Endogenous innovation under New Keynesian dynamic stochastic general equilibrium model

This paper constructs an endogenous growth model using the framework of New Keynesian dynamic stochastic general equilibrium models. We incorporate the Schumpeterian approach that generates seemingly sticky prices and reinterpret the Calvo mechanism from the perspective of Bertrand competition and successful entrepreneurs. Our results demonstrate that both positive productivity shocks and endogenous innovation have a negative effect on subsequent endogenous innovation. These self-destructive effects of endogenous innovation might account for the IT productivity paradox and productivity slowdown seen in advanced countries. Furthermore, it is shown that there are both neutral and non-neutral properties of monetary policy shocks. They are neutral in terms of the growth effect, but non-neutral in terms of the level effect. In particular, expansionist monetary policies are desirable to facilitate endogenous innovation.     

THE FORMATION OF CONSUMER INFLATION EXPECTATIONS: NEW EVIDENCE FROM JAPAN'S DEFLATION EXPERIENCE

Using a new data set, we investigate the relationship between the inflation experience and expectations of households in Japan, focusing on the post-1995 deflationary era. Our first finding is that inflation expectations increase with age. Second, we find that measured inflation rates also increase with age, although age and inflation expectations continue to exhibit a positive correlation even after controlling for the household-level inflation rate. Analysis suggests that the correlation between age and inflation expectations is driven largely by the correlation between cohort and inflation expectations, which we interpret to represent the effect of historical inflation experience on inflation expectations.     

Random walk or a run. Market microstructure analysis of foreign exchange rate movements based on conditional probability

Using tick-by-tick data for the dollar–yen and euro–dollar exchange rates recorded on the actual transaction platform, a ‘run’—continuous increases or decreases in deal prices for the past several ticks—does have some predictable information on the direction of the next price movement. Deal price movements, that are consistent with order flows, tend to continue a run once it is started. Indeed, conditional probabilities of a run continuing in the same direction after several consecutive observations exceed 0.5. However, quote prices do not show such a run tendency. Hence, a random walk hypothesis is refuted in a simple test of a run using tick-by-tick data. In addition, a longer continuous increase of the price tends to be followed by a larger reversal. The findings suggest that those market participants who have access to real-time, tick-by-tick transaction data may have an advantage in predicting exchange rate movements. The findings reported here also lend support to the momentum trading strategy.     

Path-dependent economic progress and regress: The negative role of subsidies in economic growth

This paper develops a two-stage economic growth model with real options and examines the effects of various subsidy policies. The economic stages are the deterministic and stochastic AK stages, and the economy may shift between the two, depending upon state variables and technological shocks. This model allows for path-dependent economic growth that accounts for both club convergence and divergence across countries. Moreover, it is shown that under certain conditions, a decrease in the subsidy rate facilitates the shift from the deterministic to stochastic AK stages, which is defined as “economic progress”, even in the face of an economic crisis, while more subsidies delay economic progress and promote the shift from the stochastic to deterministic AK stages, which is defined as “economic regress”.     

The Premium–Dividend Competition in the Prewar Japanese Life Insurance Industry: A Game-Theoretic Interpretation

Between 1917 and 1935, Japanese life insurance companies competed with each other on a premium–dividend basis. We propose that such competition took the form of product differentiation, exploiting differences in discount rates or price expectations among policy-holders. Our model shows that under some conditions the introduction of such competition can be beneficial to the competitive companies. It is shown that these conditions were satisfied at that time, and that more detailed factors are also consistent with the model.
JEL Classification Numbers: C72, D43, G22, N25.     

INTANGIBLE INVESTMENT IN JAPAN: MEASUREMENT AND CONTRIBUTION TO ECONOMIC GROWTH

Following the approach of Corrado, Hulten, and Sichel (2005, 2006 ), we measure intangible investment and examine the contribution of intangible capital to economic growth in Japan. We find that the ratio of intangible investment to GDP in Japan has risen during the past 20 years and now stands at 11.1 percent, which is lower than the ratio estimated for the U.S. in the early 2000s. The ratio of intangible to tangible investment in Japan is also lower than equivalent values estimated for the U.S. In addition, we find that, in stark contrast to the U.S., where intangible capital grew rapidly in the late 1990s, the growth rate of intangible capital in Japan declined from the late 1980s to the early 2000s. Our conclusions regarding intangible investment in Japan remain largely unchanged even if, using data with respect to firm-specific resources, we take on-the-job training into account.     

Comparison of randomization techniques for low-discrepancy sequences in finance

This paper deals with comparisons of low-discrepancy sequences in terms of actual performance through numerical computation for option pricing. For that purpose, we construct a variety of randomized low-discrepancy sequences based on classical low-discrepancy sequences. A randomization structure by coordinate-wise and digit-wise permutations proves to give excellent results regardless of the classical low-discrepancy sequences. This paper represents only the author’s personal opinion, and has absolutely nothing to do with his affiliation.