive third derivative of the utility function the same condition needed for precautionary savings it is shown that the degree of failure of ricardian equivalence is greater when the corner has to do with parental poverty than when the corner has to do with children s wealth the reason is that in corners associated with parental poverty and therefore lower parental consumption marginal utility is more sensitive to extra consumption leading to a higher marginal propensity to consume in the first period consequently government transfers cause a substantial reduction of precautionary savings in poor corners in contrast to rich corners where precautionary savings are only slightly affected

the distribution of wealth and welfare in the presence of incomplete annuity markets this paper examines the implications of the absence of complete annuity markets on the distribution of wealth and welfare of agents whose saving decisions are obtained under uncertainty regarding the length of their life the absence of annuities is shown to yield a unique nondegenerate intragenerational distribution of wealth which is fully characterized this characterization is then used to evaluate the pareto desirability of an annuity system alternative welfare criteria that can be used when the proposed change has differential impacts on the initial state of subsequent generations are considered

institutional investors and stock market volatility statement of responsibility on t p reads xavier gabaix parameswaran gopikrishnan vasiliki plerou h eugene stanley

trend breaks long run restrictions and contractionary technology improvements abstract structural vector autoregressions with long run restrictions are extraordinarily sensitive to low frequency correlations recent literature finds that the estimated effects of technology shocks are sensitive to how one treats hours per capita however after allowing for statistically and economically significant trend breaks in productivity results are much less sensitive hours fall when technology improves the issue is that the common high low high pattern of productivity growth and hours i e the low frequency correlation inevitably leads to a positive estimated response the trend breaks control for this correlation this example suggests a practical need for care in using long run restrictions

note on ricardian equivalence abstract discussions of the ricardian equivalence concept have generally centered on the notion of a dynastic extended family in which the utility of each generation depends on its own consumption and on the utilities of its descendants this paper shows that there are other reasons why we could observe the ricardian result either exactly or approximately one reason is the capitalization of property taxes into property values the other reason is that the bequest itself could be a variable in parents utility functions

endogenous fertility ricardian equivalence and debt management policy abstract the paper develops a model in which dynastic families optimally determine fertility government debt represents a tax on future generations and on childbearing the ricardian equivalence hypothesis does not hold debt is welfare reducing in that it distorts the fertility decision an increase in government debt induces a decline in fertility and an increase in the steady state capital labor ratio if a government inherits an existing stock of debt the first best policy is to eliminate the debt immediately in other situations the optimal debt management policy will not in general entail a total elimination of the debt

firm growth and laplace distribution the importance of large jumps abstract recent empirical studies have shown that firm growth rate distribution is not gaussian but closely follows a laplace distribution this robust feature of the growth rate distribution challenges existing models based on gibrat s model because it predicts a gaussian distribution first we analyze more than 100 000 japanese firms and empirically show that the laplace shape can be observed for the japanese firms then by using the theory of stochastic processes we theoretically show that the absence of jumps causes the discrepancy between gibrat s model and the laplace shape in particular based on the laplace shape and the law of proportionate effect we show that the firm growth process is a jump process in other words firm growth cannot be explained by the consequence of many small shocks but is determined by a few large jumps the widely observed laplace distribution reflects this jump property of firm growth dynamics

fiscal policy with heterogeneous agents and incomplete markets i undertake a quantitative investigation into the short run effects of changes in the timing of proportional income taxes for model economies in which heterogeneous households face a borrowing constraint temporary tax changes are found to have large real effects in the benchmark model a temporary tax cut increases aggregate consumption on impact by around 29 cents for every dollar of tax revenue lost comparing the benchmark incomplete markets model to a complete markets economy income tax cuts provide a larger boost to consumption and a smaller investment stimulus when asset markets are incomplete copyright 2005 wiley blackwell

the importance of bequests and life cycle saving in capital accumulation a new answer as the workhorse of consumption and saving research for the past four decades the life cycle model has proved flexible and useful for examining a variety of questions in a classic paper albert ando and franco modigliani 1963 p 56 stated a key assumption of the basic model t he individual neither expects to receive nor desires to leave any inheritance although the authors contended that the absence of a bequest motive was not critical to the heart of their results the assumption set off a long standing battle over the relative importance of different motives for saving in an influential study laurence kotlikoff and laurence summers 1981 estimated that a large fraction of the u s capital stock was attributable to intergenerational transfers modigliani and his collaborators vigorously disagreed and based on their own empirical work claimed that life cycle saving was the primary source of capital accumulation modigliani 1988 subsequent work has failed to reach a consensus since this debate began an important advance in the consumption literature has been the incorporation of uncertainty in life cycle models see e g r glenn hubbard et al 1995 we argue that allowing for uncertainty resolves the controversy over the importance of life cycle and bequest saving by showing that these motives for saving are overlapping and cannot generally be distinguished a dollar saved today simultaneously serves both a precautionary life cycle function guarding against future contingencies such as health shocks or other emergencies and a bequest function because in the likely event that the dollar is not absorbed by these contingencies it will be available to bequeath to children or other worthy causes under this view households have a bequest motive but bequests are given i e the motive is operative in only some states of the world wealth is something like traveler s checks you take them along on vacation just in case but odds are they will remain uncashed and available for sundry goods after the journey is complete we first demonstrate the result using a simple model and then argue that this approach reconciles the apparent importance of bequests with households declared focus on life cycle saving finally we consider implications of our analysis

effects of government spending on private investment this paper investigates the effects of military and non military public expenditures on gross private investment using cointegration and error correction analysis the latter type of public spending is disagreggated into expenditures of infrastructure consumption and other general government expenditures the empirical evidence from four emerging european countries namely greece ireland portugal and spain suggests that in some cases public capital spending stimulates investment while in others it depresses it also the results tentatively indicate that defence spending exerts no influence on private investment thus adding to the ongoing controversy of the economic effects of military spending

defense spending in a neo ricardian world this paper shows that ricardian equivalence no longer holds once we recognize that govern ment acts as an intermediary between generations in the provision of national defence conse quently the level of public debt is positively related to defence spending since this component of government expenditures insures the transferability of bequests as well as protecting savings it is shown that defence spending has an adverse effect on both national saving and the saving rate that has not been considered in the economic growth literature more gener ally the paper emphasizes that in developing a positive theory of taxation the composition of government spending plays an integral role the separation of government expenditures from the methods used to finance them has been an extremely useful assumption employed in economics it has allowed economists to analyse a series of problems which would be much more difficult to study if individual taxpayers were assumed to perceive a link between the tax structure and the expenditure structure of an economy hettich and winer 1988 for example following this tradition develop a positive theory of a tax system this separation has been used most frequently and fruitfully to address the important question do fiscal deficits matter more specifically does the way that government finances its expenditures between taxing and issuing public debt matter in terms of their impact on the real economy barro 1974 employed an overlapping generations model with altruism to show that if individuals are not bequest constrained then government bonds are not perceived as net wealth the recipients of government transfers financed by bonds realize that their descendants will have to finance the debt through higher taxes and so they offset the increase in public debt by increas ing the size of the bequest to their children by the same amount the effect is that interest rates wages and the level of output of the economy are unaltered this result usually referred to as the ricardian equivalence theorem presented a challenge to the profession to find circumstances under which it would not hold and when therefore financing government spending with debt would

innovation and corporate growth in the evolution of the drug industry abstract this work studies the processes of growth of the worlds top 150 pharmaceutical firms on the grounds of an original database which also allows disaggregate analysis at the level of single therapeutical classes and chemical entities our findings show that the industry whose long term evolution is driven by innovation imitation and permanent creation of new markets displays i fat tails in the distribution of growth shocks present at all levels of aggregation with relatively rare big spurs of growth ii a significant autocorrelation of growth rates iii a fall of variance of growth rates with size entirely dependent on corporate diversification patterns in turn plausibly shaped by the competence scope of each firm and iv different lifecycles of diverse types of products and persistent forms of heterogeneity across firms in terms of innovative output which however do not not seem to affect comparative growth performances

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