what do interest rates reveal about the functioning of real business cycle models abstract this paper begins by documenting the extent to which the predictions of standard real business cycle rbc models are incompatible with observed movements in real interest rates the main finding of the paper is that extending the baseline model to include habit persistence in consumption and adjustment costs to capital significantly improves the model s empirical performance in our evaluation of the model s performance we take special care of estimating and testing predictions of the model using both moments drawn directly from the data and moments calculated after identifying shocks to the stochastic trend

how the baby boomers retirement wave distorts model based output gap estimates hours per capita measures based on the private sector as usually included in the set of observables for estimating macroeconomic models are affected by low frequent demographic trends and sectoral shifts that cannot be explained by standard models further model based output gap estimates are closely linked to the observable hours per capita series hence hours per capita that are not measured in concordance with the model assumptions can distort output gap estimates this paper shows that sectoral shifts in hours and the changing share of prime age individuals in the working age population lead indeed to erroneous output gap dynamics regarding the aftermath of the global financial crisis model based output gaps estimated using standard hours per capita series are persistently negative for the us economy this is not caused by a permanently depressed economy but by the retirement wave of baby boomers which lowers aggregate hours per capita after adjusting hours for changes in the age composition to bring them in line with the model assumptions the estimated output gap gradually closes in the years following the global financial crisis

productivity and unemployment over the business cycle abstract the low correlation between cyclical unemployment and productivity over the post war period hides a large sign switch in the mid 1980s from significantly negative the correlation became significantly positive using a search model of unemployment with nominal rigidities and variable labor effort i show that technology shocks can generate a positive unemployment productivity correlation whereas non technology shocks i e aggregate demand shocks tend to do the opposite in this context i identify two events that can quantitatively explain the increase in the correlation i a sharp drop in the volatility of non technology shocks in the mid 1980s and ii a decline in the response of productivity to non technology shocks which from procyclical became acyclical in the last 25 years

sources procedures and microeconomic effects of innovation fabio arcangeli paul david frank engelman christopher freeman massimo moggi richard nelson luigi orsenigo nathan rosenberg michele salvati g n von tunzelman two anonymous referees and the participants at the meeting of the committee on distribution growth and technical progress of the italian national research council cnr rome november 16 1985 have helped with various redraftings a particularly grateful acknowledgment is for the insightful and patient help of moses abramovitz this work has been undertaken at the science policy research unit spru university of sussex as part of the research program of the designated research centre sponsored by the economic and social research council esrc earlier support to the research that led to this paper by the italian national research council cnr is also gratefully acknowledged the statistical research has been undertaken with the assistance of stephano brioschi ilaria fornari and giovannu prennushi

flexible practices for mass production goals economic governance in the indian automobile industry this paper explains the remarkable restructuring of the indian automobile industry it argues that firms have had to deploy new governance modes flexible industrial practices for economic coordination to overcome supply bottlenecks and meet expanding demand firms that failed to adopt these practices performed poorly while firms that attained economies of scale were able to graduate to exploiting economies of scope the industry experience suggests that new governance modes can serve mass production goals in developing economies and not just cushion market volatility for which they were designed

on the relationship between firm size and export intensity export marketing literature supports the view that firm size is positively related to export intensity although the empirical findings have been mixed a number of theoretical arguments are used to support this proposition i e international marketing economies of scale limited managerial and financial resources of small firms decisionmaker s risk perception based on a large survey of the italian manufacturing industry the article falsifies the proposition and challenges some widely held assumptions in export marketing literature

current real business cycle theories and aggregate labor market fluctuations hours worked and the return to working are weakly correlated traditionally the ability to account for this fact has been a litmus test for macroeconomic models existing real business cycle models fail this test dramatically we modify prototypical real business cycle models by allowing government consumption shocks to influence labor market dynamics this modification can in principle bring the models into closer conformity with the data our empirical results indicate that it does

the restructuring of the indian automobile industry indian state and japanese capital abstract this paper analyzes the changing institutional context in which the restructuring of the indian automobile industry is taking place it explains the internationalization of the industry under the aegis of deregulation of a heavily statist economy economic liberalization however has not resulted in withdrawal of the state from the industry transnational corporations have not necessarily weakened domestic capital instead japanese capital and technology have transformed the industry with mixed outcomes creating both benefits of and constraints to restructuring the reorganization of the indian automobile industry reflects not only global forces but rather the interplay of changing institutional factors in influencing industrial restructuring in a developing economy

structural shocks and the comovements between output and interest rates stylized facts on u s output and interest rates have so far proved hard to match with simple dsge models i estimate covariances between output nominal and real interest rate conditional on structural shocks since such evidence has largely been lacking in previous discussions of the output interest rate puzzle conditional on shocks to technology and monetary policy the results square with simple models moreover permanent inflation shocks accounted for the counter cyclical and inversely leading behavior of the real rate during the great inflation 1959 1979 over the great moderation 1982 2006 technology shocks were more dominant and the real rate has been pro cyclical

house prices borrowing constraints and monetary policy in the business cycle i develop a general equilibrium model with sticky prices credit constraints nominal loans and asset prices changes in asset prices modify agents borrowing capacity through collateral value changes in nominal prices affect real repayments through debt deflation monetary policy shocks move asset and nominal prices in the same direction and are amplified and propagated over time the financial accelerator is not constant across shocks nominal debt stabilises supply shocks making the economy less volatile when the central bank controls the interest rate i discuss the role of equity debt indexation and household and firm leverage in the propagation mechanism finally i find that monetary policy should not target asset prices as a means of reducing output and inflation volatility

the behavior of the real rate of interest this paper presents new facts regarding the behavior of the ex ante real rate of interest these facts are notably different from conventional wisdom about the cyclical properties of the real rate in particular we find that the ex ante real rate is contemporaneously positively correlated with gdp and positively correlated with lagged cyclical output there is also evidence that high real rates are associated with strong cyclical output one quarter into the future our results generally are not sensitive to the estimation methodology but are quite sensitive to the price series used this sensitivity is especially true for the consumer price index thus we find evidence of specification uncertainty we also find that real rate behavior varies over different sample periods and that the cyclical properties of the ex ante and ex post real rates are not identical therefore inferring ex ante real rate behavior using ex post data is inappropriate this paper presents new facts regarding the behavior of the ex ante real rate of interest these facts are notably different from conventional wisdom about the cyclical properties of the real rate in particular we find that the ex ante real rate is contemporaneously positively correlated with gdp and positively correlated with lagged cyclical output there is also evidence that high real rates are associated with strong cyclical output one quarter into the future stylized facts presented in stock and watson 1999 are exactly the opposite and we investigate the reasons for these differences we do this by looking across a wide variety of constructed real rate series these series are obtained by using a number of different methodologies for estimating expected inflation using several different price series and looking over different time periods our results generally are not sensitive to the estimation methodology but are quite sensitive to the price series used this sensitivity is especially true for the consumer price index cpi thus we

factor hoarding and the propagation of business cycles shocks this paper analyzes the role of variable capital utilization rates in propagating shocks over the business cycle to this end we formulate and estimate an equilibrium business cycle model in which cyclical capital utilization rates are viewed as a form of factor hoarding we find that variable capital utilization rates substantially magnify and propagate the impact of shocks to agents environments the strength of these propagation effects is evident in the dynamic response functions of various economy wide aggregates to shocks in agents environments in the statistics that we construct to summarize the strength of the propagation mechanisms in the model and in the volatility of exogenous technology shocks needed to explain the observed variability in aggregate u s output other authors have argued that standard real business cycle rbc models fail to account for certain features of the data because they do not embody quantitatively important propagation mechanisms these features include the observed positive serial correlation in the growth rate of output the shape of the spectrum of the growth rate of real output and the correlation between the forecastable component of real output and various other economic aggregates allowing for variable capital utilization rates substantially improves the ability of the model to account for these features of the data

volatility accounting a production perspective on increased economic stability this paper examines the declining volatility of u s output growth from a production perspective at the aggregate level increased output stability reflects decreased volatility in both labor productivity growth and hours growth as well as a significant decline in the covariance the decline in output volatility can also be traced to less volatile labor input and total factor productivity growth and the smaller covariance between them at the industry level the decline in volatility appears widespread with about 80 of component industries showing smaller contributions to aggregate output volatility after 1984 although most of the aggregate decline reflects smaller covariances between industries there is also strong evidence of a decline in the correlation between hours and labor productivity growth across industries the paper concludes with a discussion of potential explanations jel e0 e3

technology systems and technology policy in an evolutionary framework the central purpose of this paper is to outline an evolutionary theory of technology policy and to connect it with the emerging literature on national systems of innovation any understanding of technology policy must be based on a clear understanding of the nature of technology and the important differences between science and technology technology can be treated in terms of knowledge skills and artifacts and in each case there are different variety generating mechanisms different selection processes and different institutional structures for policy purposes the degree of connection between these different dimensions of technology is at the core of technology policy c 1995 academic press inc copyright 1995 by oxford university press

the globalisation of technology a new taxonomy book synopsis international management of research and development brings together the most influential contributions to managing organising and coordinating r d and innovation on a global scale in addition to papers on the fundamental principles trends and drivers of international r d it covers strategies and operations of global r d it also provides an introduction to modern concepts such as knowledge networks open innovation and virtual innovation it is a key reference collection for professors researchers and practitioners

money prices interest rates and the business cycle the mechanisms governing the relationship of money prices and interest rates to the business cycle are the most studied and most disputed topics in macroeconomics in this paper we first document key empirical aspects of this relationship we then ask how well three benchmark rational expectations macroeconomic models a real business cycle model a sticky price model and a liquidity effect model account for these central facts while the models have diverse successses and failures none can account for the fact that real and nom inal interest rates are inverted leading indicators of real economic activity that is none of the models captures the post war u s business cycle fact that a high real or nominal interest rate in the current quarter predicts a low level of real economic activity two to four quarters in the future i introduction the positive correlation of monetary aggregates and real economic activity over the course of many business cycles is a key empirical fact about the u s economy indeed the dynamic dimension of this covariation is so strong and stable that a monetary variable has long been included in the commerce department s index of leading economic indica tors while this pattern of cyclical comovement is widely agreed upon its interpretation is not some macroeconomists view money as purely passive with a positive response to varying levels of economic activity producing the positive correlation others view changes in the quantity of money as an important perhaps dominant source of economic fluctua tions frequently the real effects of monetary changes are suggested to arise from frictions in commodity labor or financial markets in economic theories that describe the influence of these frictions the transmission mechanism from monetary changes to real activity is typically viewed as involving interest rates and the price level the primary goal of this paper is to evaluate three models that explain the link between money prices interest rates and the business cycle we do this in three steps first we docu ment the cyclical behavior of these variables in the united states over the postwar period second we construct three quantitative rational expectations models of macroeconomic activity i a real business cycle model with endogenous money ii a model of commodity market frictions with mon etary non neutralities arising from gradual adjustment of goods prices and iii a model of financial market frictions with monetary non neutralities arising from gradual adjust ments of portfolios finally we compare the models predic tion for the business cycle behavior of money prices and interest rates with the data in exploring the predictions of these models we take the stock of money to be one of several exogenous variables in the system all of our models are capable of generating a forecasting role for money relative to real economic activity similar to that found in the u s data in the real business model monetary changes can forecast real activity because productivity is related to many underlying sources of shocks and because these real shocks also affect the money stock in the models with sticky prices and liquidity effects short hand names for the models with frictions in the com modity and financial markets monetary changes have an additional direct positive effect on aggregate output the outline of the paper is as follows section ii describes the data and documents its business cycle characteristics section iii outlines the three macroeconomic models and develops the particular quantitative versions of the models used in our analysis our main empirical results are pre sented in section iv and section v summarizes our results and concludes

the shifts in lead lag properties of the u s business cycle we document shifts in the lead lag properties of the u s business cycle since the mid 1980s specifically 1 the well known inverted leading indicator property of real interest rates has completely vanished 2 labor productivity switched from positively leading to negatively lagging output and labor inputs over the cycle and 3 the unemployment rate shifted from lagging productivity negatively to leading positively many contemporary business cycle models produce counterfactual cross correlations revealing that popular frictions and shocks provide an incomplete account of business cycle comovement determining the underlying sources of these shifts in the lead lag properties and their consequences for macroeconomic forecasts is therefore a promising direction for future research jel e24 e32 e43

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

temporal analysis of income earned by former agriculture students earnings profiles of students formerly enrolled in a college of agriculture were analyzed in the context of labor market information analysis of covariance was used to estimate models explaining how salary determinants changed during the alumni s careers gender education year of job market entry profit sharing and personal emphasis on earnings were found to be significant determinants of starting incomes starting incomes were found to be a prime determinant of later year salaries along with experience on the immediate job profit sharing oral and technical skills marital status and place of residence labor market information was found to vary in quality across participants and have a limited shelf life

does economic liberalisation endanger indigenous technological developments an analysis of the indian experience abstract india s recent economic liberalisation measures have raised concerns that enterprises will begin to neglect the development of indigenous technologies and will make increasing use of imported technologies and or of standardised technologies this paper argues that the comparative advantages of the different types of technologies will depend on certain enterprise level characteristics including age and size and consequently enterprises that use the technologies based on their in house r d efforts may perform well even under a liberalised regime empirical tests using data of enterprises in three major industry groups gave results consistent with these arguments over the period 1991 1998 the growth performance of enterprises that make products based on their in house r d efforts have compared favourably with those of other enterprises in two of the industries moreover the share of the r d based products in enterprises overall sales has been maintained in both the industries for which this test could be undertaken

technology acquisition de regulation and competitiveness a study of indian automobile industry abstract this paper has attempted to analyse the effects of de regulation policy introduced in india during the mid 1980s on technology acquisition and competitiveness defined in terms of market share changes in the indian automobile industry during the 1980s following evolutionary theoretical framework the paper argues that asymmetry among firms in terms of technology acquisition through technology imports and in house efforts explain much of the firm level differences in competitiveness asymmetry in technology acquisition is largely due to differences in the firms ability to bring about technological paradigm and trajectory shifts the results of the econometric exercise support the view that even in an era of capacity licensing development of competitive skills crucially depended upon the ability to build specific technology trajectory advantages this is achieved by successfully complementing imported technology with in house technological efforts competitiveness in a de regulated regime would however depend upon the ability of the firm to bring about technological paradigm shifts new firms who depended on intra firm transfer of technology and firms with in house r d efforts to accomplish paradigm shifts appear more successful further in a liberal regime advantages of vertical integration over sub contracting also appear to be important in the determination of competitiveness

work power and earnings of women and men numerous studies have established that part of the very substantial male female earnings gap is explained by differences in the amount of human capital workers have accumulated see for example jacob mincer and haim ofek 1983 institutional factors have also been found to play a role in determining wages david gordon et al 1982 occupation further helped to explain the remaining gap but several researchers have shown that introducing dimensions of work authority by taking into account the individual s position in the work hierarchy explains more of the variation in earnings than does occupation martha hill 1980 last two recent studies ferber and spaeth 1984 spaeth 1985 also included control over monetary resources this variable added substantially to the explanatory power of earnings regressions even after human capital variables institutional factors and several other measures of work authority had been entered like the other studies ferber and spaeth also found that reward structures for men and women are quite different suggesting the possible existence of discrimination the question whether women may also be at a disadvantage in achieving control over monetary resources was not investigated when hill examined the process of achievement of work authority she found substantial differences between male and female workers in this paper we examine whether the same is true for attaining financial control i data and analysis

macroeconomic forecasting using diffusion indexes this article studies forecasting a macroeconomic time series variable using a large number of predictors the predictors are summarized using a small number of indexes constructed by principal component analysis an approximate dynamic factor model serves as the statistical framework for the estimation of the indexes and construction of the forecasts the method is used to construct 6 12 and 24 monthahead forecasts for eight monthly u s macroeconomic time series using 215 predictors in simulated real time from 1970 through 1998 during this sample period these new forecasts outperformed univariate autoregressions small vector autoregressions and leading indicator models