debt regimes and the effectiveness of monetary policy abstract this paper develops a medium scale non linear model of the us economy our proposed model a threshold vector autoregression with stochastic volatility assumes that changes in government debt to gdp ratios drive the transition between regimes capturing low and high debt regimes the introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model in the empirical application we analyze regime specific monetary policy shocks our findings indicate that the effect of monetary policy is less pronounced in high debt regimes pointing towards differences in the underlying monetary policy transmission mechanisms forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors

structural interpretation of vector autoregressions with incomplete identification revisiting the role of oil supply and demand shocks traditional approaches to structural vector autoregressions vars can be viewed as special cases of bayesian inference arising from very strong prior beliefs these methods can be generalized with a less restrictive formulation that incorporates uncertainty about the identifying assumptions themselves we use this approach to revisit the importance of shocks to oil supply and demand supply disruptions turn out to be a bigger factor in historical oil price movements and inventory accumulation a smaller factor than implied by earlier estimates supply shocks lead to a reduction in global economic activity after a significant lag whereas shocks to oil demand do not

identifying a forward looking monetary policy in an open economy i identify a forward looking monetary policy function in a forecast augmented var foavar model by using forecasted macroeconomic variables in addition to the realized variables used in a standard var i find that forecasted variables play a greater role than realized variables in a central bank s policy decisions i also find that a contractionary policy shock in the foavar generates impulse responses of macroeconomic variables that are consistent with the predictions of economic theory while the same shock causes a price puzzle and a delayed overshooting response of the exchange rate in the standard model

measuring monetary policy in a small open economy with managed exchange rates the case of taiwan author affiliation tai kuang ho department of economics national chung cheng university 168 university rd min hsiung chia yi 62102 taiwan ecdtkh ccu edu twkuo chun yeh department of economics national chung cheng university 168 university rd min hsiung chia yi 62102 taiwan ecdkcy ccu edu tw acknowledgment the authors thank jurgen von hagen jin lung lin hung jen wang ruey yau and participants of the 2006 meeting of macro econometrics analysis in taiwan the research seminar of the central bank of the republic of china taiwan and the 18th annual ec2 conference in faro portugal for helpful comments and suggestions hung jen wang kindly shared with us his net foreign assets data the authors thank co editor kent kimbrough and two anonymous referees for their insightful comments and suggestions financial support from taiwan s national science council nsc 95 2415 h 194 007 is acknowledged 1 introductionin this article we use the sign restrictions method and specify a set of sign restrictions to identify monetary policy shocks in a small open economy most existing studies have adopted the recursive cholesky approach to identify monetary policy shocks this identification scheme may be appropriate for a large and relatively closed economy such as the united states it is however much less likely to be valid for a small open economy cushman and zha 1997 for a closed economy the monetary transmission mechanism is viewed as operating through the interest rate in the short run a contraction in monetary policy is expected to increase the interest rate and thus depress private consumption and investment this justifies the conventional practice to identify monetary policy shocks as innovations in the short term interest rates however things are different for a small open economy for a small open economy whose monetary authorities intervene heavily in the foreign exchange market the effects of monetary policy operate through both the interest rate and the stock of foreign reserves a contraction in monetary policy can take the form of either an increase in the interest rate or a decumulation of foreign reserves this is the starting point of our identification of monetary policy shocks for a small open economy we employ the sign restrictions methodology proposed by uhlig 2005 to implement our identification scheme the sign restrictions framework of uhlig 2005 provides a conceptually clear way to impose identification conditions and to facilitate the comparison of our identification scheme to the other alternatives cushman and zha 1997 and berument 2007 also consider the identification of monetary policy shocks for a small open economy taking canada and turkey respectively for their empirical studies cushman and zha 1997 employ a structural vector autoregression var approach and include a broad set of foreign variables along with the domestic variables those authors structural var relies on three conditions to identify monetary policy shocks first foreign variables are block exogenous to domestic variables second domestic monetary policy reacts contemporaneously to the interest rate monetary aggregate and exchange rate but not to real gross domestic product gdp and price level third the exchange rate can respond contemporaneously to all domestic and foreign variables these conditions allow simultaneous interaction among the monetary policy and a variety of domestic and foreign variables which is absent in the recursive cholesky approach a common feature of our identification scheme and that of cushman and zha 1997 is that both of us allow simultaneous interaction between the interest rate and exchange rate foreign reserves the differences are first that we do not include foreign variables in our var model so that the exogeneity of foreign variables with respect to domestic variables will not be an identifying condition in our case

economics health and health economics hyes healthy years equivalent versus qalys quality adjusted live year this paper responds to culyer and wagstaff s cw and buckingham s b arguments we refute their claim about the equivalence of hyes and qalys they fail to distinguish between choice under uncertainty and under certainty cw assume that all individuals have a specific form of utility function which yields their conclusion of equivalence b s arguments confuse the measurement technique and the utility theory from which it stems his argument about the normative superiority of the qaly construct is inconsistent with economic thinking the hye by being compatible with the principles of economics is superior to the qaly for economic evaluations of health care interventions

employment and structural impacts of material efficiency strategies results from five case studies abstract in order to come up with a sound assessment of the effects of material efficiency innovations on growth employment and competitiveness different economic mechanisms have to be considered from a methodological point of view the analysis must be able to account for technology specific aspects the employment impacts of five innovations are analyzed plastic and paper recycling increased life span of automobiles car sharing and bio based products time horizons for all strategies are scenarios until 2020 the economic impacts are context specific with regard to innovation technology and country the economic impacts highlight substantial structural adjustments the overall economic net impact on employment tends to be neutral to positive stronger positive economic impacts result if first mover advantages can be established

debt deleveraging and the liquidity trap a fisher minsky koo approach in this paper we present a simple new keynesian style model of debt driven slumps that is situations in which an overhang of debt on the part of some agents who are forced into rapid deleveraging is depressing aggregate demand making some agents debt constrained is a surprisingly powerful assumption fisherian debt deflation the possibility of a liquidity trap the paradox of thrift a keynesiantype multiplier and a rationale for expansionary fiscal policy all emerge naturally from the model we argue that this approach sheds considerable light both on current economic difficulties and on historical episodes including japan s lost decade now in its 18th year and the great depression itself

qalys and hyes under what conditions are they equivalent the paper examines what restrictions have to be imposed on the individual s preference structure for qalys and hyes to yield identical results it is shown that using qalys involves imposing three additional restrictions empirical evidence suggests that these restrictions cannot be expected to hold in all applications the main problem in using hyes appears to be practical an alternative index is proposed that may help to bridge the gap between qalys and hyes by combining to some extent the advantages of the two measures

prospects for global market expansion of china s wind turbine manufacturing industry abstract emerging economies are increasingly contributing to global innovation including clean tech innovation the development of china s wind power sector has often been used to illustrate this point china s domestic wind power market is the largest in the world and is largely supplied by domestic manufacturers competition for market share in the domestic market may pressure firms to innovate which consecutively improves prospects for global expansion this paper reviews developments in china s domestic wind turbine market using the technological innovation system framework we analyze the pressure to innovate arising from market competition and assess the prospects for global expansion of chinese wind turbine manufacturers we conclude that domestic customers are not pressured or incentivized to perform with respect to power output such that turbine manufacturers are not pressured to perform with respect to turbine efficiency or maintenance needs pressure to innovate is further reduced by formalizing connections between wind farm developers and turbine manufacturers chinese turbine manufacturers cannot yet compete with leading global brands in technological leadership the prospects for exports are improved however by the preferential supply of project financing from institutional investors such as the china development bank from chinese utilities that seek global expansion and from the manufacturers themselves

forecasting macro variables with a qual var business cycle turning point index one criticism of vector autoregression var forecasting is that macroeconomic variables tend not to behave as linear functions of their own past around business cycle turning points a large amount of literature therefore focuses on nonlinear forecasting models such as markov switching models which only indirectly capture the relation with turning points this article investigates a direct approach to using information on turning points from the national bureau of economic research nber chronology to model and forecast macroeconomic data our qual var model includes a truncated normal latent business cycle index that is negative during nber recessions and positive during expansions we motivate our forecasting exercise by demonstrating that if starting from a linear specification a truncated normal variable is an omitted variable then forecasts of the remaining variables will become nonlinear functions of their own past we apply the qual var model to recursive out of sample forecasting and find th

inference in structural vector autoregressions when the identifying assumptions are not fully believed re evaluating the role of monetary policy in economic fluctuations abstract point estimates and error bands for svars that are set identified are only justified if the researcher is persuaded that some parameter values are a priori more plausible than others when such prior information exists traditional approaches can be generalized to allow for doubts about the identifying assumptions we use information about both structural coefficients and impacts of shocks and propose a new asymmetric t distribution for incorporating information about signs in a nondogmatic way we apply these methods to a three variable macroeconomic model and conclude that monetary policy shocks are not the major driver of output inflation or interest rates

horizontal diversification in the danish national system of innovation the case of pharmaceuticals abstract the importance of advanced users in home markets as an inducement to technological innovation is now well recognised thereby providing an explanation for important parts of international export specialisation at the theoretical level upstream downstream interaction has been made the generic micro foundation of theories of national systems of innovation however this paper will argue that user producer interaction is not the only country specific inducement mechanism to innovation rather the finding of this paper is in line with the proposition that when firms are science based linkages tend to be horizontal rather than vertical the paper mobilises historical and bibliometric methods to trace the long term development of technology at the danish pharmaceutical company novo nordisk and its links with the local particularly university environment the paper demonstrates the importance of science based competencies in moving from natural resource based technologies to those of greater sophistication thereby influencing trade specialisation of advanced countries

user producer interaction learning and comparative advantage michael porter s book the competitive advantage of nations 1990 has led to increasing attention on the favourable impact that advanced domestic users may have on competitiveness this paper presents a critical appraisal of the theoretical and empirical evidence on this relationship an econometric test of the hypothesis of a positive impact of advanced domestic users on competitiveness on data for 16 oecd countries between 1965 and 1987 is presented in general the results give strong support to the hypothesis under test the relationship appears to be stronger in cases where the home market is exposed to international competition

the eects of fiscal policy and its interactions with monetary policy in brazil this paper analyzes the eects of fiscal policy shocks on the dynamics of the economy and the interaction between fiscal and monetary policy using structural vector autoregressions svars we test the fiscal theory of the price level for brazil analyzing the response of public sector liabilities to primary surplus shocks for the hybrid identification we find that it is not possible to distinguish empirically between ricardian monetary dominance and non ricardian fiscal dominance regimes however using sign restrictions there is some evidence that the government followed a ricardian monetary dominance regime from january 2000 to june 2008

the information technology revolution and the stock market technological progress comes in waves the british industrial revolution 1760 1850 ushered in cort s puddling and rolling process for making iron crompton s mule for spinning cotton and the watt steam engine the second industrial revolution 1890 1930 witnessed the rise of electricity the internal combustion engine and the chemical industry the birth of information technology it may herald the start of a third industrial revolution a new technology or product is often developed by the single entrepreneur who initially finds it hard to get funds develop the product and find customers but if the product is good customers eventually line up and investors flock in other firms then move in to make the product and may drive the innovator out or acquire him whether he reaches the initial public offering ipo stage or is acquired by a listed firm though it takes time for the innovator to add value to the stock market indeed the innovation may at first reduce the market s value because some firms usually large or old will cling to old technologies that have lost their momentum figure 1 plots the market value of u s equity relative to gdp this paper argues that a the market declined in the late 1960 s because it felt that the old technologies either had lost their momentum or would give way to it and that b it innovators boosted the stock market s value only in the 1980 s if the stock market provides a forecast of future events then the recent dramatic upswing represents a rosy estimate about growth in future profits for the economy this translates into a forecast of higher output and productivity growth holding other things equal such as capital s share

regime switching approach to monetary policy effects even though monetary policy has kept interest rates at historically low levels the japanese economy has experienced long lasting recessions since the 1990s in this paper japanese data are employed to conduct an empirical analysis of changes in the effects of monetary policy on the real economy it is found that monetary policy effects vary depending on the phase of the business cycle and the lending attitudes diffusion indices more precisely policy effects are larger in recession but diminish in extreme recession and monetary policy is more effective when lenders attitudes are severe but less effective when they are excessively severe

bank size and macroeconomic shock transmission does the credit channel operate through large or small banks in this paper i use u s call report data to construct a larger panel dataset with bank level observations i find that larger banks lending is considerably more sensitive to the strength of their borrowers and their own balance sheets compared to smaller banks and that the sensitivities to borrower balance sheets are larger in magnitude compared to lender balance sheets when i incorporate various macroeconomic shocks identified by an estimated dsge model into the empirical model i similarly find that the transmission of shocks to the real economy operates mostly through large bank lending and borrower balance sheets

gdp nowcasting application and constraints in a small open developing economy despite data limitations an attempt is made to find out if a gdp nowcasting model can provide reliable forecasts for a small open economy two competing bayesian vector autoregressive models are tested rigorously to obtain the optimal model by minimizing in sample forecasting errors the main finding of this study is that gdp nowcasting can produce reliable results for a small open economy despite the unavailability of sufficient data sets and the lack of high frequency indicators

external shocks u s monetary policy and macroeconomic fluctuations in emerging markets estimated structural vars show that external shocks are an important source of macroeconomic fluctuations in emerging markets furthermore u s monetary policy shocks affect interest rates and the exchange rate in a typical emerging market quickly and strongly the price level and real output in a typical emerging market respond to u s monetary policy shocks by more than the price level and real output in the u s itself these findings are consistent with the idea that when the u s sneezes emerging markets catch a cold at the same time u s monetary policy shocks are not important for emerging markets relative to other kinds of external shocks

what does the bank of japan do to east asia abstract in recent policy debates some have argued that expansionary monetary policy in japan can increase real output in japan and in japan s neighbors while others have warned that it is a beggar thy neighbor policy in this paper we estimate structural vector autoregressions to assess the effects of japanese monetary policy shocks we find that the effects of japanese monetary policy shocks on macroeconomic variation in east asia have been modest and difficult to reconcile with the beggar thy neighbor view we estimate that the asian crisis was preceded by expansionary monetary policy shocks in japan but we fail to find support for the view that these shocks contributed to the crisis

the transmission of us systemic financial stress evidence for emerging market economies abstract we provide empirical evidence that us systemic financial stress shocks us sfsss are an important driver of economic dynamics and fluctuations in emes applying a structural vector autoregression we analyze the international transmission of us sfsss to eight emes using monthly data from 1999 to 2012 us sfsss are identified as unexpected changes in the financial conditions index of the federal reserve bank of chicago findings indicate that a typical emerging market real economy experiences similar negative effects to those seen in the us real economy in response to us sfsss for international transmission our results emphasize that financial interconnectedness with the us is important relative to trade relations the analyzed cases of latin american economies suggest that indirect linkages are also important for transmitting the negative effects of us sfsss in general us sfsss act as a crucial driver of volatility in the emerging world also at business cycle frequencies

hye and tto what is the difference this paper demonstrates that the hye healthy years equivalent procedure not only has nothing more to offer than the tto time trade off method but that it introduces a systematic bias that is not present using tto diagrams are used to illustrate that the hye yields health status values not utilities as its creators suggest and to show that the hye and tto techniques are theoretically identical then empirical evidence concerning the standard gamble certainty equivalence disparity noted elsewhere in the literature is shown to indicate that hye responses are likely to contain systematic biases that will lead to hye estimates exceeding tto values

comparing dsge var forecasting models how big are the differences abstract i generate priors for a vector autoregression var from a standard real business cycle rbc model an rbc model with capital adjustment costs and habit formation and a sticky price model with an unaccommodating monetary authority the response of hours worked to a tfp shock differs sharply across these models i compare the accuracy of forecasts made from each of the resulting dynamic stochastic general equilibrium vector autoregression dsge var models despite having different structural characteristics the dsge vars are comparable in terms of forecasting performance as in previous work dsge vars compare favorably with atheoretical vars

financial and fiscal interaction in the euro area crisis this time was different abstract this paper highlights the anomalous characteristics of the euro area twin crises by contrasting the aggregate macroecosnomic dynamics in the period 2009 2013 with the business cycle fluctuations of the previous decades we report three novel stylised facts first the contraction in output was marked by an anomalous downfall in private investment and an increase in households savings while consumption and unemployment followed their historical relation with gdp second households and financial corporations debts and house prices deviated from their pre crisis trends while non financial corporations debt followed historical regularities third the jumps in the public deficit gdp and debt gdp ratios in 2008 2009 were unprecedented and so was the fiscal consolidation that followed our analysis points to the financial nature of the crisis as a likely explanation for these facts importantly the anomalous increase in public debt is in large part explained by extraordinary measures in support of the financial sector which show up in the stock flow adjustments and reveal a keyinteraction between the fiscal and the financial sectors

interconnections between eurozone and us booms and busts using a bayesian panel markov switching var model summary the proposed panel markov switching var model accommodates changes in low and high data frequencies and incorporates endogenous time varying transition matrices of country specific markov chains allowing for interconnections an efficient multi move sampling algorithm draws time varying markov switching chains using industrial production growth and credit spread data several important data features are obtained three regimes appear with slow growth becoming persistent in the eurozone turning point analysis indicates the usa leading the eurozone cycle amplification effects influence recession probabilities for eurozone countries a credit shock results in temporary negative industrial production growth in germany spain and the usa core and peripheral countries exist in the eurozone copyright 2016 john wiley sons ltd

forecasting government bond yields with large bayesian vector autoregressions abstract we propose a new approach to forecasting the term structure of interest rates which allows to efficiently extract the information contained in a large panel of yields in particular we use a large bayesian vector autoregression bvar with an optimal amount of shrinkage towards univariate ar models the optimal shrinkage is chosen by maximizing the marginal likelihood of the model focusing on the us we provide an extensive study on the forecasting performance of the proposed model relative to most of the existing alternative specifications while most of the existing evidence focuses on statistical measures of forecast accuracy we also consider alternative measures based on trading schemes and portfolio allocation we extensively check the robustness of our results using different datasets and monte carlo simulations we find that the proposed bvar approach produces competitive forecasts systematically more accurate than random walk forecasts even though the gains are small

political accountability and the room to maneuver a search for a causal chain many studies of the room to maneuver make no provision for popular evaluation of policy they assert rather than demonstrate popular satisfaction with policy choices and macroeconomic outcomes the authors present a framework that explicitly models channels for popular preferences to influence policies and outcomes results for economic policy making in britain do not support the room to maneuver thesis in the authors sample 1981 to 1997 the british government was responsive to changes in political evaluations and its policy choices effectively fed back into popular evaluations of government policy however this accountability mechanism worked outside the real economy shifts in popular evaluations induced changes in policy but had no impact on inflation and economic growth government capacity to shape macroeconomic outcomes was limited and popular influence over economic policy was ineffectual this form of accountability probably existed because british citizens had difficulty gauging the real impacts of their government s policies

the analytics of svars a unified framework to measure fiscal multipliers ticities implied by the identification schemes generate a large dispersion in the estimates of tax and spending multipliers second i estimate fiscal multipliers consistent with prior distributions of the elasticities computed by a variety of empirical strategies and by employing a simple dynamic stochastic general equilibrium model i document three findings for the u s for the period 1947 2010 first the impact tax multiplier is close to 0 second the impact spending multiplier ranges between 0 35 and 1 third there is a large uncertainty in the estimates of fiscal multipliers at longer horizons yet the probability that the spending multiplier is larger than the tax multiplier is above 0 65 for up to three years after policy interventions

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

sticky wages and sectoral labor comovement abstract a defining feature of business cycles is the comovement of inputs at the sectoral level with aggregate activity standard models cannot account for this phenomenon this paper develops and estimates a two sector dynamic general equilibrium model that can account for this key regularity my model incorporates three shocks to the economy monetary policy shocks neutral technology shocks and embodied technology shocks in the capital producing sector the estimated model is able to account for the response of the u s economy to all three shocks using this model i argue that the key friction underlying sectoral comovement is rigidity in nominal wages

the dynamic impacts of monetary policy an exercise in tentative identification it is currently popular to identify monetary policy shocks with innovations in some measure of reserves or in the federal funds rate these assumptions about the interest elasticity of the supply of or demand for reserves imply monetary policy shocks that produce dynamic responses of macroeconomic variables that are anomalous relative to traditional monetary analyses this paper tentatively identifies supply and demand shocks in the markets for reserves and m2 for the 1980s and contrasts them with results for the 1970s in the later period identified monetary policy shocks have dynamic impacts that are fully consistent with traditional analyses

identifying the role of risk shocks in the business cycle using stock price data i introduction the finance literature on the forecastibility of stock returns has concluded that stock market movements are by and large not because of changes in the expected future cash flow of firms but are primarily because of changes in the risk premium that is how the expected cash flows are discounted by stock market participants cochrane 2011 1 these changes in risk premia also have important implications for real variables in the economy especially for consumption and investment an increase in the risk premium prompts households to reduce current consumption as they start to discount expected future income more heavily more importantly changes in the required return on equity alter the cost of capital of corporations when they finance new investment for firms that rely on external debt to finance marginal investment a lower stock price translates into lower net worth and therefore a higher cost of borrowing bernanke gertler and gilchrist 1999 similarly firms that rely on new equity issues are able to raise less funds from each new share when their stock price is lower even for firms that finance investment exclusively through internal funds i e retained earnings plus depreciation allowance the required return on existing shares reveals the opportunity cost of internally financed investment tobin 1969 tobin and brainard 1977 this is because at least in principle these funds can be returned to existing shareholders as dividends and new funds can then be raised from the markets through new equity shares for which investors would demand a risk premium figure 1 omitted in the aggregate u s corporations are predominantly financed through equity the dotted line in figure 1 plots the credit market liabilities of u s non financial corporations as a percent of the sum of equity and credit market liabilities in their balance sheets 2 by this measure debt financing accounts for about a third of total financing averaged over the whole sample and equity financing accounts for about two thirds the solid line in figure 1 provides an alternative measure which takes into account all financial liabilities including items such as trade payables but nets out financial assets to obtain a measure of net debt mcgrattan and prescott 2005 now debt financing accounts for only 15 of total financing in the post war period and its importance has declined in the last two decades note that both of these series are stock measures as opposed to flow measures that is they refer to financing of all past investments and do not necessarily reflect how corporations are financing investment at the margin these measures can also be biased against debt financing because most debt items are recorded on a book value basis in the flow of funds but equity is recorded on a market value basis to overcome these caveats i consider the flow components of sources of funds i e internal funds net new equity and net new debt as a share of corporate tangible investment in figure 2 several patterns emerge first the ratio of internal funds to gross capital expenditures has been close to 1 throughout the post war period in other words at least in the aggregate u s corporate investment has been by and large financed internally second new equity issuance has not been an important source of financing in fact net new stock issues have been mostly negative in the latter part of the sample this mainly reflects the preference of corporations to distribute resources to shareholders through stock buybacks rather than ordinary dividend payments because of the preferential tax treatment of long term capital gains third net new debt has contributed to about a third of aggregate financing assuming that the discrepancy in the flow account is distributed proportionally to each financing component as internal funds and net new stock issues are fairly reliable data series we can reasonably lump the rather large discrepancy item in the ffa data with net debt

should central banks respond to movements in asset prices in recent decades asset booms and busts have been important factors in macroeconomic fluctuations in both industrial and developing countries in light of this experience how if at all should central bankers respond to asset price volatility we have addressed this issue in previous work bernanke and gertler 1999 the context of our earlier study was the relatively new but increasingly popular monetary policy framework known as inflation targeting see e g bernanke and frederic mishkin 1997 in an inflation targeting framework publicly announced medium term inflation targets provide a nominal anchor for monetary policy while allowing the central bank some flexibility to help stabilize the real economy in the short run the inflation targeting approach gives a specific answer to the question of how central bankers should respond to asset prices changes in asset prices should affect monetary policy only to the extent that they affect the central bank s forecast of inflation to a first approximation once the predictive content of asset prices for inflation has been accounted for there should be no additional response of monetary policy to assetprice fluctuations in use now for about a decade inflationtargeting has generally performed well in practice however so far this approach has not often been stress tested by large swings in asset prices our earlier research employed simulations of a small calibrated macroeconomic model to examine how an inflation targeting policy defined as one in which the central bank s instrument interest rate responds primarily to changes in expected inflation might fare in the face of a boom and bust cycle in asset prices we found that an aggressive inflationtargeting policy rule in our simulations one in which the coefficient relating the instrument interest rate to expected inflation is 2 0 substantially stabilizes both output and inflation in scenarios in which a bubble in stock prices develops and then collapses as well as in scenarios in which technology shocks drive stock prices intuitively inflation targeting central banks automatically accommodate productivity gains that lift stock prices while offsetting purely speculative increases or decreases in stock values whose primary effects are through aggregate demand conditional on a strong policy response to expected inflation we found little if any additional gains from allowing an independent response of central bank policy to the level of asset prices in our view there are good reasons outside of our formal model to worry about attempts by central banks to influence asset prices including the fact that as history has shown the effects of such attempts on market psychology are dangerously unpredictable hence we concluded that inflationtargeting central banks need not respond to asset prices except insofar as they affect the inflation forecast in the spirit of recent work on robust control the exercises in our earlier paper analyzed the performance of policy rules in worst case discussants robert shiller yale university glenn rudebusch federal reserve bank of san francisco kenneth rogoff harvard university

on the short term predictability of exchange rates a bvar time varying parameters approach abstract in this paper we propose a bayesian vector autoregressive model with time varying parameters bvar tvp to examine the short term predictability of exchange rates an important contribution of the paper is the application of the bvar tvp model for the first time to daily data using information from financial markets another contribution is the production of forecasts in real time at the very short horizon of one trading day ahead typically used by traders and investors in financial markets we employ financial criteria and recently developed statistical tests to assess the exchange rate predictability we find that the bvar tvp model outperforms the random walk for all exchange rates these forecast gains are due primarily to the time variation of coefficients and secondly to information from other financial markets it is shown that international investors could have made statistically significant excess profits if they had followed an inter day trading strategy based on the buy sell signals generated by the model s one day ahead exchange rate forecasts even after allowing for transaction costs and risk factors

have standard vars remained stable since the crisis small or medium scale vars are commonly used in applied macroeconomics for forecasting and evaluating the shock transmission mechanism this requires the var parameters to be stable over the evaluation and forecast sample or to explicitly consider parameter time variation the earlier literature focused on whether there were sizable parameter changes in the early 1980s in either the conditional mean or variance parameters and in the subsequent period till the beginning of the new century in this paper we conduct a similar analysis but focus on the effects of the recent crisis using a range of techniques we provide substantial evidence against parameter stability the evolution of the unemployment rate seems particularly different relative to its past behavior we then discuss and evaluate alternative methods to handle parameter instability in a forecasting context while none of the methods clearly emerges as best some techniques turn out to be useful to improve the forecasting performance

the impact of monetary policy shocks on stock prices evidence from canada and the united states abstract using structural var models with short run restrictions appropriate for canada and the united states we empirically examine whether trade and financial market openness matter for the impact on and transmission to stock prices of monetary policy shocks we find that in canada the immediate response of stock prices to a domestic contractionary monetary policy shock is small and the dynamic response is brief whereas in the united states the immediate response of stock prices to a similar shock is relatively large and the dynamic response is relatively prolonged we find that these differences are largely driven by differences in financial market openness and hence different dynamic responses of monetary policy shocks between the two countries that we model in this paper

how to solve the price puzzle a meta analysis the short run increase in prices following an unexpected tightening of monetary policy constitutes a frequently reported puzzle yet the puzzle is surprisingly easy to explain away when all published models are quantitatively reviewed we collect about 1 000 point estimates of impulse responses from 70 articles using vector autoregressive models and present a simple method of research synthesis for graphical results our ndings indicate publication selection in favor of the intuitive response of prices to a tightening the estimates depend systematically on study design when misspecications are

common drifting volatility in large bayesian vars the general pattern of estimated volatilities of macroeconomic and financial variables is often broadly similar we propose two models in which conditional volatilities feature comovement and study them using u s macroeconomic data the first model specifies the conditional volatilities as driven by a single common unobserved factor plus an idiosyncratic component we label this model bvar with general factor stochastic volatility bvar gfsv and we show that the loss in terms of marginal likelihood from assuming a common factor for volatility is moderate the second model which we label bvar with common stochastic volatility bvar csv is a special case of the bvar gfsv in which the idiosyncratic component is eliminated and the loadings to the factor are set to 1 for all the conditional volatilities such restrictions permit a convenient kronecker structure for the posterior variance of the var coefficients which in turn permits estimating the model even with large datasets while perhaps misspecifi

qalys versus hyes this paper explores the claim that qalys are liable to misrepresent consumer preferences and hence lead to decision makers choosing options which are not those preferred by the public it also considers the claim that hyes do not suffer from this defect we argue that none of the examples offered to date demonstrate the alleged tendency of qalys to misrepresent preferences we also show that hyes are identical to qaly scores obtained from a time tradeoff experiment and therefore that the assumptions about preferences underlying hyes are just as restrictive as those underlying tto based qalys

a technology gap interpretation of growth paths in asia and latin america abstract this paper presents a north south technology gap model which combines the schumpeterian approach to technical and structural change with the keynesian perspective on effective demand and the balance of payments bop constraint as drivers of growth three are the contributions of the paper first it develops a model in which the technology gap relative productivity and relative wages co evolve and may generate different paths of convergence or divergence between south and north depending on the parameters of the model second the parameters of the model are associated with different types of policies which allows for discussing how these policies may change the growth path finally the model is used to discuss the contrasting experiences of asia and latin america since 1970 convergence in asia and divergence in latin america have been extensively debated topics in the literature on comparative economic development which highlights the crucial role of industrial policy it is argued that the results of the technology gap model are consistent with the findings of this literature and helps understand the forces behind convergence and divergence

the transmission of international shocks a factor augmented var approach the empirical literature on the transmission of international shocks is based on small scale vars in this paper we use a large panel of data for 17 industrialized countries to investigate the international transmission mechanism and revisit the anomalies that arise in the empirical literature we propose a factor augmented var favar that extends the model in bernanke boivin and eliasz 2003 to the open economy the main results can be summarized as follows first the dynamic effects on the uk economy of an unanticipated fall of short term interest rates in the rest of the world are real house price inflation investment gdp and consumption growth peak after one year wages peak after two years cpi and gdp deflator inflation peak during the third year second a positive international supply shock makes the distribution of the components of the uk consumption deflator negatively skewed third in response to a domestic monetary shock we find no evidence of the exchange rate and liquidity puzzles and little evidence of the forward discount and price anomalies

the sources of financial crises pre and post fed evidence this paper investigates the generation and the propagation mechanism of currency demand and supply shocks before and after world war i the structural determinants of the variability of stock prices and interest rates and the changes introduced by the creation of the fed on the dynamics of the system it is shown that in the pre 1914 era external monetary shocks interacted with a seasonal demand for money to produce financial crises the fed helped to prevent crises by insulating the u s economy from external shocks a structural vector autoregressive model provides evidence for these claims copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

does exchange rate management affect the causality between exchange rates and oil prices evidence from oil exporting countries abstract the bi directional causality between exchange rates and oil prices of oil exporting countries has been widely investigated since the oil crisis in the 1970s the classical theoretical framework assumes that countries adopt free floating exchange rate arrangements and empirical studies seldom consider exchange rate restrictions when investigating oil exporters that always manage exchange rates to address these limitations this study designs a comparative analysis for three groups of oil exporting economies that adopt different foreign exchange rate policies the analysis aims to examine whether and how intervention behavior may distort the causal relationship between exchange rates and oil prices we first show the non linear causality relationships for countries with free floating exchange rate arrangements in both long and short terms then we establish how the managed floating policy can eliminate the impact of oil prices on exchange rates in bull markets but fail to prevent exchange rate depreciation in bear markets in bear markets a negative non linear feedback from exchange rates to oil prices prevails in these countries however contrary to common wisdom the strict soft pegged exchange rate arrangement cannot remove all the linkages between exchange rates and oil prices a small but significant response of exchange rates toward oil prices is detected for kuwait and saudi arabia a similar effect for kazakhstan is only found in bear markets in addition this study re investigates the relationship between exchange rate and the domestic currency price of oil the conclusions are similar except that the relationship is weakened in free floating countries but strengthened in managed floating countries during the bear market periods

measuring the effects of dollar appreciation on asia a favar approach abstract exchange rate shocks have mixed effects on economic activity in both theory and empirical var models in this paper we extend the empirical literature by considering the implications of a positive shock to the u s dollar in a factor augmented vector autoregression favar model for the u s and three large asian economies korea japan and china the favar framework allows us to represent a country s aggregate economic activity by a latent factor generated from a broad set of underlying observable economic indicators to control for global conditions we also include in the favar a global conditions index which is another latent factor generated from the economic indicators of major trading partners we find that a dollar appreciation shock reduces economic activity and inflation not only for the u s economy but also for all three asian economies this result which is robust to a number of alternative specifications suggests that in spite of their disparate economic structures and policy regimes the dollar appreciation shock affects the asian economies primarily through its impact on u s aggregate demand and this demand channel dominates the expenditure switching channel that affects a country s export competitiveness

signalling effects of monetary policy we develop a dynamic general equilibrium model in which the policy rate signals the central bank s view about macroeconomic developments to price setters the model is estimated with likelihood methods on a u s data set that includes the survey of professional forecasters as a measure of price setters inflation expectations this model improves upon existing perfect information models in explaining why in the data inflation expectations respond with delays to monetary impulses and remain disanchored for years in the 1970s u s monetary policy is found to signal persistent inflationary shocks explaining why inflation and inflation expectations were so persistently heightened the signalling effects of monetary policy also explain why inflation expectations adjusted more sluggishly than inflation after the robust monetary tightening of the 1980s

financial intermediaries instability and euro area macroeconomic dynamics abstract fitting a markov switching structural vector autoregression to euro area data we show that after taking into account heteroskedasticity the differences in the behavior of the economy between tranquil and financial distress periods e g great recession and sovereign debt crisis reflect variations in the transmission mechanism when and only when a period of financial distress occurs disruptions in financial intermediation trigger adverse effects for the real economy and turn out to be the primary source of business cycle fluctuations finally we provide strong evidence that ecb interventions in the financial sector had beneficial effects on the real economy during the sovereign debt crisis

monetary policy shocks and foreign investment income evidence from a large bayesian var abstract this paper assesses the transmission of monetary policy in a large bayesian vector autoregression based on the approach proposed by banbura et al 2010 the paper analyzes the impact of monetary policy shocks in the united states and canada not only on a range of domestic aggregates trade flows and exchange rates but also foreign investment income the analysis provides three main results first a surprise monetary policy contraction has a statistically important impact on both gross and net foreign investment income flows in both countries against the background of growing foreign wealth and investment income this result provides preliminary evidence that foreign balance sheet channels might play an increasingly significant role for monetary transmission second the impact of monetary policy on foreign investment income flows differs considerably across asset categories and over time suggesting that the investment instruments and the currency denomination of a country s foreign assets and liabilities are potentially relevant for the way in which monetary policy affects the domestic economy finally the results support existing evidence on the effectiveness of large vector autoregressions and the bayesian shrinkage approach in eliminating price and exchange rate puzzles

unconventional economic policies and sentiment an international assessment this paper estimates using bayesian and global vars the spillover effects of unconventional fiscal and monetary policies implemented in the united states and in the eurozone during the last decade consumer confidence and investor sentiment indicators are introduced in the models in order to highlight the signalling channel in the responses to economic policy innovations in times of crisis our results reveal that consumer and investor perceptions of innovative economic measures are relevant to study the pass through of economic policies to the real sector in times of crisis and zero lower bound interest rates in particular the signalling channel plays an important role in successful unconventional economic policies moreover if unconventional economic policies have an impact abroad the effects are similar to those measured in the domestic country region consequently coordination and transparency are a prerequisite for ensuring short term growth after a global financial crisis

bayesian methods for dynamic multivariate models if dynamic multivariate models are to be used to guide decisionmaking it is important that probability assessments of forecasts or policy projections be provided when identified bayesian vector autoregression var models are presented with error bands in the existing literature both conceptual and numerical problems have not been dealt with in an internally consistent way in this paper the authors develop methods to introduce prior information in both reduced form and structural var models without introducing substantial new computational burdens their approach makes it feasible to use a single large dynamic framework for example twenty variable models for tasks of policy projections copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

optimal price setting and inflation inertia in a rational expectations model abstract this paper presents and estimates a new keynesian monetary model for the us economy it proposes possible solutions to two problems in this model class the lack of inflation inertia and persistence in versions of these models that insist on rigorous microfoundations and rational expectations and the small contribution of technology shocks to business cycles price setting takes the form of optimal two part pricing policies formulated under conditions of upward sloping firm specific marginal cost curves furthermore this form of price setting applies not only to prices and wages but also to user costs of capital in this setting past inflation becomes a key determinant of current inflation even though price setting is entirely forward looking technology is modeled as a random walk with technology growth shocks that follow a highly persistent process the model is estimated by bayesian methods and performs significantly better than a bayesian var it generates inertial and persistent inflation and technology shocks account for a large share of business cycle variation

changing macroeconomic dynamics at the zero lower bound this article develops a change point var model that isolates four major macroeconomic regimes in the us since the 1960s the model identifies shocks to demand supply monetary policy and spread yield using restrictions from a general equilibrium model the analysis discloses important changes to the statistical properties of key macroeconomic variables and their responses to the identified shocks during the crisis period spread shocks became more important for movements in unemployment and inflation a counterfactual exercise evaluates the importance of lower bond yield spread during the crises and suggests that the fed s large scale asset purchases helped lower the unemployment rate by about 0 6 percentage points while boosting inflation by about 1 percentage point

monetary transmission mechanisms in a small open economy a bayesian structural var approach abstract this paper develops a bayesian structural var model for canada in order to estimate the effects of monetary policy shocks using the overnight rate target as the policy instrument i allow the policy variable and other home and foreign variables to interact with each other contemporaneously the key finding is that monetary policy affects the real economy through both the market interest rate and the exchange rate i also find that the bank of canada responds to any home and foreign variables that embodies information about future inflation and that external shocks are an important source of output fluctuations

real time forecasting with a mixed frequency var this article develops a vector autoregression var for time series which are observed at mixed frequencies quarterly and monthly the model is cast in state space form and estimated with bayesian methods under a minnesota style prior we show how to evaluate the marginal data density to implement a data driven hyperparameter selection using a real time dataset we evaluate forecasts from the mixed frequency var and compare them to standard quarterly frequency var and to forecasts from midas regressions we document the extent to which information that becomes available within the quarter improves the forecasts in real time this article has online supplementary materials

were there regime switches in u s monetary policy working paper 2004 14 june 2004 abstract a multivariate model identifying monetary policy and allowing for simultaneity and regime switching in coefficients and variances is confronted with u s data since 1959 the best fit is with a model that allows time variation in structural disturbance variances only among models that also allow for changes in equation coefficients the best fit is for a model that allows coefficients to change only in the monetary policy rule that model allows switching among three main regimes and one rarely and briefly occurring regime the three main regimes correspond roughly to periods when most observers believe that monetary policy actually differed and the differences in policy behavior are substantively interesting though statistically ill determined the estimates imply monetary targeting was central in the early 80s but was also important sporadically in the 70s the changes in regime were essential neither to the rise in inflation in the 70s nor to its decline in the 80s jel classification e52 e47 c53 key words counterfactuals lucas critique policy rule monetary targeting simultaneity volatility model comparison i the debate over monetary policy change in an influential paper clarida gali and gertler 2000 cgg presented evidence that us monetary policy changed between the 1970 s and the 1980 s indeed that in the 70 s it was drastically worse they found that the policy rule apparently followed in the 70 s was one that when embedded in most stochastic general equilibrium models would imply non uniqueness of the equilibrium and hence vulnerability of the economy to sunspot fluctuations of arbitrarily large size their estimated policy rule for the later period on the other hand eliminated this indeterminacy these results are a possible explanation of the volatile and rising inflation of the 70 s and of its subsequent decline the cgg analysis has two important weaknesses one is that it fails to account for stochastic volatility us macroeconomic variables and particularly the federal funds rate have gone through periods of tranquility and of agitation with forecast error variances varying greatly from period to period ignoring such variation does not lead to inconsistent estimates of model parameters when the forecasting equations themselves are constant but it strongly biases toward a finding of changed parameters tests of the stability of the forecasting equations the other weakness is that the cgg analysis rests on powerful and implausible identifying assumptions they require that we accept that the response of the monetary authority to expected future inflation and output does not depend on the recent history of inflation money growth or output it is hard to understand why this should be so especially in the 70 s when monetarism was a prominent theme in policy debates congress was requiring reports from the fed of projected time paths of monetary aggregates and financial markets were reacting sensitively to weekly money supply numbers the requirement for existence and uniqueness of equilibrium in dynamic models is that the monetary policy rule show a more than unit response of interest rates to the sum of the logs of all nominal variables that appear on the right hand side of the reaction function if we force a particular measure of expected future inflation to proxy for all the nominal variables that actually appear independently in the reaction function we are bound to get distorted conclusions on the one hand because expected future inflation will be a noisy measure of the full set of nominal influences on policy we might get downward bias in our estimates from the usual errorsin variables effect on the other hand to the extent that expected future inflation like most expected future values shows less variation than current nominal variables we could find a mistaken scaling up of coefficients

market based measures of monetary policy expectations a number of recent articles have used different financial market instruments to measure near term expectations of the federal funds rate and the high frequency changes in these instruments around federal open market committee announcements to measure monetary policy shocks this article evaluates the empirical success of a variety of financial market instruments in predicting the future path of monetary policy all of the instruments we consider provide forecasts that are clearly superior to those of standard time series models at all of the horizons considered among financial market instruments we find that federal funds futures dominate all the other securities in forecasting monetary policy at horizons out to six months for longer horizons the predictive power of many of the instruments we consider is very similar in addition we present evidence that monetary policy shocks computed using the current month federal funds futures contract are influenced by changes in the timing of policy actions tha

sectoral patterns of technological activity and export market share dynamics this paper focuses on a selected number of oecd countries and manufacturing sectors and shows the importance of sectoral diversity in the innovative process and in the relation between technology and world market share dynamics the econometric exercise confirms the importance of technological variables in the relation with world market shares in two ways first they are in general statistically significant second the taxonomy of technological classes in terms of r d intensity seems to be meaningful in disentangling the role played by sectoral diversity in the relation between embodied and disembodied investment and competitiveness sectoral diversity emerges in the statistical significance of the coefficients and in the time lag structure moreover the values of estimated r d parameters are correlated with the sectoral r d intensity

energy consumption and projected growth in selected caribbean countries this paper examines two issues that are central to the understanding of the need to increase efficiency in the use distribution and production of energy in the caribbean region the empirical results of this paper suggest the following first the three caribbean countries provide evidence of short run bi directional granger causality from energy consumption to real gross domestic product per capita second the forecasts with a bvar model indicate that significant growth in energy demand could be expected in haiti jamaica and trinidad and tobago until at least 2010 third the increased growth in energy consumption suggests the need for long term commitments from caribbean countries to undertake a series of policy economic market and research and development measures to advance the adoption and deployment of new energy technologies

time varying risk aversion abstract exploiting portfolio data and repeated surveys of an italian bank s clients we test whether investors risk aversion increases following the 2008 crisis we find that after the crisis both qualitative and quantitative measures of risk aversion increase substantially and that affected individuals divest more stock we investigate four explanations changes in wealth expected income perceived probabilities and emotion based changes of the utility function our data are inconsistent with the first two channels while they suggest that fear is a potential mechanism underlying financial decisions whether by increasing the curvature of the utility function or the salience of negative outcomes

fragility and the effect of international uncertainty shocks abstract when economic systems are fragile even modest shocks for example a shock to international capital movements can have strong negative effects on key macroeconomic fundamentals this paper proposes a large scale bayesian vector autoregression with factor stochastic volatility to investigate the macroeconomic consequences of international uncertainty shocks in g7 countries and shows that uncertainty increases fragility the factor structure enables us to identify an international uncertainty shock by assuming that it is the joint volatility process that determines the dynamics of the variance covariance matrix of the common factors to allow for first and second moment shocks we moreover assume that the uncertainty factor enters the var equation as an additional regressor our findings suggest that an international uncertainty shock has negative effects across all economies and variables under consideration leading to strong declines in output prices exports interest rates and equity prices the precise degree of fragility varies across countries a simple correlation exercise suggests that structural differences may be partially responsible for the observed differences

debt and stabilization policy evidence from a euro area favar abstract the euro area poses a unique problem in evaluating policy a currency union with a shared monetary policy and country specific fiscal policy analysis can be further complicated if high levels of public debt affect the performance of stabilization policy we construct a framework capable of handling these issues with an application to euro area data in order to incorporate multiple macroeconomic series from each country but simultaneously treat country specific fiscal policy we develop a hierarchical factor augmented var with zero restrictions on the loadings that yield country level factors monetary policy then responds to area wide conditions but fiscal policy responds only to its country level conditions we find that there is broad quantitative variation in different countries responses to area wide monetary policy and both qualitative and quantitative variation in responses to country specific fiscal policy moreover we find that debt conditions do not diminish the effectiveness of policy in a significant manner suggesting that any negative effects must come through other channels

shocks and government beliefs the rise and fall of american inflation working paper 2004 22 september 2004 abstract the authors use a bayesian markov chain monte carlo algorithm to estimate a model that allows temporary gaps between a true expectational phillips curve and the monetary authority s approximating nonexpectational phillips curve a dynamic programming problem implies that the monetary authority s inflation target evolves as its estimated phillips curve moves the authors estimates attribute the rise and fall of post world war ii inflation in the united states to an intricate interaction between the monetary authority s beliefs and economic shocks shocks in the 1970s altered the monetary authority s estimates and made it misperceive the tradeoff between inflation and unemployment that misperception caused sharp rise in inflation in the 1970s the authors estimates indicate that policy makers updated their beliefs continuously by the 1980s policy makers beliefs about the phillips curve had changed enough to account for fed chairman paul volcker s conquest of u s inflation in the early 1980s jel classification e3 e5 key words updating beliefs policy evaluation self confirming equilibrium nash inflation ramsey outcomes i introduction today many statesmen and macroeconomists believe that inflation can largely be determined by a government monetary authority then why did the federal reserve board preside over high us inflation during the late 1960s and the 1970s and why under paul volcker did it rapidly bring inflation down during the early 1980s this paper answers these questions by estimating a model that features a particular process that makes a procession of economic shocks induce the monetary authority to alter its model of inflation unemployment dynamics the phillips curve at each date t the monetary authority updates its beliefs about the phillips curve and then recomputes a first period action recommended by a phelps problem a discounted dynamic programming problem that minimizes the expected value of a discounted quadratic loss function of inflation and unemployment 1 the monetary authority pursues the same objectives at each date using the same structural model with only its estimates of that model changing over time 2 this model of the systematic part of inflation puts the monetary authority s beliefs about the phillips curve front and center 3 we assume that the monetary authority s model of the phillips curve deviates in two subtle but important ways from what it would be in a rational expectations model e g kydland and prescott 1977 the first deviation is that while the true phillips curve is like kydland and prescott s we assume that the monetary authority omits the public s expected rate of inflation from its phillips curve by itself this omission need not prevent the outcomes of our model from coinciding with those of kydland and prescott s nor need it imply that the government s model is wrong in a way that could be detected from even an infinite sample whether the monetary authority s model is wrong in a statistically detectable way depends on how we allow the monetary authority to reestimate the parameters of its model in particular if the monetary authority were to believe that the coefficients of its phillips curve are constant over time then its estimates would converge to ones that support a self confirming equilibrium sce after convergence its estimated phillips curve would correctly describe occurrences along the sce path for inflation and unemployment such an after convergence version of our model has little hope of explaining the rise and fall of us inflation that model would have inflation fluctuating randomly around a constant sce level that coincides with kydland and prescott s time consistent suboptimal i e excessive level 4 this outcome motivates our second subtle deviation from a rational expectations equilibrium

economic policy uncertainty and the supply of business loans abstract using a vector autoregressive framework of analysis we show that banks contract their supply of business credit in response to an exogenous increase in economic policy uncertainty this contraction takes two main distinct forms on the one hand banks restrict their supply of spot funds which we document using flows of loans and term loan originations on the other hand banks also curtail their provision of liquidity insurance reducing the amount of new credit lines and embedding in them a pricing structure that reduces the probability of borrowers drawing down on the lines at the peak of the responses we find that a one standard deviation increase in epu causes a contraction in the supply of business loans between 3 and 5 on the extensive margin

technical change growth and trade new departures in institutional economics this article analyses the main theoretical and policy issues emerging from the literature on the evolutionary institutional economics of technical change the four distinguishing characteristics of which are that technology is often proprietary in nature only a part of knowledge is codifiable in handbooks blueprints patents and so on there are fundamental variations in the above two points across different technological fields and the evolution of knowledge is highly path dependent