Many writers have claimed that research and development (R&D) has two faces. In addition to the conventional role of stimulating innovation, R&D enhances technology transfer (absorptive capacity). We explore this idea empirically using a panel of industries across twelve OECD countries. We find R&D to be statistically and economically important in both technological catch-up and innovation. Human capital also plays an major role in productivity growth, but we only find a small effect of trade. In failing to take account of R&D-based absorptive capacity, existing U.S.-based studies may underestimate the return to R&D

Many believe that a key innovation by the Grameen Bank is to encourage borrowers to help each other in hard times. To analyse this, we study a mechanism design problem where borrowers share information about each other, but their limited side contracting ability prevents them from writing complete insurance contracts. We derive a lending mechanism which efficiently induces mutual insurance. It is necessary for borrowers to submit reports about each other to achieve efficiency. Such cross-reporting increases the bargaining power of unsuccessful borrowers, and is robust to collusion against the bank

This paper models components of the return distribution, which are assumed to be directed by a latent news process. The conditional variance of returns is a combination of jumps and smoothly changing components. A heterogeneous Poisson process with a time‐varying conditional intensity parameter governs the likelihood of jumps. Unlike typical jump models with stochastic volatility, previous realizations of both jump and normal innovations can feed back asymmetrically into expected volatility. This model improves forecasts of volatility, particularly after large changes in stock returns. We provide empirical evidence of the impact and feedback effects of jump versus normal return innovations, leverage effects, and the time‐series dynamics of jump clustering

We model the conditional mean and volatility of stock returns as a latent VAR process to study their contemporaneous and intertemporal relationships in a flexible statistical framework and without relying on exogenous predictors. We find a strong and robust negative correlation between the innovations to the conditional moments leading to pronounced countercyclical variation in the Sharpe ratio. We document significant lead-lag correlations between the moments that also appear related to business cycles. Finally, we show that although the conditional correlation between the mean and volatility is negative, the unconditional correlation is positive due to these lead-lag correlations

The classic Black-Scholes option pricing model assumes that returns follow Brownian motion, but return processes differ from this benchmark in at least three important ways. First, asset prices jump, leading to non-normal return innovations. Second, return volatilities vary stochastically over time. Third, returns and their volatilities are correlated, often negatively for equities. Time-changed Lévy processes can simultaneously address these three issues. We show that our framework encompasses almost all of the models proposed in the option pricing literature, and it is straightforward to select and test a particular option pricing model through the use of characteristic function technology

This paper analyses the link between the internal organization of the firm and the growth process. We present a Schumpeterian growth model in which monopoly firms face agency costs due to collusion between managers inside the organization. These costs affect incentives to invest and the rate of innovation in the economy. When collusion is self-enforcing, higher growth and more creative destruction shortens in turn the time horizon of colluding agents in the organization and makes internal collusion more difficult to sustain. We analyse this two-way mechanism between growth and agency problems and show how the transaction costs of side-contracting within the firm and the growth rate of the economy are simultaneously derived

This paper analyses the link between the internal organization of the firm and the growth process. We present a Schumpeterian growth model in which monopoly firms face agency costs due to collusion between managers inside the organization. These costs affect incentives to invest and the rate of innovation in the economy. When collusion is self-enforcing, higher growth and more creative destruction shortens in turn the time horizon of colluding agents in the organization and makes internal collusion more difficult to sustain. We analyse this two-way mechanism between growth and agency problems and show how the transaction costs of side-contracting within the firm and the growth rate of the economy are simultaneously derived

Martin Feldstein:1 Chairman Alan Greenspan's remarks today give us an opportunity to understand his thinking about monetary policy and about the Federal Reserve's actions during the past 15 years. It was a period of substantial accomplishment that no doubt reflects in considerable measure the views of the Chairman himself. The Fed's primary goal, price stability, has been achieved, with inflation down from 4 percent at the end of the 1980's to about 1.5 percent now. The 2-percentage-point difference between the interest rate on conventional Treasury bonds and on inflation-indexed bonds (TIPS) shows that financial markets expect inflation will remain at about 2 percent for at least the next decade.

The volatility of U.S. real GDP growth since 1984 has been markedlylowerthanoverthepreviousquartercentury.Weutilizefrequency-domain and VAR methods to distinguish among competing explanations for this reduction: improvements in monetary policy, better business practices, and a fortuitous reduction in exogenous disturbances. We find that reduced innovation variances account for much of the decline in aggregate output volatility, suggesting that good luck is the most likely explanation. Good practices and good policy appear to have played a more important role in explaining the post-1984 decline in the volatility of consumer price inflation