endogenous business cycles and systematic stabilization policy we study the effects of fiscal policy rules on the determinacy of rational expectations equilibrium in a perfectly competitive monetary model with constant returns government spending implies a distortion of the monetary steady state due to the implied taxation we show that policy rules that let the gnp share of government spending depend sufficiently negatively on increases in gnp stabilize the economy with respect to endogenous fluctuations for arbitrarily little distortion of the steady state at which stabilization occurs the rules do not involve lump sum taxation negative income taxation or exact knowledge of the economy s laissez faire steady state

a portfolio approach to endogenous growth equilibrium and optimal policy abstract this paper develops a portfolio approach to modeling endogenous growth in continuous time that is especially suitable for addressing fiscal and financial issues in policy design the analysis focuses on the equilibrium relationship between fiscal and financial policy rates of return and wealth allocation we analyze two models the first is based on the arrow romer model with increasing returns and an external effect of capital on labor productivity the second draws on barro s analysis of government spending and endogenous growth in both models we study the equilibrium allocation and discuss the optimal fiscal and financial policy

can stabilisation policy reduce long run growth this paper presents an analysis of the long run implications of short term stabilisation policy the analysis is based on a simple stochastic model of an imperfectly competitive economy with nominal rigidities and an endogenous technology by virtue of the latter temporary shocks have permanent effects such that the cyclical and secular properties of output are related in particular smoother cyclical fluctuations may be associated with flatter secular trends implying a trade off between short term stabilisation and long term growth

the case against intellectual property according to a common argument the presence of strong intellectualproperty rights spurs innovation which leads to higher economic growthand increasing benefits for all the argument seems coherent theestablishment of secure property rights is a fundamental pillar of a wellfunctioning market economy no economic agent exercises productiveeffort without the certainty of controlling its fruits what is true forphysical effort must be true for the intellectual one if strong propertyrights provide good incentives for the production of potatoes they mustalso provide good incentives for the production of ideas why then do we argue a case against intellectual property are wearguing that while stealing potatoes is bad stealing ideas is good weare not economic efficiency and common sense argue that ideasshould be protected and available for sale just like any other commodity but intellectual property has come to mean not only the right to ownand sell ideas but also the right to regulate their use this creates asocially inefficient monopoly and what is commonly called intellectualproperty might be better called intellectual monopoly when you buy apotato you can eat it throw it away plant it or make it into a sculpture current law allows producers of a cds and books to take this freedomaway from you when you buy a potato you can use the idea of a potatoembodied in it to make better potatoes or to invent french fries currentlaw allows producers of computer software or medical drugs to take thisfreedom away from you it is against this distorted extension ofintellectual property rights that we argue it is a long jump from the assertion that inventors deserve the fruits oftheir efforts to the conclusion that current patent and copyrightprotection are the best way of providing such reward statements such

temporary stabilization a stochastic analysis abstract this paper develops a stochastic model of exchange rate based inflation stabilization in which agents have expectations of devaluation driven by a mixed diffusion jump process in a richer stochastic environment where a brownian motion drives the rate of devaluation and a poisson process determines the probability of devaluation we examine consumption and wealth equilibrium dynamics when a stabilization plan is implemented and contingent claims markets are unavailable we also assess the effects of exogenous shocks on consumption and welfare finally we use the proposed model to carry out a simulation experiment of the equilibrium dynamics

sectoral shocks and aggregate fluctuations abstract this paper presents a multisector dynamic general equilibrium model of business cycles with a distinctive feature aggregate fluctuations are driven by independent sectoral shocks the model hypothesizes that trade among sectors provides a strong synchronization mechanism for these shocks due to the limited but locally intense interaction that is characteristic of such input trade flows limited interaction characterized by a sparse intermediate input use matrix reduces substitution possibilities among intermediate inputs which strengthens comovement in sectoral value added and leads to a postponement of the law of large numbers in the variance of aggregate value added the chief virtue of this model is that reliance on implausible aggregate shocks is not necessary to capture the qualitative features of macroeconomic fluctuations building on horvath 1998 review of economic dynamics 1 781 808 which establishes the theoretical foundation for the relevance of limited interaction in the context of a stylized multisector model this paper specifies a more general multisector model calibrated to the us 2 digit standard industrial code economy simulations prove the model is able to match empirical reality as closely as standard one sector business cycle models without relying on aggregate shocks

production technologies in stochastic continuous time models abstract properties of dynamic stochastic general equilibrium models can be revealed by either using numerical solutions or qualitative analysis very precise and intuition building results are obtained by working with models which provide closed form solutions closed form solutions are known for a large class of models some of which however have some undesirable features such as potentially negative output this paper offers closed form solutions for models which are just as tractable but do not suffer from these shortcomings

fertility volatility and growth abstract empirically growth rates are negatively correlated with birth rates they are also correlated with production risk we argue that these stylized facts are related and arise jointly from the decision of how many children to have in a risky environment

differential taxation and the encouragement of risk taking abstract in the framework of expected utility maximization with risk aversion it is shown that the standard result about the tax encouragement of risk taking in a two asset model can be extended to the case of many risky assets there are no tax substitution effects within the set of risky assets in particular there is no substitution from less to more risky assets it is also demonstrated that the qualitative response pattern is independent of the assumed existence of a safe asset the by now common conclusion that capital income taxation encourages risk taking must therefore be interpreted with some care

quality quantity and spatial variation of price this paper develops and implements a method for estimating price elasticities of demand using cross sectional household survey data geographically clustered households report unit values which when corrected for quality effects and for measurement error indicate the underlying spatial variation in prices and can be matched to variation in demand patterns a simple model of quality choice is proposed while the correction for measurement error exploits the clustered design of such surveys data from a 1979 household survey from the ivory coast are used to estimate price elasticities for beef meat fish cereals and starches copyright 1988 by american economic association

path dependence endogenous innovation and growth the article presents a model of endogenous innovation and growth in which technological change is path dependent the historical pattern of technological development plays a central role in determining the pace of future technological change path dependence is explained using a distinction between fundamental and secondary knowledge the economy moves endogenously between periods of drastic and nondrastic innovation technological lock in is shown to be a special case of path dependence the model provides a rationale for cycles in technological leadership this rationale exists in equilibria with positive levels of fundamental research and in a world with no imitation

risk the financial market and macroeconomic equilibrium growing recognition of the importance of stock market phenomena to the real economy underscores the need for models linking exogenous uncertainty asset market performance and the rest of the economy in an optimizing framework without certainty equivalence this paper constructs a three agent model with continuous time stochastic variables uncertain private production and government expenditure and forward looking rational agents the growth rate of output physical capital accumulation financial asset returns and uncertain inflation are determined as functions of the exogenous uncertainty in the economy analysis of the model finds that increased risk associated with government policy often reverses in an explainable way the conventional comparative static predictions of nonstochastic macro models

money and endogenous growth the ramsey romer model of endogenous growth is extended to allow for holdings of real money balances and government debt as well as capital and for non interconnected generations of households tax financed increases in government consumption and debt depress growth prospects and boost inflation as long as a positive birth rate ensures that future taxes are shouldered by future yet unborn generations debt financed increases in government consumption depress growth and boost inflation even more money financed increases in government consumption depress growth less but increase inflation by more giving subsidies through an increase in monetary growth is non neutral since this increases real growth and thus inflation increases by a lesser amount than monetary growth bond financed increases in monetary growth lead to a larger increase in real growth and a smaller increase in inflation if there are cost adjustment for investment cuts in monetary growth and increases in government debt and government consumption induce an increase in the real interest rate copyright 1994 by ohio state university press

profit supply and factor demand functions comment in lau and yotopoulos 1972 a new method of estimating production relations was developed building on lau and yotopoulos 1971 this method bringing together estimates of profit and factor demand functions was further developed in yotopoulos and lau to incorporate a test of rationality their method has since been applied by yotopoulos lau and lin sidhu sidhu and baanante 1979 1981 jamison and lau and junankar 1980a b 1982 because the assumption of rationality is so fundamental to economics and because few tests of this hypothesis exist the lau yotopoulos method is very important however these studies rest on advanced economic theory and sophisticated econometrics so it is easy to be intimidated by them sophisticated estimators however are not necessarily free from er

on sustained growth under uncertainty we analyze a stochastic one sector model of economic growth and investigate the conditions under which long run growth occurs almost surely in contrast to the deterministic version of the model the utility function plays a crucial role in determining the long run behavior of output the central purpose of theories of economic growth is to understand the factors behind long run growth of economies and to explain differences in growth performances of economies in terms of fundamental endowments and choices a wide class of endogenous growth models has been specified in the last decade and they have explored a large array of possible explanatory variables for the differences in observed growth rates between countries with some notable exceptions most of these models are deterministic and therefore ignore the fundamental uncertainties which affect productivity and cause diversity between growth of nations the exceptions which include real business cycle models that examine the consequence of productivity shocks in endogenous growth frameworks use specific utility and production functions drawn from the log linear family see among others king et al 1988 king and rebelo 1988 de hek 1999 jones et al 1999 a general analysis of the phenomenon of sustained growth in economies subject to technological shocks is not yet available and the kind of conditions needed to guarantee sustained stochastic growth are not well understood in this article we address this issue in the simple framework of a stochastic one sector convex growth model when the technology is globally productive in the sense that marginal productivity of investment is bounded above one output and consumption flows can grow indefinitely i e long run growth is feasible whether such growth actually occurs depends on the intertemporal preference structure 2 in the deterministic version of this model this problem was first discussed by gale and sutherland 1968 who extended the classical optimal growth analysis to the case of such a productive technology more recently jones and manuelli 1990 have rigorously characterized the possibility of sustained long run growth in a variant of the one sector deterministic growth model see also rebelo 1991 3 the main result is that long run growth

portfolio choice with non expected utility in continuous time non expected utility preferences which can distinguish intertemporal substitution from attitudes towards risk are extended to continuous time the consumption savings and portfolio problem is solved for constant intertemporal elasticity of substitution and constant relative risk aversion

macroeconomic policies growth and welfare in a stochastic economy an integrated stochastic equilibrium growth model is constructed and directed to various questions pertaining to monetary and tax policy two main issues addressed include 1 the tradeoff between the rate of capital accumulation and inflation in a stochastic environment and 2 economic welfare and optimal policy making the key result is that policy variables impact on welfare through their effect on the after tax nominal interest rate which therefore serves as an intermediate policy target the welfare maximizing interest rate target is derived and the author discusses its attainment through appropriate monetary and tax policies tradeoffs between policy instruments are also addressed copyright 1993 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

investment with uncertain tax policy does random tax policy discourage investment we consider the impact of tax policy uncertainty on firm level and aggregate investment comparing investment behaviour when uncertainty is due to a shock following geometric brownian motion gbm versus when random discrete jumps in tax policy occur expectations of the likelihood of a tax policy switch have an important negative impact on the gain to delaying investment in the latter model and time to investment can fall with increasing tax policy uncertainty aggregate investment simulations indicate that capital formation is adversely affected by increases in uncertainty in the traditional gbm model but can be enhanced in the jump process model

on endogenous growth under uncertainty this paper incorporates uncertainty in two distinct models of endogenous growth in both models the representative agent is uncertain about the productivity of knowledge creation as represented by a probability measure over the relevant parameter the main purpose of this paper is to analyze the effects of risk or volatility in productivity of knowledge creation on the decision variables and the expected long run growth rate both the first and the second models may explain part of the observed negative link between volatility and growth

consequences of debt policy in a stochastically growing monetary economy the effects of open market operations and long versus short bond financing on risk in financial markets in a stochastically growing economy are studied an increase in short bonds resulting from exchanging long bonds increases the riskiness of long bonds and raises their real rate of return an open market purchase of either long or short bonds raises the price of long bonds and lowers their risk and real return however debt policy adjustments that affect the real return to long bonds do not affect real investment or growth so that overall the welfare consequences of debt policy are neutral copyright 1998 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

bankadviser an industrial evaluation system abstract bankadviser is a multicriteria industrial evaluation system it provides evaluations of individual items such as firms industries companies industrial clients within a set of similar ones the evaluations take into account not only the own scores of the item but also those of the other ones in the set positioning the evaluation procedure is based on financial data from the balance sheet and the income statement of each item bankadviser is particularly useful for decision makers financial analysts banks insurance companies when they have to make decisions about their industrial clients the system allows one to manage the data about the clients to analyse their economic profile to detect their strong and weak features to evaluate any risk associated with them decisions such as whether or not to provide a loan fix the loan modalities interest terms offer guarantee for foreign activities cover some deficits can easily be finalized after the bankadviser evaluation bankadviser is a visual interactive modelling system it is interactive because for each item the user has the opportunity to run through one part of the information to another because he can ask for additional information on the strong or the weak features of the profile because comparison with similar items can be given on request it is a modelling system because an intricate multicriteria situation is modelled by using the extended promethee mcdm methodology bankadviser has been implemented on a microcomputer for the sake of an effective presentation the paper has been written according to the structure of the microcomputer software it is illustrated by data of a real world application

increasing returns and increasing rates of growth romer 1986b documented that industrial economies have tended to have growth rates that increase over time having explained why the aggregate growth models of ramsey 1928 cass 1965 and koopmans 1965 fail to account for this observation romer proposed an alternative view of long run prospects for growth combining three elements externalities increasing returns in the production of output and decreasing returns in the production of new knowledge he constructed an equilibrium model of growth in his infinite horizon continuous time analysis qualitative conclusions were reached using the geometry of the phase plane no examples with an explicit dynamic solution were given the present paper provides a fully worked out example that fills this gap and that can serve as a confirmation of romer s claim that monotonically increasing growth rates for the capital stock and for consumption can arise in the framework he specified this paper also presents an example that can generate increasing growth rates without imposing some of the restrictions essential to romer s model those restrictions are not appealing on economic grounds and were added to his paper purely for technical reasons any infinite horizon model with increasing returns to scale must impose some restrictions to ensure the existence of both a social optimum and a competitive equilibrium otherwise the discounted sum of utility could go to infinity romer 1986b used a production function of the form f k k akvkw with v y 1 where k is the capital stock at the level of the firm and k is aggregate capital the

exchange rate determination and asset prices in a stochastic small open economy abstract this paper constructs a stochastic general equilibrium model of a small open economy consisting of risk averse optimizing agents the stochastic processes describing the rate of monetary growth government expenditure private production and the foreign price level are taken to be exogenous determining all asset risks and returns and the equilibrium stochastic process describing the domestic inflation rate and the exchange rate the model is used to examine the effects of the means and variances of policy shocks on the equilibrium and the determinants of the foreign exchange risk premium

multiple criteria decision making combined with finance a categorized bibliographic study abstract this paper provides a categorized bibliography on the application of the techniques of multiple criteria decision making mcdm to problems and issues in finance a total of 265 references have been compiled and classified according to the methodological approaches of goal programming multiple objective programming the analytic hierarchy process etc and to the application areas of capital budgeting working capital management portfolio analysis etc the bibliography provides an overview of the literature on mcdm combined with finance shows how contributions to the area have come from all over the world facilitates access to the entirety of this heretofore fragmented literature and underscores the often multiple criterion nature of many problems in finance

on the fluctuations in consumption and market returns in the presence of labor and human capital an equilibrium analysis abstract we examine the effects of human capital on consumption stock market and other fluctuations in a general equilibrium continuous time model a representative consumer worker investor derives utility from consumption and leisure a representative firm demands labor as the sole input to a stochastic production technology driven by general possibly nonmultiplicative shocks for cobb douglas utility and multiplicative shocks labor is nonstochastic and consumption and stock market volatility are equated as under no human capital deviations from this are analyzed for logarithmic utility and constant elasticity of substitution production technology cases are identified where the presence of labor causes consumption to be smoother than the stock market

alternative government financing and stochastic endogenous growth abstract this paper addresses a stochastic endogenous model in which the stock of securities both money and bonds are required to finance the government budget we study how the expected rate of real growth the expected inflation rate and economic welfare are influenced by changes in the first and second moments of public spending the analyses will enable us to assess the merits and demerits of mixed financing case of money and bonds relative to financing one of taxes on wealth examined in grinols and turnovsky j econom dyn control 17 1993 1 and turnovsky int econom rev 34 1993 953 in addition we construct a model where government relies on a larger ratio of bonds to money to raise the necessary revenue and show how the consequences of mixed financing are affected by the policy decision of government

constant increasing and decreasing risk aversion with many commodities the arrow 1971 pratt 1964 theory of risk aversion has achieved important successes in the study of economic responses to risk this theory applies to a special class of cases in which the von neumann morgenstern expected utility hypothesis is used to explain these responses under this hypothesis individuals who maximize the expected utility of different utility functions will in general make different choices in the face of uncertainty for the purpose of predicting which of two different utility functions will lead to locally more risk averse economic behaviour the essential feature of these functions is their associated arrow pratt absolute risk aversion measures in fact the local comparisons can be extended to global comparisons if the arrow pratt absolute measures are uniformly comparable the arrow pratt measure of absolute risk aversion and a closely related measure of relative risk aversion also play crucial roles in the investigation of changes induced by wealth increases in the risk taking behaviour of a single expected utility maximizing individual this study has resulted in a satisfactory theory of increasing decreasing and constant absolute and relative risk aversion the special cases to which the arrow pratt theory is directly applicable are those in which the utility functions in question are functions of a single variable e g wealth unfortunately the models required to explain many economic decisions employ a version of the expected utility hypothesis in which the argument of the utility function is a multidimensional vector one example arises in the study of the consumption savings decision another occurs in the analysis of the combined consumption savings portfolio decision a final example is obtained in the investigation of demand for goods of uncertain quality the papers of kihlstrom mirman 1974 and diamond stiglitz 1974 have suggested a partial generalization of the arrow pratt theory of absolute risk aversion this

the speed of convergence and alternative government financing abstract in this paper we are concerned with the speed of convergence in the sidrauski monetary optimizing model sidrauski am econ rev 57 1967 534 in which the steady state capital stock is not influenced by a change in public spending the paper studies how different the speed of convergence to the steady state is affected by a change in government spending under the various ways of financing in exploring the transitional adjustment to the public policy shock it will be convenient to focus upon the degree of relative risk averse

productivity growth and the structure of the business cycle abstract over the recent years opportunity cost oc models of growth have argued that recessions are times when firms engage in productivity improving activities because of intertemporal substitu tion this paper tests whether this approach is correct the technique used to disentangle the trend from the cycle is semi structural vector autoregression the results are mildly supportive of the oc theory there tends to be a negative impact of demand shocks on productivity both in the short run and in the long run and the short run impact is stronger in those countries where fluctuations are more transitory however there is no significant response of r d to demand shocks

evaluation of credit risk based on firm performance abstract this paper investigates whether productive inefficiency measured as the distance from the industry s best practice frontier is an important ex ante predictor of business failure we use samples of french textiles wood and paper products computers and r d companies to obtain efficiency estimates for individual firms in each industry these efficiency measures are derived from a directional technology distance function constructed empirically using non parametric data envelopment analysis dea methods estimating binary and ordered logit regression models we find that productive efficiency has significant explanatory power in predicting the likelihood of default over and above the effect of standard financial indicators

capital income taxation and risk taking in a small open economy abstract how do capital income taxes affect household portfolio choice and growth we approach this question within the context of a stochastic model of a small open economy in which taxes on income from domestic capital equity and foreign bonds affect household portfolio choice welfare and the growth rate of the economy the theoretical and numerical analysis demonstrates the important role that risk plays in determining the mean and variability of growth as well as the conditions under which a higher tax rate can be welfare improving to shed more light on the complex theoretical interaction between taxes and risk taking we estimate a reduced form multinomial probit model of household portfolio choice using the method of simulated moments the empirical evidence is in stark contrast to the conventional wisdom we find that higher taxes make it less likely that the household will hold risky assets

implementation cycles investment and growth we develop a model of intrinsic cycles driven by the decentralized behavior of entrepreneurs and firms making continuous divisible improvements in their productivity we show that when the introduction of productivity improvements is endogenous implementation cycles arise even in the presence of reversible investment and consumption smoothing the implied cyclical equilibrium is unique within its class and shares several features in common with actual business cycles in particular its predictions are qualitatively consistent with the joint behavior of the investment rate and tobin s q during u s recessions

fiscal policy inflation and the accumulation of risky capital the effect of government policies on the level of investment and inflation has become a major concern of policy makers in a number of industrial countries proposals to raise the level of business investment have included overall tax cuts tax incentives to spur investment and a reduction in the level of government spending this paper presents a theoretical apparatus to explore the relationships between fiscal policy government debt inflation and capital accumulation it develops a one sector growth model embodying a stochastic production function and government fiscal policy atomistic agents in the economy choose consumption levels and allocate their wealth between risky capital and risky government debt to maximize expected discounted utility over an infinite horizon fiscal policy by affecting asset yields affects the composition of portfolios the price of government bonds and the accumulation of capital the model is used to answer three general questions 1 does the level of government expenditure affect the rate of capital accumulation and inflation in steady state 2 does the mode of government finance when the choice is between an income tax and deficit finance affect these magnitudes 3 what is the effect of uncertainty in the productivity of capital on growth the analysis relates to several areas of literature 1 the analysis of the relationship between capital accumulation and debt 2 the theory of the demand for government debt 3 considerations of the effect of income taxation on risk bearing and 4 the analysis of capital accumulation under uncertainty 1 the effects on output and the capital stock of the government s expenditure decision and its decision to finance its expenditure by taxation or debt issue are explored in two major bodies of economic theory the literature on the burden of the debt as developed by modigliani 1961 diamond 1965 and phelps and shell 1969 for example implies that policies which increase the value of outstanding government debt will tend to lower the level of the capital stock by displacing capital with public debt in private wealth the theory of money and growth as represented by tobin 1965 and sidrauski 1967b also implies that government debt displaces capital but specifically recognizes the role of capital gains on government debt

optimal government finance policy and exchange rate management in a stochastically growing open economy abstract optimal monetary policy is analyzed in a stochastic small open economy consisting of risk averse representative agents the analysis shows how optimal monetary policy should be directed toward an optimal interest rate target this target which maximizes the intertemporal utility of the representative agent is determined by balancing off the marginal gains of a higher interest rate on increased growth and the future consumption it generates against the marginal losses stemming from a reduction in the holdings of real money balances the paper shows how an appropriately set monetary growth rate eliminates the need for continuous intervention in the exchange market

quality measurement errors and profit function estimation abstract a producer demand profit function estimator is developed which uses the structure of clustered samples to estimate the importance of variations in factor quality and errors in measurement of the wage and to correct for biases caused by these factors

growing through cycles the neoclassical growth model focuses on factor accumulation as an engine of growth while the neo schumpetarian growth model stresses innovation this paper argues that these two views of growth may capture different phases of a single growth experience in the model presented below the balanced growth path is unstable and the economy achieves sustainable growth through cycles under an empirically plausible condition perpetually moving back and forth between two phases one phase is characterized by higher output growth higher investment no innovation and a competitive market structure the other phase is characterized by lower output growth lower investment high innovation and a more monopolistic market structure both investment and innovation are essential in sustaining growth indefinitely and yet they move in an asynchronized way only one of them appears to play a dominant role in each phase the economy grows faster along the cycles than along the unstable balanced growth path

rejuveniles and growth abstract rejuveniles are people who cultivate tastes and mind sets traditionally associated with those younger than themselves noxon c 2006 rejuvenile crown publishers in this paper we study a standard ak growth model of overlapping generations populated by rejuveniles for our purposes rejuveniles are old agents who derive utility from keeping up their consumption with that of the current young we find that such cross generational keeping up is capable of generating interesting equilibrium growth dynamics including growth cycles no such growth dynamics is possible either in the baseline model one where no such generational consumption externality exists or for almost any other form of keeping up steady state growth in a world with rejuveniles may be higher than that obtained in the baseline model

volatility and growth credit constraints and the composition of investment abstract how does uncertainty and credit constraints affect the cyclical composition of investment and thereby volatility and growth this paper addresses this question within a model where firms engage in two types of investment a short term one and a long term one which contributes more to productivity growth because it takes longer to complete long term investment has a relatively less cyclical return but it also has a higher liquidity risk the first effect ensures that the share of long term investment to total investment is countercyclical when financial markets are perfect the second implies that this share may turn procyclical when firms face tight credit constraints a novel propagation mechanism thus emerges through its effect on the cyclical composition of investment tighter credit can lead to both higher volatility and lower mean growth evidence from a panel of countries provides support for the model s key predictions

hedging in incomplete markets with hara utility in the context of merton s original problem of optimal consumption and portfolio choice in continuous time this paper solves an extension in which the investor is endowed with a stochastic income that cannot be replicated by trading the available securities the problem is treated by demonstrating using analytic and in particular viscosity solutions techniques that the value function of the stochastic control problem is a smooth solution of the associated hamilton jacobi bellman hjb equation the optimal policy is shown to exist and given in a feedback form from the optimality conditions in the hjb equation at zero wealth a fixed fraction of income is consumed for large wealth the original merton policy is approached we also give a sufficient condition for wealth under the optimal policy to remain strictly positive

taxation risk taking and growth a continuous time stochastic general equilibrium analysis with labor leisure choice abstract this paper investigates the equilibrium relationship between taxation portfolio choice risk taking and capital accumulation specifically it examines how taxes affect risk taking and capital accumulation we extend the existing literature by relaxing two crucial assumptions in modelling risk taking behavior i that the investment opportunity set is fixed and ii that there is no distinction between attitudes towards risk and behavior towards intertemporal substitution we extend the investment opportunity set of individuals through optimally determined human capital and distinguish intertemporal substitution from attitudes towards risk via a recursive utility function in the presence of these extensions the paper successfully derives a closed form solution to the stochastic growth model with stochastic wage income

r d expenditure in g7 countries and the implications for endogenous fluctuations and growth abstract the literature on endogenous growth cycles predicts countercyclical r d expenditure aggregate r d expenditure in g7 countries from 1973 to 2000 tends to be procyclical implications for future theoretical research are discussed

is schumpeterian creative destruction a plausible source of endogenous real business cycle shocks abstract this paper examines the link between growth and business cycles by incorporating schumpeterian growth into an otherwise standard real business cycle rbc model we ask whether schumpeter s creative destruction process can generate realistic business cycles we solve the model generate artificial time series and compare statistical properties of these series with their historical counterparts in our approach the trend component is included in our artificial series just as it is in the data hence we are not tied to any particular filtering method for our comparisons we find that schumpeterian fluctuations alone can generate time series that match key moments from u s data we also find however that a model with both schumpeterian and standard rbc shocks performs better

growing through cycles in an infinitely lived agent economy abstract this paper extends the analysis of k matsuyama econometrica67 1999 335 347 to the case of an infinitely lived representative agent economy the economy grows endogenously through endogenous fluctuations perpetually moving back and forth between two phases in one phase there is no innovation the market structure is competitive and the economy grows solely by capital accumulation in the other phase new goods are introduced and the market structure is monopolistic in the long run both investment and innovation grow at the same rate but the economy alternates between the periods of high investment and the periods of higher innovation journal of economic literature classification numbers e32 o11

control of corruption international investment and economic growth evidence from panel data abstract in this paper we study the effects of corruption using an open economy version of the endogenous growth model with international capital mobility in particular the model predicts that corruption negatively affects the stock of international investment in the host country in addition the model predicts that growth should be impaired by the uncertainty caused by corruption bribes unlike taxes involve unpredictable distortion in the discretionary and uncertain use of the government power this results in additional costs to businesses and alongside with resources allocated to unproductive activities impose an extra burden on the economy we test empirically the predictions of the theory using a sample of 142 countries for the period 1994 2014 and gmm methods using indicators of control of corruption from the world bank the lack of corruption is found to have a positive and statistically significant effect on the growth rate of real per capital gdp and increased the investment ratio hence the empirical results suggest that corruption directly hinders economic growth by hampering investment the estimated effects are robust to changes in specifications and estimation methods thus it can be concluded that richer countries with better access to international financing should be growing faster and be less prone to the adverse effects of corruption than the emerging economies

divergence in economic performance transitional dynamics with multiple equilibria abstract special pairs of the utility functions and the production functions are used in this paper to uncover the transitional dynamics in a lucas model of growth the main findings are as follows a continuum of equilibria exists if the external effect of human capital in goods production is sufficiently large the process of lagging behind catching up with and overtaking that we often observe in the world economy can be explained finally some equilibrium paths are shown to have such complicated patterns that the dynamics conjectured by lucas are too simple to be correct journal of economic literature classification numbers o41 c61

optimal timing of technology adoption abstract in a dynamic programming framework this paper investigates the optimal timing of technology adoption by a competitive firm when technology choice is irreversible and the firm faces a stochastic innovation process with uncertainties about both the speed of the arrival and the degree of improvement of new technologies a numerical example illustrates how the optimal timing decision is affected by changes in parameter values reflecting market conditions the firm s initial technological attributes and the characteristics of the stochastic innovation process some of these effects turn out to be in sharp contrast to common intuition contrasting the optimal decision rule derived here with the rule obtained under the net present value shows that the former implies a slower pace of adoption than implied by the latter the optimal decision rule is generalized for the case of multiple technology switches and it is shown that for all the switching decisions except the last one the optimal rule satisfies the net present value criterion

feasibility and transversality conditions for models of portfolio choice with non expected utility in continuous time abstract this note explores the feasibility and transversality conditions for the continuous time consumption portfolio problem with generalized isoelastic gie preferences unlike the case of time separable preferences the transversality condition usually is neither necessary nor sufficient for the feasibility condition to be satisfied furthermore ordinally equivalent representations of gie preferences produce different transversality conditions

infrastructure alternative government finance and stochastic endogenous growth abstract this paper constructs a stochastic version of an endogenously growing economy with a public good that raises the productivity of private capital we explore how growth and welfare are influenced by changes in the mean and variance of productive public spending under two alternative financing methods mixed money bond financing and wealth tax financing in addition to evaluate the differences between money financing and bond financing we consider mixed money bond financing under which a larger ratio of bonds to money is utilized to finance a given increase in public spending

long run implications of investment specific technological change an attempt is made to disentangle its effects from the more traditional hicksneutral form of technological progress the balanced growth path for the model is characterized and calibrated to u s national income and product account nipa data the quantitative analysis suggests that investment specific technological change accounts for the major part of growth jel e13 030 041 047

endogenous growth cycles current explanations why a growing economy necessarily goes through periods of high and low growth predict countercyclical r d investment as this is very controversial from an empirical perspective a stochastic poisson model of endogenous growth cycles is presented where the determinants of the cyclical behaviour of r d investment are analytically studied providing an explicit expression for the expected length of a cycle shows that high frequency fluctuations can indeed be understood by this approach it is also shown how small technological improvements translate into large aggregate fluctuations

growth cycles and market crashes abstract market booms are often followed by dramatic falls to explain this requires an asymmetry in the underlying shocks a straightforward model of technological progress generates asymmetries that are also the source of growth cycles assuming a representative consumer we show that the stock market generally rises punctuated by occasional dramatic falls with high risk aversion bad news causes dramatic increases in prices bad news does not correspond to a contraction of existing production possibilities but to a slowdown in its expansion this economy provides a model of endogenous growth cycles in which recoveries and recessions are dictated by the adoption of innovations journal of economic literature classification numbers o40 g12 o41 o30

the economic determinants of technology shocks in a real business cycle model abstract creative destruction due to new technologies causes both long run growth and short run business fluctuations new technologies push the economy on a higher productivity level but also imply partial obsolescence of old production units obsolescence induces an adjustment period during which growth rates gradually fall at some endogenously determined point research for the next technology starts once the new technology is discovered a technology shock occurs and the next cycle starts this is shown in a continuous time rbc model with risk averse agents where savings can be used for financing deterministic capital accumulation and stochastic r d for new technologies

volatility and slow technology diffusion abstract i study the effects of uncertainty on technology adoption and thereby on volatility and growth i present an analytically tractable model in which i uncertainty about the returns to adoption delays technology diffusion and ii the mean and volatility of output growth are jointly determined in equilibrium i then test the key predictions of the model by studying the introduction of three major information and communication technologies icts computers internet and cell phones i find that countries with more volatile growth rates of real gdp per capita have higher time adoption lags and lower average growth as predicted by the model

adjustment costs and investment in a stochastic endogenous growth model abstract this paper introduces costly investment into a stochastic equilibrium macro model investment is determined by an endogenously determined tobin q that depends upon the structural parameters of the economy the model permits a sequence of economies allowing for an increasing role of government to be studied the effects of both a structural change taking the form of a higher variance of productivity shocks and fiscal policy on the equilibrium is analyzed paying particular attention to the impact on the growth rate and its variability the role of the tobin q in determining the response of the mean growth rate and its variance is emphasized

explaining output volatility the case of taxation this paper presents strong empirical evidence that the observed heterogeneity of output volatility across countries and over time is partly endogenous in particular based on a closed form solution we obtain a long run equilibrium relationship between taxes and output volatility in the stochastic neoclassical growth model by showing that asymptotically the variance of output growth rates is affected by the level of taxes without affecting the mean we estimate the tax semi elasticities on output volatility and provide convincing empirical evidence that taxes are important to understand differences in output volatility among oecd countries

alternative government financing and aggregate fluctuations driven by self fulfilling expectations abstract using woodford s finance constrained model woodford m 1986 stationary sunspot equilibria in a finance constrained economy journal of economic theory 40 128 137 with external effects in production as in barinci and cheron 2001 sunspots and business cycle in a finance constrained economy journal of economic theory 97 30 49 this paper investigates the effects of alternative government financing methods on the range of values of increasing returns leading to an indeterminate steady state it will be shown that indeterminacy may easily arise at a wide range of values of increasing returns if constant government expenditure is financed through labor income taxes and with difficulty if constant government expenditure is financed by taxes on capital in addition we explore how the consequences of endogenous income taxes are changed if tax rates on labor and capital income are kept constant and government expenditure is endogenously adjusted to satisfy the budget constraint

animal spirits through creative destruction we show how a schumpeterian process of creative destruction can induce rational herd behavior by entrepreneurs across diverse sectors as if fueled by animal spirits consequently a multisector economy in which productivity improvements are made by independent profit seeking entrepreneurs exhibits regular booms slowdowns and downturns as part of the long run growth process our cyclical equilibrium has higher average growth but lower welfare than the corresponding acyclical one we show how a negative relationship can emerge between volatility and growth across cycling economies and assess the extent to which our model matches several features of actual business cycles

analysis of a two sector model of endogenous growth with capital income taxation this paper addresses a two sector model of endogenous growth in which one sector produces final goods and the other produces new human capital both sectors employ human as well as physical capital under constant returns to scale technologies unlike existing studies of this type of model that have mostly concentrated on steady state analysis or on numerical simulations of calibrated models this paper presents an analytical argument concerning the dynamic behavior of the growth path and the effects of capital income taxation in and out of the steady growth equilibrium it is demonstrated that the dynamic behavior of the economy and some policy effects depend heavily upon the magnitude of factor intensity used in each production sector copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

the accumulation of wealth and the cyclical generation of new technologies a search theoretic approach in this paper sustained technological progress results from the feedback between technical change and the accumulation of wealth the production technology is affected by a productivity factor which ensues from research and development the research and development process is described as a sequential search problem in which optimal decisions depend on current levels of wealth and technology the resulting growth path displays invention cycles a discovery of a significant technological improvement at the end of a search phase is followed by periods of growth without search eventually sufficient wealth is accumulated research and development resumes and a new cycle begins copyright 1996 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association