The dynamics of research networks in Brite-Euram

Network formation within the BRITE--EURAM program is investigated.Wedescribe the role of the hub of the network, which is defined as the setofmain contractors that account for most of the participations. We studytheeffects that the conflict of objectives within European research fundingbetween pre-competitive research vs. European cohesion has on theformationof networks and on the relationship between different partnersof the network. \\A panel data set is constructed including the second and third frameworkof theBrite--Euram program. A model of joint production of research results isusedto test for changes in the behavior of partners within the twoframeworks. \\The main findings are that participations are very concentrated, that isasmall group of institutions account for most of the participations, butgoingfrom the second to the third framework the presence of subcontractorsand singleparticipants increases substantially. This result is reinforced by the factthat main contractors receive smaller spill-ins within networks, butspill-insincrease from the second to the third framework.

Stochastic uncoupled dynamics and Nash equilibrium

In this paper we consider dynamic processes, in repeated games, that are subject to the natural informational restriction of uncoupledness. We study the almost sure convergence to Nash equilibria, and present a number of possibility and impossibility results. Basically, we show that if in addition to random moves some recall is introduced, then successful search procedures that are uncoupled can be devised. In particular, to get almost sure convergence to pure Nash equilibria when these exist, it su±ces to recall the last two periods of play.

Financing constraints, irreversibility and investment dynamics

We develop a model of an industry with many heterogeneous firms that face both financingconstraints and irreversibility constraints. The financing constraint implies that firmscannot borrow unless the debt is secured by collateral; the irreversibility constraint thatthey can only sell their fixed capital by selling their business. We use this model to examinethe cyclical behavior of aggregate fixed investment, variable capital investment, and outputin the presence of persistent idiosyncratic and aggregate shocks. Our model yields threemain results. First, the effect of the irreversibility constraint on fixed capital investmentis reinforced by the financing constraint. Second, the effect of the financing constraint onvariable capital investment is reinforced by the irreversibility constraint. Finally, the interactionbetween the two constraints is key for explaining why input inventories and materialdeliveries of US manufacturing firms are so volatile and procyclical, and also why they arehighly asymmetrical over the business cycle.

Implementation, elimination of weakly dominated strategies and evolutionary dynamics

This paper is concerned with the realism of mechanisms that implementsocial choice functions in the traditional sense. Will agents actually playthe equilibrium assumed by the analysis? As an example, we study theconvergence and stability properties of Sj\"ostr\"om's (1994) mechanism, onthe assumption that boundedly rational players find their way to equilibriumusing monotonic learning dynamics and also with fictitious play. Thismechanism implements most social choice functions in economic environmentsusing as a solution concept the iterated elimination of weakly dominatedstrategies (only one round of deletion of weakly dominated strategies isneeded). There are, however, many sets of Nash equilibria whose payoffs maybe very different from those desired by the social choice function. Withmonotonic dynamics we show that many equilibria in all the sets ofequilibria we describe are the limit points of trajectories that havecompletely mixed initial conditions. The initial conditions that lead tothese equilibria need not be very close to the limiting point. Furthermore,even if the dynamics converge to the ``right'' set of equilibria, it stillcan converge to quite a poor outcome in welfare terms. With fictitious play,if the agents have completely mixed prior beliefs, beliefs and play convergeto the outcome the planner wants to implement.

Speculative dynamics in the term structure of interest rates

When long maturity bonds are traded frequently and traders have non-nestedinformation sets, speculative behavior in the sense of Harrison and Kreps (1978) arises.Using a term structure model displaying such speculative behavior, this paper proposesa conceptually and observationally distinct new mechanism generating time varying predictableexcess returns. It is demonstrated that (i) dispersion of expectations about futureshort rates is sufficient for individual traders to systematically predict excess returns and(ii) the new term structure dynamics driven by speculative trade is orthogonal to publicinformation in real time, but (iii) can nevertheless be quantified using only publicly availableyield data. The model is estimated using monthly data on US short to medium termTreasuries from 1964 to 2007 and it provides a good fit of the data. Speculative dynamicsare found to be quantitatively important, potentially accounting for a substantial fractionof the variation of bond yields and appears to be more important at long maturities.

The structural dynamics of US output and inflation: What explains the changes?

We examine the dynamics of US output and inflation using a structural time varyingcoefficient VAR. We show that there are changes in the volatility of both variables andin the persistence of inflation. Technology shocks explain changes in output volatility,while a combination of technology, demand and monetary shocks explain variations inthe persistence and volatility of inflation. We detect changes over time in the transmission of technology shocks and in the variance of technology and of monetary policyshocks. Hours and labor productivity always increase in response to technology shocks.

Composition of electricity generation portfolios, pivotal dynamics and market prices

We use a simulation model to study how the diversification of electricity generation portfoliosinfluences wholesale prices. We find that technological diversification generally leads to lower market prices but that the relationship is mediated by the supply to demand ratio. In each demand case there is a threshold where pivotal dynamics change. Pivotal dynamics pre- and post-threshold are the cause of non-linearities in the influence of diversification on market prices. The findings are robust to our choice of behavioural parameters and match close-form solutions where those are available.

Minimum price variations, time priority and quotes dynamics

We analyze the impact of a minimum price variation (tick) and timepriority on the dynamics of quotes and the trading costs when competitionfor the order flow is dynamic. We find that convergence to competitiveoutcomes can take time and that the speed of convergence is influencedby the tick size, the priority rule and the characteristics of the orderarrival process. We show also that a zero minimum price variation is neveroptimal when competition for the order flow is dynamic. We compare thetrading outcomes with and without time priority. Time priority is shownto guarantee that uncompetitive spreads cannot be sustained over time.However it can sometimes result in higher trading costs. Empiricalimplications are proposed. In particular, we relate the size of thetrading costs to the frequency of new offers and the dynamics of theinside spread to the state of the book.

Foreign ownership and productivity dynamics

In analyzing the distinctive contribution of foreign subsidiaries anddomestic firms to productivity growth in aggregate Belgian manufacturing,this paper shows that foreign ownership is an important source of firmheterogeneity affecting productivity dynamics. Foreign firms havecontributed disproportionately large to aggregate productivity growth,but more importantly reallocation processes differ significantly betweenthe groups of foreign subsidiaries and domestic firms.

The structural dynamics of output growth and inflation: some international evidence

We examine the dynamics of output growth and inflation in the US, Euro area and UK using a structural time varying coefficient VAR. There are important similarities in structural inflation dynamics across countries; output growth dynamics differ. Swings in the magnitude of inflation and output growth volatilities and persistences are accounted for by a combination of three structural shocks. Changes over time in the structure of the economy are limited and permanent variations largely absent. Changes in the volatilities of structural shocks matter.

Inflation and output dynamics with firm-owned capital

We model firm-owned capital in a stochastic dynamic New-Keynesian generalequilibrium model à la Calvo. We find that this structure impliesequilibrium dynamics which are quantitatively di¤erent from the onesassociated with a benchmark case where households accumulate capital andrent it to firms. Our findings therefore stress the importance ofmodeling an investment decision at the firm level in addition to ameaningful price setting decision. Along the way we argue that the problemof modeling firm-owned capital with Calvo price-setting has not been solvedin a correct way in the previous literature.

Inflation dynamics: A structural econometric analysis

We develop and estimate a structural model of inflation that allowsfor a fraction of firms that use a backward looking rule to setprices. The model nests the purely forward looking New KeynesianPhillips curve as a particular case. We use measures of marginalcosts as the relevant determinant of inflation, as the theorysuggests, instead of an ad-hoc output gap. Real marginal costsare a significant and quantitatively important determinant ofinflation. Backward looking price setting, while statisticallysignificant, is not quantitatively important. Thus, we concludethat the New Keynesian Phillips curve provides a good firstapproximation to the dynamics of inflation.

Moral hazard and dynamics of insider ownership stakes

In this paper, I analyze the ownership dynamics of N strategic risk-averse corporate insiders facing a moral hazard problem. A solution for the equilibrium share price and the dynamics of the aggregate insider stake is obtained in two cases: when agents can crediblycommit to an optimal ownership policy and when they cannot commit (time-consistent case). Inthe latter case, the aggregate stake gradually adjusts towards the competitive allocation. The speed of adjustment increases with N when outside investors are risk-averse, and does not depend on it when investors are risk-neutral. Predictions of the model are consistent with recent empirical findings.

Job dynamics, correlated shocks and wage profiles

We generalize the Mortensen-Pissarides (1994) model of the labor marketwith a more realistic structure for the stochastic process of theshocks to the worker-firm match. In this way we can acommodate theempirical observation that hazard rates of job termination decrease andaverage wages increase with job tenure. Besides being able to fit bettersome observables of the model, the changes we introduce are nontrivialfor the analysis of policies as well.