Total factor productivity growth: we need a new drug

Creating the innovations that drive total factor productivity (TFP) growth takes both ideas and firms that process those ideas into new products or techniques. However, while economic theory and innovation policy focus upon idea supply alone, it is idea processing capability that drives US TFP growth. Kevin R. James, Akshay Kotak, and Dimitri Tsomocos write that understanding and improving the economy’s idea processing capability must be a core element of an effective growth strategy

Total factor productivity growth: we need a new drug

Creating the innovations that drive total factor productivity (TFP) growth takes both ideas and firms that process those ideas into new products or techniques. However, while economic theory and innovation policy focus upon idea supply alone, it is idea processing capability that drives US TFP growth. Kevin R. James, Akshay Kotak, and Dimitri Tsomocos write that understanding and improving the economy’s idea processing capability must be a core element of an effective growth strategy

Ideas, idea processing, and TFP growth in the US: 1899 to 2019

Innovativity – an economy's ability to produce the innovations that drive total factor productivity (TFP) growth – requires both ideas and the ability to process those ideas into new products and/or techniques. We model innovativity as a function of endogenous idea processing capability subject to an exogenous idea supply constraint and derive an empirical measure of innovativity that is independent of the TFP data itself. Using exogenous shocks and theoretical restrictions, we establish that: i) innovativity predicts the evolution of average TFP growth; ii) idea processing capability is the binding constraint on innovativity; and iii) average TFP growth declined after 1970 due to a constraints on idea processing capability, not idea supply

Essays on financial intermediation, stability, and regulation

Modern banking theories provide a host of explanations for the existence of intermediaries, highlight their important influence on economic growth, delineate the risks inherent in the services they provide, and illustrate the market failures and real costs of bank failures that precipitate the need for regulation and oversight of the sector. This thesis is a collection of three essays that looks at three of these key aspects of financial intermediaries – the development of financial intermediaries, the function of the lender of last resort that has emerged as an important part of the safety net afforded to financial intermediaries, and the occurrence of financial crises. The first chapter of this thesis provides an introduction to the academic literature on financial intermediation covering different theories put forward to explain their emergence, and highlighting the risks inherent in their operation. It emphasizes the crucial functions they perform in the economy and makes a case for regulation and oversight of the sector to reduce the incidence and alleviate the effects of financial crises. The second chapter seeks to determine the policy and institutional factors that influence the development of financial institutions as measured across three dimensions – depth, efficiency, and stability. Applying the concept of the financial possibility frontier, developed by Beck and Feyen (2013) and formalized by Barajas et al. (2013b), we determine key policy variables affecting the gap between actual levels of development and benchmarks predicted by structural variables. Our dynamic panel estimation shows that inflation, trade openness, institutional quality, and banking crises significantly affect financial development. We also assess the impact of the policy variables across the different dimensions of development thereby identifying complementarities and potential trade-offs for policy makers. The third chapter models the role of the lender of last resort (LoLR) in a general equilibrium framework. We allow for heterogeneous agents and a risk-averse banking sector, and incorporate the frictions of endogenous default, liquidity, and money. Adverse supply shocks in monetary endowments trigger default, leading to deterioration in the value of bank assets, and subsequent bank illiquidity in some states of the world. LoLR intervention is then assessed with regards to its economy-wide effect on welfare, bank profitability, and the level of default. The results provide a justification for constructive ambiguity. The fourth chapter aims to provide an explanation for the incidence of financial crises by combining insights from agency theory and Minsky’s financial instability hypothesis (Minsky, 1992) in a model with endogenous default. Our theoretical model shows that the probability of a financial crisis increases as the quality of shareholder information decreases. We then develop a measure for the quality of shareholder information following Simon (1989) and show that the market-wide quality of shareholder information: i) is poor (with no trend) in the Pre-SEC period (1840 to 1934); ii) improves substantially following the SEC reforms; and iii) gradually declines starting in the 1960s/70s until it is now back to pre-SEC levels. This matches up with the standard list of US financial crises (as in Reinhart and Rogoff 2009; Reinhart 2010) and supports our hypothesis that the likelihood of a financial crisis increases with deterioration in the quality of shareholder information.</p

Moral Hazard and the Soft Budget Constraint: A game-theoretic look at the primal cause of the sub-prime mortgage crisis

The Tower is an official publication of the Georgia Tech Board of Student Publications and is sponsored by the Undergraduate Research Opportunities Program and the Price Gilbert Memorial Library System. This article is from Volume 2.This paper addresses one of the major causes of the sub-prime mortgage crisis prevalent in large American mortgage houses by the end of 2006. The moral hazard scenario and consequent malpractices are addressed with respect to the soft budget constraint. This analysis is done by first looking at the Dewatripont and Maskin model (1995), and then suitably modifying it to model the scenario at a typical mortgage lender. This simplistic model provides useful insight into how heightened bailout expectations, caused by precedent actions by the Federal Reserve, fueled risky behavior at banks who thought themselves to be "too-large-to-fail."Undergraduate Research Opportunities Program ; Price Gilbert Memorial Library System.Emilson C. Silva, School of Economics, Georgia Institute of Technolog

The Lender of Last Resort in a General Equilibrium Framework

This paper models the role of the lender of last resort (LoLR) in a general equilibrium framework. We allow for heterogeneous agents and a risk-averse banking sector, and incorporate the frictions of endogenous default, liquidity, and money. Adverse supply shocks in monetary endowments trigger default, leading to deterioration in the value of bank assets, and subsequent bank illiquidity in some states of the world. LoLR intervention is then assessed with regards to its economy-wide effect on welfare, bank profitability, and the level of default. The results provide a rationalisation for constructive ambiguity and the ‘too big to fail’ problem

Intel Logistics - Designing Cost-Effective Distribution Strategies for Intel's Proposed Ultra Low-Cost PC Chip Line

Of the five finalists, the winning team included Siddharth Coelho-Prabhu, Arpit Dharia, Akshay Kotak, Jason Kumar, Shyam Mehta, and Ranjini Ragunathan with adviser John Vande Vate who worked on a project with Intel titled, Designing Cost-Effective Distribution Strategies for Intel's Proposed Ultra Low-cost PC Chip Line. The aim of this project was to provide Intel with strategic intuition of the cost-effective distribution of its proposed Ultra Low-cost PC chips. Given the strategic nature of the project the team designed a model that made minimal parametric assumptions, modeling inventory using Brownian motion. The team then developed a set of decision-mailing tools that illustrate the relationships between demand conditions and transportation rates, supply strategies, systems performance and bottom line costs.Best of Senior Design Spring 2008 Finalist Presentations.Runtime: 19:40Vande Vate, Joh