nep-pke New Economics Papers
on Post Keynesian Economics
Issue of 2006‒02‒26
three papers chosen by
Karl Petrick
Leeds Metropolitan University

  1. Perception and pursuit of entrepreneurial opportunities: an evolutionary economics perspective By G. Buenstorf
  2. Habit formation and the transmission of financial crises By Melisso Boschi; Aditya Goenka
  3. Evaluation of macroeconomic models for financial stability analysis By Gunnar Bårdsen; Kjersti-Gro Lindquist; Dimitrios P. Tsomocos

  1. By: G. Buenstorf
    Abstract: Considerable debate surrounds the concept of entrepreneurial opportunities. This paper contributes to the discussion by bringing in concepts and findings from evolutionary economics. It makes three points. First, adopting an evolutionary market process perspective sheds new light on the nature of opportunities. Second, not only the pursuit of entrepreneurial opportunities, but also the further development of the entrepreneurial venture is dependent on subjective opportunity perception and interpretation. Third, findings on industry evolution help understand how opportunities, as well as agents’ ability and willingness to pursue them, change over time. Effects of pre-entry experience on opportunity recognition and firm performance are also discussed.
    Keywords: opportunities, market process, business conceptions, industry evolution, spin-offs
    JEL: B25 D21 M13 L10
    Date: 2006–01
  2. By: Melisso Boschi; Aditya Goenka
    Abstract: We study how external habit formation by investors affects the transmission of financial crises. Habit formation increases the effective risk premium on assets when there is a negative wealth shock and introduces non-linearities which can lead to multiple equilibria. We embed this investor’s behavior in the Jeanne (1997) model which allows for a competitiveness effect and for contagion through changes in fundamentals. Habit formation, however, can lead to transmission of financial crises even in the absence of the competitiveness effect, and makes multiple equilibria more likely. The possible stabilization effects of capital controls and a Tobin tax on the international transmission of financial crises are also discussed.
    Date: 2006–02–22
  3. By: Gunnar Bårdsen (Department of Economics, Norwegian University of Science and Technology, Norway); Kjersti-Gro Lindquist (Bank of Norway); Dimitrios P. Tsomocos (Saïd Business School and St. Edmund Hall, Oxford University, United Kingdom)
    Abstract: As financial stability has gained focus in economic policymaking, the demand for analyses of financial stability and the consequences of economic policy has increased. Alternative macroeconomic models are available for policy analyses, and this paper evaluates the usefulness of some models from the perspective of financial stability. Financial stability analyses are complicated by the lack of a clear and consensus definition of ‘financial stability’, and the paper concludes that operational definitions of this term must be expected to vary across alternative models. Furthermore, since assessment of financial stability in general is based on a wide range of risk factors, one can not expect one single model to satisfactorily capture all the risk factors. Rather, a suite of models is needed. This is in particular true for the evaluation of risk factors originating and developing inside and outside the financial system respectively.
    Keywords: Financial stability; Banks; Default; Macroeconomic models; Policy
    JEL: E1 E4 E5 G1 G2
    Date: 2006–02–14

This nep-pke issue is ©2006 by Karl Petrick. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.