country portfolios under global imbalances abstract this paper studies the composition of country portfolios under global imbalances when countries are identical the optimal portfolio is fully diversified which reflects the cross country symmetric self hedging lucas 1982 assuming a structural country asymmetry in patience we construct a model of portfolio choices that features persistent non zero net foreign assets nfa because the latter opens a gap between gnp and gdp we found that an asymmetric hedging of net portfolio returns emerges in addition to the otherwise only lucas symmetric self hedging in shaping the gross country portfolios which implies a short long position of the local asset in the debtor creditor country the resulting portfolio is home biased we calibrate our model to the u s and china data over 1999 2017 and show that it matches the portfolio data for countries with unbalanced net external positions well

public health spending old age productivity and economic growth chaotic cycles under perfect foresight abstract this paper analyses the dynamics of a double cobb douglas economy with overlapping generations and public health investments that affect the supply of efficient labour of the old aged it is shown that the positive steady state of the economy is unique moreover we provide necessary and sufficient conditions for the emergence of endogenous deterministic complex cycles when individuals are perfectly foresighted interestingly i the equilibrium dynamics shows rather complicated phenomena such as a multiplicity of bubblings depending on the size of the public health system and ii the higher the degree of thriftiness the likelier an economy is exposed to endogenous fluctuations because the need to save when young to support consumption when old is reduced

the realization effect risk taking after realized versus paper losses abstract understanding how prior outcomes affect risk attitudes is critical for the study of choice under uncertainty a large literature documents the significant influence of prior losses on risk attitudes the findings appear contradictory some studies find greater risk taking after a loss whereas others show the opposite that people take on less risk i reconcile these seemingly inconsistent findings by distinguishing between realized versus paper losses using new and existing data i replicate prior findings and demonstrate that following a realized loss individuals avoid risk if the same loss is not realized a paper loss individuals take on greater risk jel d11 d14 d81 g11

dynamic efficiency in overlapping generations models with stochastic production abstract we consider an overlapping generations economy as in diamond amer econ rev 55 1965 1126 1150 with stochastic production we define two types of efficiency for feasible production consumption allocations using first and second degree stochastic dominance we obtain a complete characterization of inefficiency of type i in this model for each given sequence of strictly concave utility functions for all generations the existence of a competitive equilibrium is proved it is shown that each competitive allocation is short run efficient of type ii

individual risk attitudes measurement determinants and behavioral consequences this paper studies risk attitudes using a large representative survey and a complementary experiment conducted with a representative subject pool in subjects homes using a question asking people about their willingness to take risks in general we find that gender age height and parental background have an economically significant impact on willingness to take risks the experiment confirms the behavioral validity of this measure using paid lottery choices turning to other questions about risk attitudes in specific contexts we find similar results on the determinants of risk attitudes and also shed light on the deeper question of stability of risk attitudes across contexts we conduct a horse race of the ability of different measures to explain risky behaviors such as holdings stocks occupational choice and smoking the question about risk taking in general generates the best all round predictor of risky behavior

impact of pension system structure on international financial capital allocation abstract recent findings indicate that pension system structure affects private savings and through them the aggregate foreign asset position of a country we present a two country overlapping generations model that explores the relationship between the magnitude of pension guarantees and the resulting portfolio choices of workers the existence of a pay as you go pension system lowers the wealth of the young workers who consequently borrow from abroad to supplement their current consumption and lowers the overall riskiness of their lifetime wealth prompting them to invest in risky equity financed by the selling of safe bonds in particular we are able to replicate and explain the venture capitalist positive net equity accompanied by negative net debt portfolio profile of the united states more broadly we find empirical support for our results in a cross country analysis using data from 110 economies greater amounts of pension spending are associated with international indebtedness long equity positions and short debt positions

a moral hazard trap to growth this paper studies the consequences of asymmetric information in the investment sector upon economic growth in this paper the information asymmetry generates a moral hazard problem this moral hazard problem restricts financial arrangements it is shown that these restrictions make even the long run competitive equilibrium income dependent upon history this result also holds in case there is perfect capital mobility however when there is capital mobility the government may be able to intervene in a pareto improving way copyright 1992 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

time preference and international lending and borrowing in an overlapping generations model two economies represented by diamond type overlapping generations models and differing only in their pure rates of time preference are joined together capital formation balance of payments behavior and welfare are compared under autarky and openness with a positive natural rate of growth the low time preference country runs a current account surplus in the steady state but not necessarily outside it if preexisting capital is not shiftable between countries integration in the world economy makes the high time preference country worse off in the short run the ranking of stationary utility levels under autarky and openness is ambiguous

capital accumulation in a stochastic overlapping generations model with social security abstract this paper analyzes the impact of pay as you go financed social security on the stochastic process for the capital stock in a stochastic overlapping generations model it is shown that the probability distribution of the capital stock in absence of social security dominates that in a pay as you go system in the sense of stochastic dominance furthermore the study demonstrates that the sufficient conditions ensuring the existence and uniqueness of stationary equilibria in a pay as you go system are more restrictive than in the model without social security journal of economic literature classification numbers c62 h55

the transfer paradox in a one sector overlapping generations model abstract this paper examines the effects of international income transfers on capital accumulation and welfare in a one sector overlapping generations model it is shown that a strong form of the transfer paradox in which the donor country experiences a welfare gain while the recipient country experiences a welfare loss may occur both in and out of steady state in addition it is shown that a weak form of the transfer paradox where either the donor or recipient but not both experiences a paradoxical welfare effect may characterize all segments of the transition path not already characterized by the strong transfer paradox

causes consequences and cures of myopic loss aversion an experimental investigation we examine in an experiment the causes consequences and possible cures of myopic loss aversion mla for investment behaviour under risk we find that both investment horizons and feedback frequency contribute almost equally to the effects of mla longer investment horizons and less frequent feedback lead to higher investments however when given the choice subjects prefer on average shorter investment horizons and more frequent feedback exploiting the status quo bias by setting a long investment horizon or low feedback frequency as a default turns out to be a successful behavioural intervention that increases investment levels

on the empirics of foreign aid and growth the present paper re examines the effectiveness of foreign aid theoretically and empirically using a standard olg model we show that aid inflows will in general affect long run productivity the size and direction of the impact may depend on policies deep structural characteristics and the size of the inflow the empirical analysis investigates these possibilities overall we find that aid has been effective in spurring growth but the magnitude of the effect depends on climate related circumstances finally we argue that the collier dollar allocation rule should be seriously reconsidered by donor agencies if aid effectiveness is related to climate the usefulness of foreign aid in promoting growth in developing countries has been an area of controversy ever since rosenstein rodan in 1943 advocated for aid to eastern and south eastern europe browsing through successive editions of a leading textbook in development economics provides a telling illustration of how the confidence in aid effectiveness dwindled over the years in the first edition of leading issues in economic development meier 1964 dedicated a full 18 page section to the issue of foreign aid he started out asking how much aid by the time of the sixth edition meier 1995 the treatment of foreign aid had been cut into half and the questions in focus were why official assistance and does aid work in the 2000 edition meier and rauch 2000 foreign aid is not even listed in the index

determinacy of equilibrium in stationary economies with both finite and infinite lived consumers abstract we consider the determinacy of perfect foresight equilibrium near steady state equilibria of stationary infinite horizon economies the work of t j kehoe and d k levine econometrica 53 1985 433 453 is generalized by the inclusion of both infinite lived agents and overlapping generations of finite lived agents and the inclusion of production and non depreciating pure rents we show that indeterminacy is possible in robust examples and that the dimension of the indeterminacy can be as large as the number of goods per period we also discuss extreme cases in which determinacy is guaranteed

do professional traders exhibit myopic loss aversion an experimental analysis two behavioral concepts loss aversion and mental accounting have been combined to provide a theoretical explanation of the equity premium puzzle recent experimental evidence supports the theory as students behavior has been found to be consistent with myopic loss aversion mla yet much like certain anomalies in the realm of riskless decision making these behavioral tendencies may be attenuated among professionals using traders recruited from the cbot we do indeed find behavioral differences between professionals and students but rather than discovering that the anomaly is muted we find that traders exhibit behavior consistent with mla to a greater extent than students

stochastic olg models market structure and optimality for a general class of pure exchange olg economies under uncertainty we provide a complete characterization of the efficency properties of competitive equilibria when markets are only sequentially complete and the criterion of efficency is conditional pareto optimality we also consider a particular case in which markets fail to be even sequentially complete and provide a characterization when the criterion of efficency is weakened to ex post pareto optimality

existence and uniqueness of steady state equilibrium in a two sector overlapping generations model abstract in his seminal paper galor a two sector overlapping generations model a global characterization of the dynamical system econometrica 60 1992 1351 1386 establishes conditions for the existence of equilibrium in the two sector overlapping generations olg model although appealing theoretically these conditions are implicit and not easy to apply this paper develops new theorems on the existence and uniqueness of steady state equilibrium in the two sector olg model we provide explicit conditions on the utility and production functions for the existence and uniqueness of equilibrium with which one only needs to check the derivatives of the production and utility functions and their interactions without requiring solving for the savings function and its derivatives we present detailed steps to check the existence and uniqueness of equilibrium and provide illustrative examples

the savings multiplier we develop a theory of macroeconomic development based on the novel concept of savings multiplier capital accumulation changes relative prices and income shares between generations creating further incentives to accumulate and thereby rising saving rates as the economy develops the savings multiplier hinges on two mechanisms first accumulation raises wages and leads to redistribution from the consuming old to the saving young second higher wages raise the price of services consumed by the old and the anticipation of such price rise prompts the young to increase their savings our theory captures important aspects of china s development and suggests new channels through which the one child policy and the dismantling of cradle to grave social benefits have fuelled china s savings and accumulation rates

public pensions and growth abstract this paper investigates the relationship between the size of an unfunded public pension system and economic growth in an overlapping generation economy in which altruistic parents finance the education of their children and leave bequests unlike the existing literature we model intergenerational altruism by assuming that children s income during adulthood is an argument of parental utility unfunded public pensions can promote growth when families face liquidity constraints preventing them from investing optimally in the education of their children we consider two alternative ways of financing a public pension system either by levying social contributions in a lump sum manner or in proportion to labour income we find that there is no case for unfunded public pensions in economies where bequests are operative by contrast there exists a growth maximising size of the public pension system in economies where bequests are not operative and individuals are sufficiently patient

increasing returns and crowding out abstract this paper explores how public debt interferes with the accumulation of physical capital when the technology displays a production externality of the arrow romer type we identify conditions under which a small positive amount of debt will prevent the economy from ever approaching the stock of capital that it would achieve if public debt were zero we also show that the interaction of debt and production externalities may produce bounded possibly cycling capital stock sequences in economies where sustained growth rates are possible with zero national debt finally welfare issues concerning the relation between static and dynamic inefficiencies are discussed

search unemployment in an overlapping generations setting this paper constructs an overlapping generations model in which the steady state equilibrium is characterized by the existence of search unemployment this dynamic general equilibrium model captures the possible existence of search unemployment in the long run despite the absence of exogenous shocks furthermore it allows for the wage offers distribution to be determined endogenously the effect of partial revelation of information on the existence of search unemployment in the long run is examined it is shown that search unemployment may be eliminated in the long run despite the persistence of the state of imperfect information this paper develops an overlapping generations model in which the steady state equilibrium is characterized by search unemployment 2 unemployment is created via a rational rejection of available wage offers in favor of further search for potentially more attractive offers the proposed dynamic general equilibrium model allows for the existence of long run search unemployment despite the absence of exogenous shocks and permits the presence of an endogenously determined nondegenerate wage offer distribution 3 the paper analyzes the trade off between revelation of information and the level of search unemployment in the long run in the absence of external disturbances the level of search unemployment would be expected to decrease as information becomes available in particular if information is fully revealed search unemployment is naturally eliminated exploring the likelihood of the existence of long run search unemployment in a deterministic world this study provides an example of partial revelation of information which eliminates search unemployment in the long run despite the persistence of the state of imperfect information 4 the proposed model presents a discrete infinite time horizon world where economic activity is conducted under imperfect information in every period a single homogeneous good is produced using two factors capital and labor in the production process the aggregate endowment of labor is exogenously given in

the power of love abstract we show that the presence of at least one individual who loves its children whatever the intensity of this love allows to avoid a possible global contraction of the economy

dynamic efficiency of steady state equilibria in an overlapping generations model with productive capital abstract this paper establishes sufficient technological conditions under which for any feasible set of well behaved preferences stationary over investment relative to the golden rule is ruled out and the economy s steady state equilibria are therefore dynamically efficient

an olg model of global imbalances in this paper we investigate the relationship between east asian countries high propensity to save and global imbalances in a two country olg model with production the saving behavior of emerging economies and capital outflows to the united states can be attributed to their poor pay as you go systems the model predicts that emerging countries run a trade surplus only as long as the long run growth rate of the economy is higher than the real interest rate capital overaccumulation case the low real interest rate in the us is therefore evidence in favor of the hypothesis that there is a global saving glut in the world economy the model can explain why the us current account deteriorated gradually and only in the late 1990s although the net foreign asset position had already turned negative in the early 1980s finally the analysis also implies that an improvement of the pay as you go system in china would have the effect of reducing the imbalances in accordance with the theory we find that the higher is the percentage of the working population covered by the pay as you go system the lower are savings and the current account balance in a cross section of countries

testing the endogenous growth model public expenditure taxation and growth over the long run endogenous growth models such as barro 1990 predict that government expenditure and taxation will have both temporary and permanent effects on growth we test this prediction using panels of annual and period averaged data for oecd countries during 1970 95 isolating long run from short run fiscal effects our results strongly support the endogenous growth model and suggest that long run fiscal effects are not fully captured by period averaging and static panel methods unlike previous investigations our estimates are free from biases associated with incomplete specification of the government budget constraint and do not appear to result from endogeneity of fiscal or investment variables jel classification h30 o40 validation du modele de croissance endogene depenses publiques fiscalite et croissance a long terme des modeles de croissance endogene comme celui de barro 1990 predisent que depenses gouvernementales et fiscalite vont avoir des effets temporaires et permanents sur la croissance on met cette prevision au test a l aide de donnees annuelles et pour certaines moyennes couvrant des sous periodes pour les pays de l ocde 1970 95 dans le but de departager les effets a court et a long terme les resultats valident fortement le modele de croissance endogene et suggerent que les effets fiscaux a long terme ne sont pas pleinement captures par des methodes utilisant des moyennes ou des methodes statiques contrairement aux resultats d enquetes anterieures les resultats proposes ne souffrent pas de distorsions attribuables a une specification incomplete de la contrainte budgetaire du gouvernement et ne semblent pas etre l effet d echo de l endogeneite des variables fiscales et de l investissement

optimality in stochastic olg models theory for tests we consider general olg economies under uncertainty with short maturity assets and with dividend paying assets of infinite maturity and fiat money and study the optimality properties of equilibria with a sequence of asset markets that are sequentially complete we provide necessary and sufficient conditions in terms of asset prices and dividends for equilibria to be conditionally pareto optimal these results provide a theoretical basis for empirical investigation

the cass criterion the net dividend criterion and optimality abstract abel mankiw summers and zeckhauser assessing dynamic efficiency theory and evidence rev econ stud 56 1989 1 20 propose the net dividend criterion as an easy to use sufficient condition for optimality in general stochastic overlapping generations economies with production we provide examples based on the criterion due to cass on capital overaccumulation in the aggregative neoclassical model of economic growth a complete characterization j econ theory 4 1972 200 223 and its extensions the usual tools for such problems to show that the net dividend criterion need not give the right answer we identify the flaw in their proof we also provide an alternative condition which by an argument unrelated to theirs is a sufficient condition for optimality when dividends are nonnegative and then argue that the condition is not innocuous since it cannot be verified in actual economies

the effect of myopia and loss aversion on risk taking an experimental test myopic loss aversion is the combination of a greater sensitivity to losses than to gains and a tendency to evaluate outcomes frequently two implications of myopic loss aversion are tested experimentally 1 investors who display myopic loss aversion will be more willing to accept risks if they evaluate their investments less often 2 if all payoffs are increased enough to eliminate losses investors will accept more risk in a task in which investors learn from experience both predictions are supported the investors who got the most frequent feedback and thus the most information took the least risk and earned the least money language en

productive government expenditures and long run growth the purpose of this paper is to review some of the recent developments in endogenous growth models specifically our focus is on the growth effects of productive government spending in dynamic general equilibrium models we use a simple overlapping generations model as our basic framework and illustrate the role of taxes and spending we then examine several related issues nonrivalry in publicly provided goods existence and uniqueness of competitive equilibrium endogenous public policy ways of financing public expenditures composition of publicly provided goods and services and private alternatives finally we review some empirical results related to output elasticity of public capital and educational expenditures

multiple bgps in a growth model with habit persistence this paper establishes multiple balanced growth paths in an otherwise standard competitive growth model without externality or distortions and with households preference dependent upon how his her consumption compares to a habit stock formed by his her own past consumption the key feature in our model is that consumption forms habits in combination with existing habits this model establishes multiple equilibria because habit persistence induces an internal intertemporal complementarity effect among consumption flows with current consumption reinforcing future consumption as a result there exist two balanced growth paths with one path exhibiting low consumption and habits and high economic growth and the other path exhibiting high consumption and habits and low growth that is not necessarily a development trap both steady states are saddles but global indeterminacy arises where a high balanced growth path co exists with a low balanced growth path where the two equilibrium paths cannot be pareto ranked and history need not matter for the selection of the equilibrium path

temporary and permanent migration with and without an immobile factor abstract this paper develops two two country overlapping generations models one with and one without an immobile factor to study temporary and permanent migration temporary migration is shown to be equivalent to international lending and borrowing one strong result found in the literature that if natives of each country are homogeneous permanent migration leads to the migration of the entire population of the impatient country in the long run is overturned welfare effects of migration are analyzed

fiscal policy expenditure composition and growth in low income countries abstract this paper assesses the effects of fiscal consolidation and expenditure composition on economic growth in a sample of 39 low income countries during the 1990s the paper finds that strong budgetary positions are generally associated with higher economic growth in both the short and long terms the composition of public outlays also matters countries where spending is concentrated on wages tend to have lower growth while those that allocate higher shares to capital and nonwage goods and services enjoy faster output expansion finally initial fiscal conditions also have a bearing on the nexus between fiscal deficits and growth

are risk aversion and impatience related to cognitive ability is the way that people make risky choices or tradeoffs over time related to cognitive ability this paper investigates whether there is a link between cognitive ability risk aversion and impatience using a representative sample of the population and incentive compatible measures we conduct choice experiments measuring risk aversion and impatience over an annual time horizon for a randomly drawn sample of roughly 1 000 german adults subjects also take part in two different tests of cognitive ability which correspond to sub modules of one of the most widely used iq tests interviews are conducted in subjects own homes we find that lower cognitive ability is associated with greater risk aversion and more pronounced impatience these relationships are significant and robust to controlling for personal characteristics educational attainment income and measures of credit constraints we perform a series of additional robustness checks which help rule out other possible confounds

asset prices debt constraints and inefficiency abstract we consider possibly non stationary economies with endogenous solvency constraints under uncertainty over an infinite horizon as in alvarez and jermann 2000 5 a sort of cass criterion cass 1972 10 completely characterizes constrained inefficiency under the hypothesis of uniform gains from risk sharing which is always satisfied in stationary economies when the autarchy is constrained inefficient uniform gains from risk sharing also guarantee a finite value of the intertemporal aggregate endowment at a constrained optimum hence no equilibrium exhibits a null interest rate in the long run finally constrained inefficiency occurs if and only if there exists a feasible redistribution producing a welfare improvement at all contingencies

an experiment on risk taking and evaluation periods does the period over which individuals evaluate outcomes influence their investment in risky assets results from this study show that the more frequently returns are evaluated the more risk averse investors will be the results are in line with the behavioral hypothesis of myopic loss aversion which assumes that people are myopic in evaluating outcomes over time and are more sensitive to losses than to gains the results have relevance for the equity premium puzzle and also for the marketing strategies of fund managers

a theory of infrastructure led development abstract this paper proposes a theory of long run development based on public infrastructure as the engine of growth the government in addition to investing in infrastructure spends on health services which in turn raise labor productivity and lower the rate of time preference infrastructure affects the production of both commodities and health services as a result of network effects the degree of efficiency of infrastructure is nonlinearly related to the stock of public capital itself provided that governance is adequate enough to ensure a sufficient degree of efficiency of public investment an increase in the share of spending on infrastructure financed by a cut in unproductive expenditure or foreign grants may facilitate the shift from a low growth equilibrium characterized by low productivity and low savings to a high growth steady state

growth and convergence when technology and human capital are complements i introduction explaining the persistent productivity differences between countries has long been a focus of the theoretical and empirical growth literature while a large body of work on the conditional convergence hypothesis emphasizes the role of factor accumulation it has been suggested that an explanation of the observed phenomenon is incomplete if not accounting for cross country differentials in total factor productivity tfp 1 one aspect that has received relatively less attention is an apparent history dependence of countries productivity rankings eaton and kortum 1997 report that despite large differences in growth rates over a 40 year period the five leading economies in the world only show two reversals in relative position 2 comparing the labor productivity in seven countries to the u s level over a period of more than 30 years similarly suggests that economies often retain their relative positions with countries starting out at lower productivities also converging to lower levels figure 1 this article presents a model that can provide an explanation for persistent cross country tfp differentials we make two key assumptions first the intellectual property ip embodied in new production technologies is subject to worldwide patent protection the owner of a technology can freely choose where in the world it will be used second we assume that there is complementarity between human capital and the level of technology used in production that is the relative productivity advantage of a new technology is bigger when it is used by more skilled workers we show that under these conditions new technologies are first introduced in the most human capital rich country and subsequently passed on to countries with a less skilled labor force before they eventually become obsolete this mechanism of technology diffusion which emerges endogenously in our model is consistent with the observation that less developed countries typically get access to new technologies later 3 moreover if there is a positive feedback between the level of technology used in a country and the rate of human capital accumulation countries long term productivity levels become history dependent economies that start out with a low human capital stock initially catch up to the leading countries but never fully converge to the same level figure 1 omitted the key difference between our approach and existing models of persistent tfp differentials is that we do not impose any ex ante restrictions on the ability to transfer technologies or relocate production processes internationally in contrast parente and prescott 1994 explicitly model barriers to technology adoption howitt 2000 assumes that while researchers have access to all the technological knowledge available worldwide any technologies that are used in a country must still be developed domestically as a consequence countries that invest more in research and development r d will on average employ more recent technologies and be more productive a very general model of technological spillovers and adoption costs that captures many features of the various approaches discussed in the literature is developed in klenow and rodriguez clare 2005 4 the remainder of this article is laid out as follows section ii discusses the literature relevant to our approach with a focus on motivating our key assumptions and presenting evidence to support the diffusion mechanism implied by our model section iii introduces the general model in section iv we derive and discuss the main results a brief summary is presented in section v together with concluding remarks ii literature overview the degree speed and nature of convergence have been a focus of interest in the growth literature while traditional growth models suggest that countries should converge to a steady state that is dictated by their structural properties a result known as the conditional convergence hypothesis it is understood that a large number of plausible deviations from the standard neoclassical assumptions generate growth models in which outcomes are history dependent

asset bubbles in an overlapping generations model with endogenous labor supply this paper examines the effects of asset bubbles in an overlapping generations model with endogenous labor supply we show analytically that asset bubbles can lead to an expansion in steady state capital investment employment and output under certain conditions

evidence for countercyclical risk aversion an experiment with financial professionals countercyclical risk aversion can explain major puzzles such as the high volatility of asset prices evidence for its existence is however scarce because of the host of factors that simultaneously change during financial cycles we circumvent these problems by priming financial professionals with either a boom or a bust scenario subjects primed with a financial bust were substantially more fearful and risk averse than those primed with a boom suggesting that fear may play an important role in countercyclical risk aversion the mechanism described here is relevant for theory and may explain self reinforcing processes that amplify market dynamics jel e32 e44 g01 g11 g12

comparative statics and perfect foresight in infinite horizon economies does a pure exchange economy with an infinite time horizon have determinate perfect foresight equilibria when there is a finite number of infinitely lived agents equilibria are generically determinate this is not true with overlapping generations of finitely lived agents we ask whether the initial conditions together with the requirement of convergence to a steady state locally determine an equilibrium price path in this framework there are many economies with isolated equilibria many with continua of equilibria and many with no equilibria at all with two or more goods in every period not only can the price level be indeterminate but relative prices as well furthermore such indeterminacy can occur whether or not there is fiat money and whether or not the equilibria are pareto efficient this paper considers whether infinite horizon economies have determinate perfect foresight equilibria this question is of crucial importance if instead equilibria are locally indeterminate not only are we unable to make comparative static predictions but the agents in the model are unable to determine the consequences of unanticipated shocks the idea underlying perfect foresight is that agents expectations should be the actual future sequence predicted by the model if the model does not make determinate predictions the concept of perfect foresight is meaningless we consider two extreme cases the first with a finite number of infinitely lived consumers and the second with an infinite number of finitely lived consumers an overlapping generations model both are models of stationary pure exchange economies no production including the storage of goods between periods can occur these models are unrealistic but are the easiest to study extensions of the results of this paper to models with production infinitely lived assets and mixtures of the two types of consumers are presented by muller and woodford 29 when there is a finite number of infinitely lived consumers we argue that equilibria are generically determinate this is because the effective number of equations determining equilibria is not infinite but equal to the number of agents minus one and must determine the marginal utility of income for all but one agent generically near an equilibrium these equations are independent and exactly determine the unknowns when there are infinitely many overlapping generations this reasoning breaks down an infinite number of equations is not necessarily sufficient to determine

determinacy of equilibrium in an overlapping generations model with heterogeneous agents abstract we study the determinacy of perfect foresight equilibrium near a steady state in an overlapping generations model with production and both altruistic and non altruistic agents having distinct utility functions the proportion of each type of consumer is exogenously given our main results show that when there are positive stationary bequests some standard assumptions on preferences and technology rule out local indeterminacy for any positive value of the proportions in the particular case of a separable utility function for altruistic agents we prove that the determinacy property does not depend on the size of the infinite lived altruistic dynasties journal of economic literature classification numbers c62 d91 o21 o41

existence uniqueness and stability of equilibrium in an overlapping generations model with productive capital abstract this paper analyzes the existence uniqueness and stability of a steady state equilibrium in an overlapping generations model with productive capital it is shown that for any feasible set of well behaved preferences there exists a production function that satisfies the inada conditions under which the economy experiences global contraction and the steady state equilibrium is characterized by the absence of production and consumption the study establishes a strengthened inada condition which is necessary to preclude global contraction and sufficient conditions for the existence of a unique and globally stable non trivial steady state equilibrium

public spending reallocations and economic growth across different income levels this paper examines the effects of public spending reallocations on economic growth assembling a disaggregated public spending dataset of 83 countries over the 1970 2011 period we show that spending reallocations towards education from health and social protection have significant growth promoting effects across a wide range of countries income levels however income heterogeneity matters particularly when reallocations involve infrastructure spending specifically a reallocation from this spending to education also promotes growth albeit primarily when the income level is low this occurs because the effects of infrastructure spending are particularly weak in low income countries possibly due to the low quality of governance

endogenous fertility and the henry george theorem abstract models of endogenous demographic change deal with population size as an additional object of the welfare analysis in these models the overlapping generations olg model serves as the basic framework in club theory too population size is treated as an endogenous variable in local public goods lpg models the so called henry george theorem which requires local public expenditures to be financed by a 100 tax on aggregate land rent is known as a first order condition for club efficiency the present paper establishes and exploits an isomorphism between steady states of the olg model and allocations of the lpg model the paper revisits samuelson s fallacy concerning his goldenest golden rule and it explores institutional arrangements that sustain the optimum growth of population

piecemeal versus precipitous factor market integration textabstractstudies the effects of speed of international factor markets integration within a general equilibrium two country model variant of diamond s overlapping generations model effects of an international factor market liberalization determination of the amount of capital needed to integrate eastern europe with the european community

does commitment or feedback influence myopic loss aversion an experimental analysis empirical research has shown that a lower feedback frequency combined with a longer bind ing period decreases myopia and thereby increases the willingness to invest into a risky asset in an experimental study we disentangle the intertwined manipulation of feedback frequency and binding period to analyze how both variables alone contribute to the change in myopia and how they interact we find a strong effect for the length of commitment a much less pro nounced effect for the feedback frequency and a strong interaction between both variables the results have important implications for real world intertemporal decision making

how persistent are the effects of experience sampling on investor behavior abstract investor behavior was shown to be considerably different when the risk return tradeoff is presented by experience sampling as opposed to a descriptive communication we analyze the persistency of this difference in a setting in which investors are faced with multiple decisions over time and are consequently able to adjust the risk level they initially chose for this we use an experimental setting with repeated investment decisions over multiple trading days and we also test a new form of risk simulation in which wealth paths over time are presented rather than just final outcomes after investors initial decisions for which we confirm previous findings we do not find persistent differences of simulation based learning on investors risk taking behavior with regards to trading volume only a simulation in which investors see wealth paths and not only final outcomes leads to lower trading frequency soon after the initial asset allocation

stability of equilibria in the overlapping generations model with endogenous labor supply abstract this paper looks at the issue of existence and stability of steady state equilibria in an overlapping generations model with productive capital a la diamond augmented to include endogenous labor supply the paper derives some necessary and sufficient conditions under which a steady state equilibrium is a sink a saddle point or a source under a simple condition on the labor supply elasticity it is also shown that the local stability condition of the standard diamond model can be generalized in order to become a necessary and sufficient condition for the saddle point property of the steady state equilibrium

the timing and persistence of fiscal policy impacts on growth evidence from oecd countries the literatures testing for aggregate short run or long run growth impacts of fiscal policy use quite different methodologies the former generally focuses on temporary fiscal shocks the latter typically have no short run dynamics or assume homogeneity we use regression methods that treat heterogeneous short run dynamics explicitly within a long run model results suggest that previously estimated long run growth effects of fiscal policy are typically achieved quickly consistent with results from short run models in principle these short run effects persist in practice regular fiscal policy changes in oecd countries mean that persistent increases or decreases in growth rates are rare the recent global recession has brought renewed interest in the question can fiscal policy affect the growth rate of output if so are these effects temporary affecting only output levels over the longer run or permanent so that output growth rates are persistently higher perhaps surprisingly the literatures looking for growth impacts of fiscal policy over the short run say up to five years and over the longer run of 10 years or more have tended to be quite distinct and followed quite different methodologies this article considers how far the results from these two literatures are consistent to do so we apply the heterogeneous panel econometric methods mean group and pooled mean group proposed by pesaran and smith 1995 pesaran 1997 and pesaran et al 1999 to an annual panel dataset for oecd countries these methods allow both long run equilibrium relationships and short run dynamic adjustments around those equilibria to be investigated simultaneously in brief our results support the conclusion that changes in fiscal structure that is between different types of tax

rent appropriation and sustained growth abstract this paper demonstrates that the introduction of imperfect competition into the labor market can solve the problem isolated by jones and manuelli journal of economic theory 1992 58 171 197 and boldrin journal of economic theory 1992 58 198 218 that in economies with convex technologies and finitely lived agents real wages may not grow fast enough for unbounded growth to be sustained i show that if wages are determined by a bargaining solution and if the bargaining power of the workforce is sufficiently high if they appropriate a sufficiently large proportion of rents then growth is unbounded moreover the growth path generated by such an economy may improve the welfare of all generations apart from the initial old

will you marry me a perspective on the gender gap abstract this paper develops a general equilibrium model of the gender wage gap the difference in earnings is a consequence of a demographic regularity that men tend to marry younger women which may limit women s labor mobility and hence their average earnings however couples are always free not to marry and do so only if it is in each s self interest the intrafamily allocation of resources is determined via non cooperative bargaining this leads to interesting interactions between the game played by husband and wife on the one hand and the competitive environment in which they are immersed on the other the predictions resulting from this model s interplay between locational choice and family bargaining are consistent with the observation that the increasing stress put by women on their careers over the past 30 years has been contemporaneous with reductions in both marriage rates and the gender gap the model provides insight into the consequences of this for the relative welfare of men and women as well as exploring its wider economic implications

does aggregated returns disclosure increase portfolio risk taking many experiments have found that participants take more investment risk if they see returns less frequently see portfolio level returns rather than each individual asset s returns or see long horizon rather than one year historical return distributions in contrast we find that such information aggregation treatments do not affect total equity investment when we make the investment environment more realistic than in prior experiments previously documented aggregation effects are not robust to changes in the risky asset s return distribution or the introduction of a multi day delay between portfolio choice and return realizations

could prometheus be bound again a contribution to the convergence controversy abstract this paper presents a neoclassical model of stochastic growth in which the probability of adverse shocks to production is inversely related to the aggregate stock of capital per capita postulating this endogenous relationship justified by empirical evidence the model yields predictions that are largely consistent with the recent findings of cross country club convergence differently from the standard explanation based on multiplicity of steady states this model is also able to yield predictions consistent with observable intra distribution dynamics thus accounting for phenomena such as economic miracles growth disasters and reversals of fortune

on the interaction between risk sharing and capital accumulation in a stochastic olg model with production abstract we analyze the interaction between risk sharing and capital accumulation in a stochastic olg model with production we give a complete characterization of interim pareto optimal competitive equilibrium allocations furthermore we provide tests of pareto optimality suboptimality based on risky rates of return only

confidence and the real value of money in an overlapping generations economy we demonstrate that stochastic bubbles which have a constant exogenous probability of collapsing may exist in general equilibrium on an intrinsically useless and unbacked asset money this may happen provided that the probability q that the bubble will persist next period is large enough and exceeds a threshold level q which we call the minimum rate of confidence this condition is always violated when the economy without bubble is dynamically efficient it is more likely to be satisfied in dynamically inefficient economies the larger the size of the inefficiency as measured by the excess of the growth rate over the no bubble interest rate we study both exchange and production economies

the gender effect in risky asset holdings abstract we study the relation between gender and stock holdings in finland a particularly gender equal country we show that it is crucial to control for risk aversion using a measure of subjective risk taking rather than measures derived from abstract gambles controls related to financial knowledge and resources also explain the gender difference the residual effect of the male gender on the conditional equity share after all appropriate controls is 3 percentage points and statistically significant the effect on stock market participation on the other hand is close to zero or negative so men contribute more to the nonparticipation puzzle conditional on covariates the gender difference mainly works through women s higher risk aversion which we find extends to finance professionals and wealthy private banking customers

the laffer curve revisited abstract laffer curves for the us the eu 14 and individual european countries are compared using a neoclassical growth model featuring constant frisch elasticity cfe preferences new tax rate data is provided the us can maximally increase tax revenues by 30 with labor taxes and 6 with capital taxes we obtain 8 and 1 for the eu 14 there 54 of a labor tax cut and 79 of a capital tax cut are self financing the consumption tax laffer curve does not peak endogenous growth and human capital accumulation affect the results quantitatively household heterogeneity may not be important while transition matters greatly

financial integration entrepreneurial risk and global dynamics abstract how does financial integration impact capital accumulation current account dynamics and cross country inequality we investigate this question within a two country general equilibrium incomplete markets model that focuses on the importance of idiosyncratic entrepreneurial risk a risk that introduces not only a precautionary motive for saving but also a wedge between the interest rate and the marginal product of capital our contribution is to show that this friction provides a simple explanation for the emergence of global imbalances a resolution to the empirical puzzle that capital often fails to flow from the rich or slow growing countries to the poor or fast growing ones and a set of policy lessons regarding the intertemporal costs and benefits of capital account liberalization

a family production overlapping generations economy abstract this paper provides a theoretical analysis of an overlapping generations economy in which production decisions and input output allocations are all carried out at the family level i consider a single class of output allocation schemes and various degrees of knowledge about the production technology under complete knowledge i show that a family organizational structure in which everyone receives his marginal contribution to output invests less in physical capital than under a perfectly competitive equilibrium environment under incomplete knowledge i analyze and compare how beliefs about the input output relationship affect the physical capital accumulation dynamics and the long run standards of living

precautionary saving credit constraints and irreversible investment theory and evidence from serniarid india this article investigates the extent to which poor households are discouraged from making a non divisible but profitable investment using data on irrigation wells in india we estimate the parameters of a structural model of irreversible investment results show that poor farmers fail to undertake a profitable investment that they could in principle self finance because the nondivisibility of the investment puts it out of their reach irreversibility constitutes an additional disincentive to invest simulations show that the availability of credit can dramatically increase investment in irrigation and that interest rate subsidization has little impact

government health spending and growth in a model of endogenous longevity abstract we present a model of endogenous longevity that results in a non monotonic effect of government spending on economic growth the key element is the effectiveness of publicly provided health care in enhancing life expectancy

terms of trade and current account dynamics a methodological critique this paper suggests that the recent intertemporal studies concerning the implications of terms of trade deterioration on the current account of a small open economy may suffer from significant methodological deficiencies the study demonstrates that while the assumption of a small open economy represents a legitimate modeling simplification the analysis of the impact of perturbation of the terms of trade on the current account of this small open economy is methodologically erroneous in particular the paper demonstrates that a given pattern of terms of trade deterioration may be associated with opposing evolutionary patterns of the current account of this small economy this paper argues that the methodology employed by several influential intertemporal studies concerning the relationship between the terms of trade and the current account of a small economy suffers from critical deficiencies it demonstrates that while the assumption of a small open economy confronting exogenously determined terms of trade represents a legitimate modeling simplification the analysis of the impact of perturbations of this terms of trade on the small open economy and on its current account is methodologically erroneous in particular the paper demonstrates that a small economy may experience diametrically opposing evolutionary patterns of the current account in association with a given pattern of terms of trade deterioration the paper suggests therefore that predictions based on this literature are in need of reassessment these intertemporal studies of the relationship between the terms of trade and the current account of a small economy have been conducted under the simplifying assumption that perturbations in the terms of trade are exogenous and do not affect the world interest rate 2 this approach may reflect a valid simplification as long as the study is concerned with exportable goods whose prices are insignificant in the determination of the general price level in the world economy however if the focus of the analysis is a small country that exports a group of commodities such as agricultural goods or industrial goods a change in the terms of trade for the small economy may reflect fundamental changes in the world relative prices that are

indeterminacy in dynamic models when diamond meets ramsey abstract we consider an aggregate two periods overlapping generations model with endogenous labor consumption in both periods of life homothetic preferences and productive external effects coming from the average capital and labor we show that under realistic calibrations of the parameters in particular a large enough share of first period consumption over the wage income local indeterminacy of equilibria cannot occur with capital externalities alone it can nevertheless occur when there are only even very small vanishing labor externalities provided that the elasticity of capital labor substitution and the wage elasticity of the labor supply are large enough we also show that if labor externalities are slightly stronger but still small enough to be plausible and the elasticity of labor supply is larger local indeterminacy occurs in a cobb douglas economy finally we show that a locally indeterminate steady state is generically characterized by an under accumulation of capital it follows therefore that while agents live over a finite number of periods the conditions for the existence of locally indeterminate equilibria are very similar to those obtained within infinite horizon models and that from this point of view diamond meets ramsey

national debt savings and real interest rates in a neoclassical model with endogenous labour supply and knowledge based growth in this paper the interest rate effect of government deficit financing in neoclassical model with endogenous labour supply and knowledge based growth is examined it is shown that government deficits do not raise interest rates if consumption and leisure are good substitutes and there is a large spillover effect in knowledge creation jel classification e13 e60 h60 dette nationale epargnes et taux d interet reels dans un modele neo classique ou la croissance est fondcle sur la connaissance et l offre de travail endogmne ce memoire examine les effets sur le taux d interet du financement d un deficit gouvernemental dans un modele neo classique ou la croissance est fondee sur la connaissance et l offre de travail endogene on montre que les d6ficits gouvernementaux ne font pas croitre les taux d interet si la consommation et le loisir sont des biens substituts et qu il y a des effets extemes importants qui decoulent de la production de la connaissance

intergenerational altruism and the environment we construct an overlapping generations model of pollution externality in which individuals are altruistically linked to their offspring as in barro 1974 it is shown that steady state consumption may be a decreasing function of the intergenerational degree of altruism despite individuals altruism the competitive equilibrium is not optimal we thus study the social optimum and show that it can be decentralized

social security and demographic shocks an overlapping generations model of social security with shocks to the productivity of labor and capital and demographic shocks is studied we focus attention on stationary long run allocations an allocation is interim optimal if there does not exist another feasible allocation that improves the expected welfare of all generations computed conditionally on the state of the world when they are born we characterize the set of interim optimal allocations and study the equilibria associated with various institutional forms of social security from the point of view of this optimality criterion we obtain the analogs of the two traditional welfare theorems of microeconomic theory assume that there exists a financial asset in fixed quantity which supports some non null intergenerational transfers then the rational expectations equilibrium allocation of this economy is interim optimal conversely any stationary interim optimal allocation can be supported by such an equilibrium with adequate lump sum transfers

long term substitutability between environmental and man made goods abstract substitutability between environmental and man made goods plays a major role in the sustainability debate the notion of substitutability covers a continuous spectrum with perfect substitutability at one end and poor substitutability at the other in this paper it is shown that if economic growth sustains a sharp distinction emerges between perfect and poor substitutability without any intermediate interpretation of substitutability if poor substitutability prevails environmental resources will eventually constitute the major part of total consumption value we relate our results to baumol s disease and assess the implications of this phenomenon for the compensation of environmental losses

technological breakthroughs and development traps abstract this paper attempts to explain why countries which maintain identical economic conditions at different points in time do not necessarily enjoy a similar path of output growth thereafter the paper develops a simple model where timing is a significant element of economic growth the analysis indicates that despite the fact that the steady state equilibrium in a leading country is unique equilibrium in a country that lags behind may be path dependent a technological progress in the advanced country presents a choice of technology in the following country that affects its dynamic evolution and may trap the economy in a lower steady state equilibrium

aspirations habit formation and bequest motive we analyze how the presence of endogenous preferences affects the altruistic bequest motive from parents to children we will show that the existence of habits raises the threshold value of the intergenerational discount factor above which altruistic bequests are positive while aspiration formation could push this value down therefore the dynamic inefficiency of the economy with no altruism is not sufficient to prevent the bequest motive from being operative under aspiration formation we also discuss the implications of public debt when the bequest motive is inoperative and preferences exhibit habit and aspiration formation

the composition of government expenditure and its consequences for macroeconomic performance abstract this paper employs the intertemporal optimizing market clearing framework to compare the effects of government consumption expenditure and government infrastructure expenditure on macroeconomic adjustment and performance particular attention is focused on the time path of the capital stock and its adjustment to both permanent and temporary changes in government expenditure are considered we show how the effects of both forms of government expenditure on economic welfare can be broken down into 1 i a direct crowding out effect and 2 ii a second component which describes the intertemporal tradeoffs between the short run rate of capital accumulation and the resulting change in the capital stock

love thy children abstract this paper proves that barro s 1974 debt neutrality proposition whose relevance hinges in an economy with bequest motives on bequests being operative in the economy without public debt is not applicable to a wide class of overlapping generation economies those with a weak bequest motive in particular it is shown that the bequest motive is always too weak and public debt therefore non neutral when non physical assets have a well defined function reducing oversavings in the corresponding economy without bequest motive i e when the non altruistic economy is dynamically inefficient

global imbalances in the xix xx and the xxi centuries we establish a new stylized fact while the current account and the trade balances are positively correlated during the second globalization 1990s 2010s they were negatively correlated during the first globalization 1870s 1910s we show that the reason behind is that the world interest rate is currently low relatively to the world growth rate due to a global saving glut while this was not the case during the first globalization

the composition of public expenditure and economic growth abstract noting that the literature has focused on the link between the level of public expenditure and growth we derive conditions under which a change in the composition of expenditure leads to a higher steady state growth rate of the economy the conditions depend not just on the physical productivity of the different components of public expenditure but also on the initial shares using data from 43 developing countries over 20 years we show that an increase in the share of current expenditure has positive and statistically significant growth effects by contrast the relationship between the capital component of public expenditure and per capita growth is negative thus seemingly productive expenditures when used in excess could become unproductive these results imply that developing country governments have been misallocating public expenditures in favor of capital expenditures at the expense of current expenditures

myopic and perfect foresight in the olg model we compare the dynamics under myopic foresight and under perfect foresight in an overlapping generations model with capital accumulation and two period lived individuals when the rational dynamics are defined and the myopic dynamics are monotonic the study of myopic foresight allows to characterize the dynamics under perfect foresight the study of myopic dynamics also allows to obtain a condition of uniqueness of the steady state that bears only on the second order derivatives of the utility and production functions

dynamic externalities multiple equilibria and growth abstract i consider an olg model with production and a single commodity i show that in such an environment unbounded growth of income per capita is not possible if the aggregate technology is of the constant returns to scale type i introduce an external effect in the aggregate production function and derive conditions under which persistent growth is an equilibrium outcome the introduction of an external effect also creates poverty traps and open sets of initial conditions for which there exists an infinite multiplicity of equilibria when such a multiplicity exists equilibria with the same initial position will display different asymptotic behaviors finally i show that by introducing appropriate tax schemes a unique equilibrium path can be selected

is pension reform conducive to higher saving declining fertility mortality and productivity rates in developed countries and the popularity of the social security privatization in chile as a pathway to financial development have sparked a global interest in social security reform this paper analyzes the effect of social security on saving using a panel of countries over 25 years variation in the characteristics of social security systems is used to determine whether less reliance on a pay as you go unfunded system is associated with higher national saving there is little evidence that countries that implement defined contribution reforms have higher trends in saving rates after the reform cross sectionally countries with pay as you go systems tend to have lower saving rates and this effect increases with the coverage rate on the system

safe debt risky capital the author extends the diamond 1965 model of national debt in two directions she first introduces technological uncertainty and then she allows the stock of debt to vary the author studies the dynamical equilibria of the resulting stochastic system and she establishes conditions for the existence of stationary states that are expressed in terms of invariant distributions since conditions that ensure the existence of a stochastic stationary state with positive debt are very restrictive in this model financial instability is a pervasive phenomenon and allocations are in general dynamically inefficient copyright 1994 by the london school of economics and political science