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Uncertainty and Growth Disasters
This paper documents several stylized facts on the real effects of economic uncertainty. First, higher uncertainty is associated with a more dispersed and negatively skewed distribution of output growth. Second, the response of economic growth to an increase in uncertainty is highly nonlinear and asymmetric. Third, higher asset volatility magnifies the negative impact of uncertainty on growth. We develop and estimate an analytically tractable model in which rapid adoption of new technology may raise economic uncertainty which causes measured productivity to decline. The equilibrium growth ...
Product innovation and the business cycle
Liquidity effects in the bond market
The authors find that supply risk in the market for Treasury bills adds between 10 basis points and 40 basis points to the standard deviation of the T-bill interest rate. The risk will probably increase unless the Fed expands the set of assets that it uses to conduct open market operations.
Interest rates and the timing of new production
This article studies the relation between IPO investment and the rate of interest. The 1950s and early 1960s, especially, were periods of very low real interest rates, and IPO investment was very low, with firms delaying their IPOs significantly. The authors find a qualitative difference between investment of IPO-ing firms and the investment of incumbent firms. The latter is decreasing in the interest rate, as neoclassical theory predicts. On the other hand, very low interest rates tend to discourage IPOs, and this may be why the 1950s and 1960s contained few IPOs.
The information technology revolution and the stock market: preliminary evidence
Since 1968, the ratio of stock market capitalization to GDP has varied by a factor of 5. In 1972, the ratio stood at above unity, but by 1974, it had fallen to 0.45 where it stayed for the next decade. It then began a steady climb, and today it stands above 2. ; We argue that the IT revolution was behind this and, moreover, that the capitalization/GDP ratio is likely to decline and then rise after any major technological shift. The three assumptions that deliver the result are: 1) The IT revolution was anticipated by early 1973; 2) IT was resisted by incumbents, which led their value to fall ...
Idea Diffusion and Property Rights
We study the innovation and diffusion of technology at the industry level. We derive the full dynamic paths of an industry’s evolution, from birth to its maturity, and we characterize the impact of diffusion on the incentive to innovate. The model implies that protection of innovators should be only partial due to the congestion externality in meetings in which idea transfers take place. We fit the model to the early experiences of the automobile and personal computer industries both of which show an S-shaped growth of the number of firms.
Vintage organization capital
We argue that a firm's organization capital depends on the state of technology when the firm was born and on the technologies that have followed. We estimate vintage effects on the value of firms from 114 years of stock market data. We find: 1) a surprisingly strong upward trend in the stock-market share of the largest firms, 2) a very large quantity of organization capital created by the 1920's vintage, 3) strong indications that the 1970's and 1980's vintages will be followed by more complementary technologies, and 4) major technological change since WW2 in the process by which organization ...
Inequality and stability
This paper analyzes how political stability depends on economic factors. Fluctuations in groups' economic capacities and in their abilities to engage in rent-seeking or predatory behavior create periodic incentives for those groups to renege on their social obligations. A constitution remains in force so long as no party wishes to defect to the noncooperative situation, and it is reinstituted as soon as each party finds it to its advantage to revert to cooperation. Partnerships of equals are easier to sustain than are arrangements in which one party is more powerful in some economic or ...