Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles

In this paper, we show that news on future technological improvement can trigger an immediate economic expansion in a model with financial friction on capital allocation. The arrivial of good news on future technology reduces such frictions and generates significant increase in current Total Factor Productivity via capital reallocation. This triggers an immediate boom in output, consumption, investment and hours worked. Our empirical evidence using firm-level data supports strongly the above mechanisms for news to affect current aggregate productivity.Financial Friction; Capital Reallocation; Business Cycle

Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations

This paper provides a theory of financial frictions as a transmission mechanism for primitive shocks to translate into aggregate TFP fluctuations. In our model, financial frictions distort existing capital allocation across different production units, rather than investment in new capital. News shocks on future technology improvement are introduced as a device to identify TFP fluctuations originating from this mechanism. Our simulation shows that variations in financial frictions in response to news shocks can generate sizable fluctuations in aggregate TFP and, thus, business cycles before the actual technology change is realized. Using a combined dataset from Compustat and IBES, we find that the empirical responses of capital acquisition to prospects about future profitability are significantly larger for firms more likely to be financially constrained, while such a pattern does not exist for new capital investment. Furthermore, capital acquisition of constrained firms is found to be more procyclical than that for unconstrained ones. Our evidence thus provides strong support for the importance of financial frictions on capital allocation as the transmission mechanism proposed by our theory.Financial Friction, Capital Reallocation, TFP Fluctuation, News Shock

Japanese Saving Rate

Japanese and U.S. saving rates have been significantly different over the last forty years. Can a standard growth model explain this difference? The answer is yes. Our results indicate that both an infinite horizon, complete markets setup and an overlapping generations model with incomplete markets are about equally able to generate saving rates that are remarkably similar to the data during 1961-1998. Our quantitative findings identify changes in the growth rate of total factor productivity and the low initial capital stock as the main factors generating the time series behavior of the net national saving rate in Japan. We show that if the Japanese had faced the U.S. TFP and initial conditions, their saving rate would have looked very similar to that of the U.S. households. In other words, it seems that there is nothing peculiar about the Japanese saving behavior.Neoclassical Growth Model, Saving Behavior, Total Factor Productivity

Secular Movements in U.S. Saving and Consumption

The U.S. national saving rate has been declining since the 1960s while the share of consumption in output has been increasing. We explore if a standard growth model can explain the secular movements observed in this time period. Our quantitative findings indicate that the standard neoclassical growth model is able to generate saving rates and consumption that are remarkably similar to the data during 1960-2004U.S. consumption, saving, TFP

Secular Trends in U.S Saving and Consumption

National saving rate in the U.S. has been declining since the 1960s while the share of consumption in output has been increasing. We explore if a standard growth model can explain the secular trends observed in this time period. Our results indicate that the standard neoclassical growth model is able to generate saving rates and consumption that are remarkably similar to the data during 1960-2004. Our quantitative findings identify the growth rate of total factor productivity as the main factor generating the secular trends in the behavior of consumption and saving in the U.SConsumption, Saving

Financial Friction, Capital Reallocation and Expectation-Driven Business Cycles

In this paper, we show that news on future technological improvement can trigger an immediate economic expansion in a model with financial friction on capital allocation. The arrivial of good news on future technology reduces such frictions and generates significant increase in current Total Factor Productivity via capital reallocation. This triggers an immediate boom in output, consumption, investment and hours worked. Our empirical evidence using firm-level data supports strongly the above mechanisms for news to affect current aggregate productivity

Financial Frictions on Capital Allocation: A Transmission Mechanism of TFP Fluctuations

This paper provides a theory of financial frictions as a transmission mechanism for primitive shocks to translate into aggregate TFP fluctuations. In our model, financial frictions distort existing capital allocation across different production units, rather than investment in new capital. News shocks on future technology improvement are introduced as a device to identify TFP fluctuations originating from this mechanism. Our simulation shows that variations in financial frictions in response to news shocks can generate sizable fluctuations in aggregate TFP and, thus, business cycles before the actual technology change is realized. Using a combined dataset from Compustat and IBES, we find that the empirical responses of capital acquisition to prospects about future profitability are significantly larger for firms more likely to be financially constrained, while such a pattern does not exist for new capital investment. Furthermore, capital acquisition of constrained firms is found to be more procyclical than that for unconstrained ones. Our evidence thus provides strong support for the importance of financial frictions on capital allocation as the transmission mechanism proposed by our theory

Genomic imbalance of HMMR/RHAMM regulates the sensitivity and response of malignant peripheral nerve sheath tumour cells to aurora kinase inhibition

Malignant peripheral nerve sheath tumours (MPNST) are rare, hereditary cancers associated with neurofibromatosis type I. MPNSTs lack effective treatment options as they often resist chemotherapies and have high rates of disease recurrence. Aurora kinase A (AURKA) is an emerging target in cancer and an aurora kinase inhibitor (AKI), termed MLN8237, shows promise against MPNST cell lines in vitro and in vivo. Here, we test MLN8237 against two primary human MPNST grown in vivo as xenotransplants and find that treatment results in tumour cells exiting the cell cycle and undergoing endoreduplication, which cumulates in stabilized disease. Targeted therapies can often fail in the clinic due to insufficient knowledge about factors that determine tumour susceptibilities, so we turned to three MPNST cell-lines to further study and modulate the cellular responses to AKI. We find that the sensitivity of cell-lines with amplification of AURKA depends upon the activity of the kinase, which correlates with the expression of the regulatory gene products TPX2 and HMMR/RHAMM. Silencing of HMMR/RHAMM, but not TPX2, augments AURKA activity and sensitizes MPNST cells to AKI. Furthermore, we find that AURKA activity is critical to the propagation and self-renewal of sphere-enriched MPNST cancer stem-like cells. AKI treatment significantly reduces the formation of spheroids, attenuates the self-renewal of spheroid forming cells, and promotes their differentiation. Moreover, silencing of HMMR/RHAMM is sufficient to endow MPNST cells with an ability to form and maintain sphere culture. Collectively, our data indicate that AURKA is a rationale therapeutic target for MPNST and tumour cell responses to AKI, which include differentiation, are modulated by the abundance of HMMR/RHAMM