stationary equilibrium transition rules for an overlapping generations model with uncertainty abstract an overlapping generations model incorporating random production shocks is studied households have finite life spans futures markets are incomplete agents have full information in one case and receive only a limited signal in another in both instances the existence of a time autonomous transition rule is proved such that if all agents forecast using it the economy s actual growth will bear the predictions out the rule corresponds to a steady state for a non stochastic model with limited information it is seen to depend on all past signals several approximation theorems which may facilitate future applications are presented

taxes housing and capital accumulation in a two sector growing economy abstract it is sometimes argued that the favorable tax treatment afforded to housing may lead to an oversupply of housing at the expense of capital this issue is examined in the context of a growing two sector economy in the basic model where the rate of time preference is constant and labor is instantaneously sectorally mobile the long run response of the capital stock to a tax on housing depends upon the relative capital intensities of the two sectors while the long run relative asset price of housing remains unchanged the robustness of these propositions to changes in the model are considered taxes on capital are also analyzed

testing the long run implications of the neoclassical growth model abstract the long run implications of the one factor neoclassical growth model are tested by investigating the cointegrating relations between the log of output consumption and investment and the real interest rate with the exceptions of austria and the united kingdom the evidence for the united states and to a lesser extent for canada japan and the federal republic of germany is favorable to the neoclassical growth model a simple extension to a multicountry setting proved however to be unsuccessful national outputs nor consumption series are driven by just one common stochastic trend

on the impact of shock persistence on the dynamics of a recursive economy abstract the present note relies exclusively on numerical computation of a parametric version of a stochastic version of the one sector neoclassical growth model to derive the qualitative properties of the optimal consumption investment policy functions and of the resultant steady state and to study the manner in which these properties are affected by an increase in the degree of shock persistence in particular we measure the effects of differing degrees of shock persistence on the means and variances of the resulting stationary distributions on output consumption and capital stock furthermore we explore the effects of increasing degrees of shock persistence on the dynamic time path of the economy

aggregate investment in a business cycle model with adjustment costs abstract this paper explains the observed cyclical variability of aggregate investment and the counter movements with respect to its relative price in the us data using a stochastic growth model with adjustment costs the exogenous disturbances of the model represent preference shocks productivity innovations and changes on the relative price between consumption and investment goods simulations of the model imply that the volatility of those relative price innovations need to be three to four times larger than the standard solow residual innovations in order to match the model with the data

capital labor substitution and competitive nonlinear endogenous business cycles abstract we develop simple geometrical methods to study local indeterminacy bifurcations and stochastic sunspot equilibria near a steady state in nonlinear two dimensional economic models we present in particular a simple constructive geometrical characterization of the support of stochastic sunspot equilibria not only arbitrarily near a steady state but also along local bifurcations these methods are applied to a simple aggregative model to study in particular the influence of capital labor substitution and of the aggregate labor supply wage elasticity on the occurrence of competitive endogenous deterministic or stochastic fluctuations journal of economic literature classification numbers e32 c62

business cycles with free entry ruled by animal spirits abstract we approach business cycles on the basis of extrinsic uncertainty related to static indeterminacy of free entry oligopolistic equilibria firms producing under increasing returns to scale compete in prices in contestable markets the number of active firms varies across sectoral equilibria which depend upon correct producers conjectures on competitors actions coordination of these conjectures by some markov chain generates endogenous shocks in markups and productivity consumers expectations may in addition magnify this extrinsic uncertainty as the source of fluctuations does not rely on dynamic indeterminacy the required degree of increasing returns may be arbitrarily small provided goods substitutability within each sector becomes arbitrarily large

a note on dynamic tax incidence under certain reasonable conditions for a growth model the path of adjustment between steady states generated by a change in an exogenous policy variable is solved for explicitly the overall welfare effect is then shown to be a weighted average of the short and long run effects for a large class of social welfare functions these results are applied to a simple neoclassical growth model for the purpose of investigating the dynamic incidence of a labor income tax contrary to the claims of previous investigators the long run effect is shown to be more important for a wide range of parameter values

market distortions and local indeterminacy a general approach we provide a methodology to study the role of market distortions on the emergence of indeterminacy and bifurcations it consists in introducing general specifications for the elasticities of the crucial functions defining the aggregate equilibrium dynamics of the model this allows us to study how market distortions influence the range of values for the elasticity of input substitution under which local indeterminacy and bifurcations occur highlighting the main channels and classes of distortions responsible for indeterminacy most of the specific market imperfections considered in the related literature are particular cases of our framework comparing them we obtain several equivalence results in terms of local dynamic properties applying this methodology to the woodford 30 framework we find that distortions in the capital market per se do not play a major role we further show that for empirically plausible values of elasticity of substitution between inputs indeterminacy requires a minimal degree of distortions this degree seems to be high under output market distortions while with labor market distortions the required degree is empirically plausible

stochastic growth with correlated production shocks this paper extends the stochastic growth model of brock and mirman j econ theory 4 1972 497 513 to allow the production shocks to be correlated over time the resultant optimal savings and consumption policies depend not only upon the current level of output but also upon the most recent realization of the random shock the properties of these policy functions are studied and it is shown that the markov process on output capital stock and consumption resulting from the application of these policies converges to a stationary distribution

output input and productivity measurement in u s agriculture 1948 79 tornqvist theil indexes of outputs and inputs are constructed these data are used to construct indexes of productivity growth over the postwar period the productivity indexes can be derived from a flexible multioutput multifactor representation of the structure of production constrained to constant returns to scale total factor productivity grew at an average annual rate of 1 75 compared with 1 70 per year estimated by the u s department of agriculture the similar estimates of productivity growth overshadow some important differences in measurement of individual inputs the major effort in measuring agricultural productivity is undertaken by the u s department of agriculture usda an american agricultural economics association task force on measuring productivity has examined the sources and procedures used in constructing the official statistics see loomis and barton lambert barton and durost the task force recommended that the usda adopt a series of specific improvements for constructing certain inputs and use an indexing procedure that does not impose a priori restrictions on the structure of production 1 this paper presents revised indexes of outputs and inputs the data are used to construct indexes of productivity growth over the postwar period the productivity indexes can be derived from a flexible multioutput multifactor representation of the structure of production the translog transformation function constrained to constant returns to scale 2 the indexes of outputs and inputs have the same form and their ratio coincides with the estimate of productivity growth

unfunded liabilities and uncertain fiscal financing we develop a rational expectations framework to study the consequences of alternative means to resolve the unfunded liabilities problem the projected exponential growth in federal social security medicare and medicaid spending with no known plan for financing the transfers resolution requires specifying a probability distribution for how and when monetary and fiscal policies will change as the economy evolves through the 21st century beliefs based on that distribution determine the existence of and the nature of equilibrium we consider policies that in expectation combine reaching a fiscal limit some distorting taxation modest inflation and some reneging on the government s promised transfers in the equilibrium inflation targeting monetary policy and debt targeting tax policy cannot anchor expectations on those target variables expectational effects are always present but need not have large impacts on inflation and interest rates in the short and medium runs in the economy s stationary distribution the capital stock may grow or shrink and substantial probability falls on little or no reneging

term premia in a simple term structure model abstract the present paper is an extension of stiglitz s 1970 analysis we use variations of his original model in an attempt to relate his contribution to the more recent literature our main purpose is to determine the nature of the term premium implied by various forms of the utility maximization hypothesis our focus is primarily on what cox ingersoll and ross cir 1981 call the returns to maturity expectation hypothesis although we also investigate the local expectation hypothesis which is the central focus of the analysis in cir 1981 we study the conditions under which this hypothesis holds and when it does not hold we attempt to determine the direction of the resulting inequality we are able to obtain results for the case in which the demand for long bonds is positive and to compare these results to others obtained when long bond demand is zero the case studied in the recent literature

business cycles with distorting taxes and disaggregated capital markets abstract this paper studies a neoclassical growth model to examine the linkages between distorting corporate and personal taxes and cyclical movements of aggregates such as investments in equipment and structures suppose tax variables vary stochastically and annually we solve quarterly individual and aggregate decision rules by recursive methods and quantify the dynamic impacts on aggregates from unit changes in tax structures and individual and joint tax specifications the findings suggest that corporate income tax is the major factor leading to substantial tax effects on business cycles moreover the impact of investment tax credit for equipment on disaggregated investments is equally significant

multiple steady states and endogenous fluctuations with increasing returns to scale in production abstract the purpose of this paper is to study the influence of the elasticity of capital labor substitution and of the labor supply elasticity on the existence of multiple pareto ranked stationary equilibria local indeterminacy bifurcations and expectations driven fluctuations in economies with external and internal increasing returns to scale in production this is done through general geometrical methods that do not depend upon particular specifications for preferences and technology for the sake of concreteness the analysis focuses on the model with heterogeneous agents and financial constraints presented in woodford j econ theory 40 1986 128 137 and extended by grandmont pintus and de vilder capital labor substitution and competitive nonlinear endogenous business cycles crest working paper 9728 1997 to account for capital labor substitution increasing returns to scale are incorporated in two different market structures an economy with aggregate production externalities and perfectly competitive markets an economy with increasing returns internal to the firm and imperfect competition in the product s market s only journal of economic literature classification numbers c61 e32

on some computational aspects of equilibrium business cycle theory abstract this paper evaluates the accuracy of quadratic approximate methods in the context of a simple real business cycle model the level of accuracy is found to be very high on the face of the results reported here we are confident that the different computation methods proposed to date in this literature can be employed interchangeably

a note on the effects of capital income taxation on the dynamics of a competitive economy abstract in this paper we investigate the effect of changing capital income tax rates on the time paths of a competitive economy in an uncertain environment

nobel lecture the transformation of macroeconomic policy and research what i am going to describe for you is a revolution in macroeconomics a transformation in methodology that has reshaped how we conduct our science prior to the transformation macroeconomics was largely separate from the rest of economics indeed some considered the study of macroeconomics fundamentally different and thought there was no hope of integrating macroeconomics with the rest of economics that is with neoclassical economics others held the view that neoclassical foundations for the empirically determined macro relations would in time be developed neither view proved correct finn kydland and i have been lucky to be a part of this revolution and my address will focus heavily on our role in advancing this transformation now all stories about transformation have three essential parts the time prior to the key change the transformative era and the new period that has been affected by the change and that is the story i am going to tell how macroeconomic policy and research changed as a result of the transformation of macroeconomics from constructing a system of equations of the national accounts to an investigation of dynamic stochastic model economies

investment stability and taxation in a long run macroeconomic model abstract this paper investigates for a one sector model in which the consumer investor s preferences are randomly changing the relationship between an economy s size and variability it is observed that means and variances of the stationary probability distributions on capital stock and output move together for given parameter changes unless some specific form of government intervention is introduced

bifurcation analysis of zellner s marshallian macroeconomic model the marshallian macroeconomic model in zellner and israilevich 2005 provides a novel way to examine sectoral dynamics through the introduction of a dynamic entry exit equation in addition to the usual demand and supply functions found in models of this class in this paper we examine the possibility of cyclical behavior in the marshallian macroeconomic model and investigate the existence of a hopf bifurcation with respect to the parameter in the entry exit equation

supply and demand functions for multiproduct u s cash grain farms biases caused by research and other policies this study presents new estimates of supply and demand elasticities for u s multiproduct cash grain farms and estimates of input and output bias effects caused by public and private crop research extension and farmers schooling the study also shows that the social rate of return to public crop research is large about 62 percent

a model of capital structure when earnings are mean reverting a multiperiod model of optimal capital structure is developed under the assumption that earnings follow an autoregressive process firm value and leverage vary through time and at each date the firm achieves an optimal debt level that is a function of the full state contingent debt policy the reversion parameter of the earnings series is shown to be positively related to various measures of variability and negatively related to leverage if earnings processes are not homogeneous across firms then standard earnings risk measures in capital structure studies do not adequately represent crosssectional differences in variability in firm value

stochastic optimal policies when the discount rate vanishes abstract dutta 1991 what do discounted optima converge to a theory of discount rate asymptotics in economic models journal of economic theory 55 64 94 showed that long run optimality of the limit of discounted optima when the discount rate vanishes is implied by a certain bound on the value function of the optimal program we introduce a new method to verify this bound using coupling techniques

how great are the great ratios the balanced growth and neoclassical stochastic growth literatures imply stationarity of certain macroeconomic great ratios four such ratios are considered consumption output investment output the real interest rate and real money supply growth and evidence for ratio stationarity in the g7 countries is examined univariate unit root and stationarity tests are performed and analysis of the cointegrating relations between output consumption and investment is conducted almost no evidence of stationarity is found for the consumption output and investment output great ratios empirical evidence supports real money supply growth stationarity but is more mixed for the real interest rate

a local analysis of stability and regularity of stationary states in discrete symmetric optimal capital accumulation models abstract in discrete time optimal capital accumulation models where the period utilities have a certain symmetry property a complete characterization of local stability of stationary states is obtained in terms of the characteristic roots of the product of certain submatrices of the hessian of the utility function this is used to analyze the connection between stability and properties of the effects of parameter changes on the stationary state certain differences in the results in discrete and continuous models are noted a special case where utilities are separable in initial stocks and net investment is also treated

on the superneutrality of money in a stochastic dynamic macroeconomic model abstract this paper explores the robustness of the superneutrality of money result to the introduction of uncertainty while qualitatively superneutrality fails to obtain in our model quantitatively the observed tobin effect is insignificant the equilibrium time paths of real variables are nearly unaffected by changes in the money growth rule we argue that our conclusions reinforce the theoretical case for superneutrality

comparative dynamics in aggregate models of optimal capital accumulation the hypothesis that capital increases at each time in response to an increase in the discount factor is explored for a class of aggregate models of optimal accumulation when the optimal program is monotonic capital is shown to increase with an increase in the discount factor a counterexample in the case of oscillating programs is discussed an application of the monotone case is given for an adjustment cost model of the firm

learning about investment risk the effects of structural uncertainty on dynamic investment and consumption abstract we analyze a general equilibrium model where production shocks are unobservable and there is structural uncertainty regarding investment risk because the volatility of the production shocks is unknown higher investment generally accelerates learning on the unknown parameter but the dynamic interaction between learning and investment is complex we quantify this interaction by numerically computing equilibrium investment and consumption in a version of the model calibrated by aggregate us data we find that imperfect observability of productivity shocks by itself does not significantly affect equilibrium investment and consumption but structural uncertainty significantly impacts equilibrium investment and consumption levels

testing for market power using a dynamic oligopoly model abstract we propose a dynamic reformulation of the oligopoly model of bresnahan 1982 and lau 1982 in an error correcting framework this reformulation addresses both statistical problems generated by short run dynamics in the data and incorporates important dynamic factors such as habit formation from the demand side and adjustment costs for the producer we also propose a test for separability of the variables involved in the identification of the market power parameter to illustrate the model the french market for fresh salmon is analysed the results suggest the salmon market to be competitive in the long run but indicate that the largest producer norway has some market power in the short run

interpreting a stochastic monetary growth model as a modified social planner s problem abstract using a stochastic cash in advance growth model similar to that studied by cooley and hansen 1989 it is demonstrated that the competitive monetary equilibrium can be expressed as the solution to a modified social planner s problem hence by employing standard dynamic optimization techniques and the second welfare theorem to the modified social planner s problem the equilibrium of the monetary economy can be studied

solving the phosphorus pollution puzzle synthesis and directions for future research despite the success of efforts to reduce phosphorus p pollution from point sources p from non point agricultural sources remains a vexing problem with many u s water bodies having impairments key to solving the p pollution puzzle is to take stock of progress to date the puzzle pieces available and the gaps to be filled in this paper we synthesize the state of knowledge on p pollution discuss the state of existing public programs and review economists contributions to informing p pollution policies we review the water quality valuation literature identifying limitations in the linkages to policy relevant environmental quality metrics we examine how and why p is used agriculturally along with recent advances in market based policy design and field testing we survey new knowledge in biology and engineering including improved understanding of the fate and transport of p in light of recent learning and persistent knowledge gaps we recommend directions for economic research to add needed pieces to the puzzle of how to protect our water bodies puzzle gaps meriting attention include mechanisms to target public funds more effectively in voluntary abatement programs policy design for emerging mitigation technologies new ways to implement performance based policies means to leverage social norms and behavioral cues changes in the pay the polluter paradigm and application of state of the art evaluation methods to conservation programs beyond the realm of public policy lies that of private supply chains where establishment of environmental standards holds additional promise rich research opportunities exist for economists in tandem with biologists engineers and others

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

dynamic fertilizer nutrient demands for corn a cointegrated and error correcting system past studies of the demand for fertilizer have typically been based on static models which assume that adjustments toward equilibrium are instantaneous this article builds on past studies by developing a dynamic model of nutrient demands of corn unit root and cointegration tests demonstrate that fertilizer demands of corn are dynamic therefore statistically correct estimates can be obtained using a dynamic model a set of error correction models for nitrogen phosphate and potash use in corn production are estimated results provide strong statistical evidence that nutrient demands of corn are price inelastic both in the short and the long run

the steady states of a stochastic decentralized growth model the purpose of this paper is to prove the existence of a steady state for a simple decentralized growth model which is subject to random shocks the model has the following elements the population is composed of an endless sequence of overlapping cohorts of two period households each cohort is the same size and there is an aggregate production function and one output good because the labor supply is fixed the production function relates output in each period t to the total saving of all young families in period t 1 and to the current realization zt of a random variable z the random variable has an exogenous unchanging and known distribution futures markets are imperfect young families can save at time t only by investing in physical capital which will pay a return at time t 1 the return depends on the size of the time t 1 capital stock k and on zl r let y y k 1 zt be the vector of incomes of young families at time t then such families use a function g vf k to predict k note that g is nonstochastic the families adjust their saving to maximize their expected utility where the latter is computed using g and the distribution function for 5 we call resulting aggregate savings by young families y y g we use a fixed point argument to prove the existence of sets k and y and an expectation function g such that if all realizations of 5 fall within z i y k x z c k ii g y k and iii g y y y g all y e y the resulting g determines in a very simple context what grandmont 7 would call rational expectations and what radner 17 181 would call an equilibrium of plans and expectations we use this g to generate a transition function v for k we then show v has a finite invariant set k which includes all feasible states except one trivial one there are a finite number of ergodic sets el en c k for v and there is a unique stationary distribution function di associated with each ei each pair di ei constitutes a steady state corresponding to green and majumdar s 9 concept of an equilibrium distribution and to grandmont s 71 long run equilibrium once the evolution of the economy carries it into ei some

regime switching debt and taxation the effects of changes to the tax rate are studied within a framework where an estimated regime switching process for the debt output ratio is embedded in a standard growth model the regime is a hidden state variable so agents face a signal extraction problem consequently agents incorporate the possibility of switching to different fiscal regimes when forming expectations over future taxes decision rules have additional nonlinearity relative to fixed regime models income allocation and the tax elasticity of investment depend on agents inference regarding the regime specifically the tax elasticity can be either positive or negative depending on whether agents perceive a tax reform as an intra regime shock or change in regime

existence and local uniqueness of functional rational expectations equilibria in dynamic economic models abstract this paper established the existence and local uniqueness of stationary functional rational expectations equilibria for an open set of multi good multi agent pure exchange overlapping generations models in which agents endowments are random such equilibria are given by prices which are functions of one period lagged prices and endowments and of current endowments

monopolistic competition business cycles and the composition of aggregate demand abstract we develop a dynamic general equilibrium model with monopolistically competitive firms and endogenous markups and show the possibility of equilibria with persistent fluctuations driven by self fulfilling revisions of expectations for some parameter values such fluctuations are characterized by time series properties similar to those observed in u s postwar business cycles in contrast with the existing literature our results do not rely on the presence of increasing returns or nominal rigidities a key ingredient of the model is the link between markups and the composition of aggregate demand some econometric evidence on the latter is also reported journal of economic literature classification number d43 d58 e32

supply demand and technology in a multiproduct industry texas field crops the purpose of this paper is to examine the structure of agricultural production for six texas field crops cotton grain sorghum wheat corn rice and hay which account for nearly 95 of recent field crop value specific objectives are to a test the structure of technology to determine i if output and input utilization choices for individual products are independent of production decisions about other outputs and ii if products and or inputs can be consistently aggregated b estimate a coherent set of interrelated supply functions for the six commodities and input demand functions for fertilizer and hired labor because the empirical focus of this paper is specific to one state the results will be of limited value for interpreting specific production relationships elsewhere however the problem is of common interest in production agriculture and the techniques used demonstrate an important application of dual modeling

nitrogen land substitution in corn production a reconciliation of aggregate and firm level evidence in this paper we seek to reconcile low farm level substitution elasticity between nitrogen fertilizer and land with larger industry level values for the corn sector this is accomplished with a micro simulation model which identifies twenty three heterogeneous groups of corn farmers based on survey data for indiana after controlling for soil quality slope crop rotation and natural nitrogen sources considerable variation in fertilizer application rates remains model simulations indicate that the estimated substitution elasticity at the state level 1 15 is consistent with very low farm level substitutability the difference is attributable to compositional changes in the wake of relative price shocks these compositional effects are potentially very important but they are ignored in most policy analyses

endogenous fluctuations in an open economy with increasing returns to scale in this paper we study the effects of opening an economy with increasing returns in the production of nontraded goods on the existence of multiple pareto ranked stationary equilibria local indeterminacy and bifurcations we consider a standard overlapping generation model of a small open economy with a fixed exchange rate where labour is the only input and money the only asset we find that when there are increasing returns the open economy may display persistent equilibrium endogenous fluctuations deterministic and stochastic in the balance of trade and main macroeconomic aggregates

the rate of time preference and dynamic economic analysis strong restrictions on the structure of preferences are a central feature in the received theory of intertemporal allocation in fact most of the modern literature concerned with capital theoretic problems represents preferences by a functional in which an additive utility function is discounted by a constant rate of time preference this specification is attractive because it is analytically tractable in dynamic models and it clearly delineates how tastes and opportunities interact to determine an economy s household s paths of consumption and capital formation however its rigid structure constancy of time preference severely limits the conclusions and explanatory power of the corresponding models this paper considers a class of utility functionals in continuous time which have the appealing feature that the rate of time preference depends systematically on an index of aggregate future consumption the more flexible structure embodied in these functionals leads to important generalizations and

the optimal inflation path in a sidrauski type model with uncertainty abstract in this paper it is shown that in a sidrauski type model with uncertainty the chicago rule remains valid as a prescription for the average rate of inflation although there is a systematic difference between the perfect foresight and the uncertainty case quantitatively however the difference turns out to be very small the paper shows how to calculate the optimal monetary policy as a function of the state variables using the method of parameterized expectations in terms of expected utility the optimal policy is as good as the simple policy that reduces the money supply at the rate of time preference

a dynamic model of investment and endogenous growth models of endogenous growth assume that private investment in either physical or human capital yields positive externalities to production possibilities as a whole but what is the structure of such externalities we present a model of learning by watching which implies a nonlinear relationship between productivity growth and the investment rate this results in multiple steady state growth rates in a deterministic setting and in a rich dynamic structure that generates both growth and cycles in a stochastic model calibrated by reference to observable shocks to tax rates in the u k economies with identical structures can experience very different growth rates for long periods the model exhibits pathdependence and history matters

bequest division and income inequality comparative dynamics of markov branching processes the purpose of this paper is to investigate the relationship between income inequality and bequest division rules an old but untouched topic addressed by sir josiah stamp nearly seventy years ago we show that the bequest income transition rule for each child should be linearly combined to form an inter generational income transition rule which dominates the dynamics of the underlying stochastic processes the various bequest division rules correspond to different linear combinations of parent child bequest transition and hence distinct intergenerational mobility matrix under different assumptions about parents information background we derive conditions needed to establish the causal relationship between more equal bequest division and better income distribution in the sense of second degree stochastic dominance

one sector nonclassical optimal growth optimaility conditions and comparative dynamics the authors consider a one sector nonclassical model of optimal economic growth characterized by a convex concave production function they provide in a dynamic programming context a characterization of all local interior maximum of the miximand of the bellman equation these conditions are the euler equation and a second order condition namely that the marginal propensity to consume is less than one an example is used to illustrate these conditions also several comparative dynamic results are derived in particular it is shown that the maximum and minimum selections out of the optimal consumption correspondence shift down as the discount factor increases copyright 1991 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on optimal economic growth with changing technology and tastes characterization and stability results in this paper we consider a framework of optimal growth in which technology and tastes are changing over time the model is an aggregative one and follows closely those studied by brock 1971 and brock and gale 1969 in this framework we address two important issues in the area of optimal intertemporal allocation of resources first we provide price characterizations of weakly maximal and optimal programs weak maximality and optimality are defined following the approach of brock 1970 and gale 1967 respectively in section 2 second we provide asymptotic stability properties of weaklymaximal and optimal programs price characterizations are of importance since they imply that socially desirable allocations can be attained by decentralized maximizing decision making of firms and consumers 2 the decentralization being accomplished through a pricesystem provided an appropriate additional condition on asymptotic behavior of input values3 is satisfied in the literature it is this additional condition which has not been precisely characterized in a model with changing technology and tastes to find this additional condition we have found it useful to draw on the results obtained in the theory of efficient allocation of resources which deals with a similar problem of price characterization of efficient programs for weakly maximal programs the appropriate condition is that the reciprocal of the input values should not be summable theorem 3 1 for optimal programs the input values should be uniformly bounded theorems 4 1 and 4 2 the results of brock 1971 and benveniste and gale 1975 are particularly important in obtaining these results it should be noted that criteria for the existence of optimal programs in various particular cases of our framework have been given by mirrlees 1967 phelps 1966 and inagaki 1970 a unified elegant treatment of this question is given in brock and gale 1969 consequently we do not address this issue in our paper the asymptotic stability properties of weakly maximal and optimal programs

the incidence of taxes a dynamic macroeconomic analysis abstract this paper analyzes the incidence of various tax changes using the intertemporal optimizing framework developed by brock and turnovsky the model contains a reasonably complete specification of the corporate sector in which firms have the choice of financial structure it also allows for a range of government financial policies although only one is considered in detail both the short run and the long run effects of changes in the personal income capital gains and corporate profit tax rates are analyzed it is shown that the effects of tax changes a vary between the short and long run b the effects of tax changes depend critically upon the financial structure adopted by forms and c may also depend upon government financial policy

multiple input multiple output production choices and technology in the u s wheat region duality theory motivates a translog expected profit function consistent with multiple products price uncertainty preseason climate constraints acreage control policies and possibly nonhomothetic technology although multiple outputs are allowed enterprise specific data is not necessary instead time series measures of output revenues and expected prices input expenses and prices and fixed input flows are employed appropriate measures of elasticities of choice returns to size and biases in technological change are derived results indicated decreasing returns to size rather limited though complementary responsiveness of choices to price changes and the nature of biases in technological changes

non linear endogenous fluctuations with free entry and variable markups abstract the paper explores the effects of markup variability associated with free entry of cournotian firms on the occurrence of local indeterminacy local hopf bifurcations and multiplicity of steady states it uses an overlapping generations model with capital in which differentiated intermediate goods are produced with constant marginal cost plus a positive fixed cost if the markup factor were constant the case of no free entry or the case of zero fixed costs leading to the perfectly competitive outcome no local endogenous fluctuations or multiplicity of steady states can emerge unless factors of production are complementary on the contrary with any positive variable market power indeterminacy and multiplicity of steady states is possible for any value of the elasticity of technological substitution and local hopf bifurcations may also emerge provided variable market power is high enough

indeterminacy and endogenous fluctuations with arbitrarily small externalities abstract in this paper we study the occurrence of local indeterminacy endogenous fluctuations and bifurcations in a simple non monetary 2 period overlapping generations economy in which people do not consume when young with capital labor substitution elastic labor supply and productive externalities we show that in contrast with the local dynamics generated by many one sector models of capital accumulation studied in the current literature local indeterminacy and therefore stationary stochastic equilibria driven by self fulfilling beliefs sunspots as well as multiple stationary equilibria are pervasive phenomena when the elasticity of input substitution is large and when the size of externalities is arbitrarily small we also demonstrate that when externalities are arbitrarily small the cobb douglas production function often used for its analytical tractability in many models is structurally unstable it is always associated with uniqueness of the steady state but any small perturbation of the elasticity of input substitution leads to the existence of two stationary equilibria which may be close to each other with the consequence that the dynamics may be qualitatively very different from those originated in the unit elasticity case journal of economic literature classification numbers e32 c62

endogenous imperfectly competitive business cycles abstract we investigate how imperfect competition affects the occurrence and the properties of endogenous rational expectations business cycles in an overlapping generations model with constant returns to scale in production the model has explicit product and labor markets all characterized by monopolistic competition an implicit assumption of barriers to entry justifies that the number of firms is fixed even when positive profits occur it turns out that both market power of firms on the product markets and market power of unions on the labor markets make the occurrence of cycles more likely in particular imperfect competition on the product markets and the positive profits associated with it may have the effect that there is a cycle even if the labor supply curve is increasing in the real wage rate for competitive cycles is required not only a decreasing labor supply curve but a wage elasticity below 1 2 at stationary equilibrium market power on the labor markets may have the effect that imperfectly competitive cycles are in accordance with certain empirical regularities some well known some reported in the paper concerning fluctuations in output and involuntary unemployment since involuntary unemployment does not occur under perfect competition such regularities are incompatible with competitive cycles

comparative dynamics in the one sector optimal growth model abstract the comparative dynamics properties of the one sector optimal growth model with discounting are derived a dynamic programming argument is used to show that an increase in the utility discount factor increases the capital stock at each time initially lowers consumption and eventually increases consumption as compared to the original program the present value of the stream of increments in capital is also shown to be positive at the initial support prices the relationship with the correspondence principle is discussed as well

certainty planning in an uncertain world a reconsideration in a recent paper merton 1975 seeks to extend the theory of growth under uncertainty beyond the customary concern of demonstrating the existence uniqueness and stability of the asymptotic stationary distributions of consumption output and capital stock his goal is to derive additional properties of these asymptotic distributions and in particular to investigate the biases in an expected value sense induced by assuming a certainty model when in fact outcomes are uncertain merton 1975 p 375 for his only source of uncertainty merton 1975 models the size of the aggregate labour force as a diffusion process by further assuming the aggregate savings policy to be linear homogeneous in output and specifying per worker output as being cobb douglas in capital per worker merton 1975 is able to derive closed form expressions for the associated stationary distributions of per worker consumption output and capital stock by comparing the expected values of these distributions with the corresponding steadystate values obtained by applying the identical savings rule to the same model specification though in the absence of uncertainty he demonstrates biases in the certainty estimates of the corresponding uncertainty expected values specifically in his model expected per worker consumption output and capital stock under uncertainty strictly exceed their respective certainty levels merton 1975 p 383 is therefore led to conclude that care must be taken in using the certainty analysis even as a first moment approximation theory this note is an attempt to replicate merton s 1975 results in an alternative discrete time version of the one sector model of optimal stochastic growth it suggests that diffusion process models have no monopoly or even apparent advantages in pursuing characterizations of the asymptotic distributions our work confirms the assertion that certainty estimates may be biased approximations of analogous uncertainty values although our biases are exactly opposite in sign to those of merton s 1975 model in our model the linear homogeneous savings function which results from optimizing behaviour under uncertainty rather than being imposed as in merton 1975 is the same as that arising in the certainty specification thus while our results illustrate mirrlees 1974 p 48 contention that the introduction of uncertainty may not at the aggregative level have significantly large influence on optimal policies the indicated biases nevertheless suggest that the introduction of uncertainty does significantly alter the description of economies growing along optimal paths

capital income taxation and perfect foresight abstract this paper develops a perfect foresight model of capital income taxation in a representative household neoclassical one sector framework the household sector is based on intertemporal utility maximization the main result is the equivalence of a perfect foresight solution and an artificial central planning solution if there is no tax this is the equivalence of a market equilibrium and social optinum the equivalence result is used to deduce the implications of a partial tax reform policy it is shown that a partial reform increases capital at each time following the initial period of the program

equilibrium cycles in an overlapping generations economy with production abstract perfect foresight equilibrium trajectories of an overlapping generations model with production may include stable or unstable invariant closed curves these orbits are detected using the hopf bifurcation theorem where the parameter of bifurcation is purely technological the paper also proves that there is a stabilization policy that completely eliminates the cycle finally using a c e s production function it is shown that the range of values of the elasticity of substitution between capital and labor for which cycles may exist is bounded above

market power and fiscal policy in oecd countries we compute average markups as a measure of market power throughout time and study their interaction with fiscal policy and macroeconomic variables in a var framework from impulse response functions the results with annual data for a set of 14 oecd countries show that the markup i depicts a pro cyclical behaviour with productivity shocks and ii a counter cyclical behaviour with fiscal spending shocks we also use a pvar increasing the efficiency in the estimations which confirms the country specific results

what do discounted optima converge to a theory of discount rate asymptotics in economic models abstract this paper considers a sequence of stochastic dynamic problems in which the discount rate goes to zero sufficient conditions are given under which the limit of discounted optimal policies and normalized values are a i long run average optimal and ii catching up optimal policy and value these conditions are shown to be satisfied in many economic models a new decision criterion for the undiscounted problem the strong long run average is introduced this criterion refines the long run average is often equivalent to the catching up and is easier to use than the latter since it has a recursive representation a generalization of fatou s lemma which has wider applicability is also proved

non stationarity and the import demand for virgin olive oil in the european union the aim of this study is to analyse the importation of virgin olive oil to european union countries paying special attention to the spanish export contribution the method used is based on the estimation of an imports demand system the novelty of the paper lies not in the modelling approach but in the explicit consideration of the univariate characteristics of series that is included in the analysis since prices are non stationary cointegration among them has been tested results indicate that they are cointegrated and that homogeneity holds as a result relative prices are included in the imports demand system structural change is also considered so as to account for the entrance of both spain and greece into the eu during the period studied results demonstrate the leadership of spain within the eu virgin olive oil market as well as the increasing competitiveness of greek oil

fertilizer demand in greece abstract limiting fertilizer use is becoming an important policy objective world wide however the debate on appropriate policy measures is far from settled and evidence on fertilizer demand elasticities is still insufficient past studies on fertilizer demand leave several methodological and empirical issues open this paper aims to contribute to the debate on the methodology of estimating fertilizer demand using single equation methods dynamic aspects are also considered using error correction modelling methodology and cointegration techniques the model is applied using data from greece short run and long run price elasticities of fertilizer demand with respect to own price and to output prices show significant response to price changes and the adjustment coefficient of fertilizer use to the error correction term was found to be fairly rapid the main policy conclusion of the paper is that reducing agricultural support may be an alternative and perhaps more effective way of reducing fertilizer demand than increasing fertilizer prices

the welfare cost of capital income taxation in a growing economy the welfare cost of capital income taxation is analyzed in a general equilibrium framework where the private sector is represented by a competitive household endowed with perfect foresight and an infinite life the value of the welfare cost depends essentially on the elasticity of substitution between capital and labor in the production function numerical estimates are presented for different values of the parameters of the model the welfare gain obtained by the abolition of the capital income tax is smaller when the private sector is not endowed with perfect foresight it is reduced by about 40 percent when expectations are myopic the allocation efficiency cost of the corporate tax dwarfs the intertemporal welfare cost

animal spirits technology shocks and the business cycle the last few years have witnessed a revival of business cycle models in which beliefs of agents have played a leading role in explaining economic fluctuations 1 most of these models involve strong economy wide increasing returns to scale in order for sunspot equilibria to exist in a recent paper however basu and fernald 1996 present evidence that returns to scale are far from evenly distributed across the u s economy in particular they report that scale economies are present mainly in the domain of durable goods production in the nondurable goods sector of the u s economy evidence of increasing returns to scale cannot be found

capital deepening and impatience equivalence in stochastic aggregative growth models this paper analyzes the aggregative growth model subject to random production shocks it is shown that for a higher discount factor the associated optimal plan maintains higher capital input at every time period and for almost all environments in both the finite and infinite horizon problems it is further shown that two alternative notions of decreasing impatience lengthening the horizon for a fixed discount factor and increasing the discount factor for a fixed horizon are in a precise sense equivalent discount factor insensitivity is also established

firm dynamics and markup variations implications for sunspot equilibria and endogenous economic fluctuations this paper analyzes how the interaction between firms entry and exit decisions and variations in competition gives rise to self fulfilling expectation driven fluctuations in aggregate economic activity and in measured total factor productivity tfp the analysis is based on a dynamic general equilibrium model in which net business formation is endogenously procyclical and leads to endogenous countercyclical variations in markups this interaction leads to indeterminacy in which economic fluctuations occur as a result of self fulfilling shifts in the beliefs of rational forward looking agents when calibrated with empirically plausible parameter values and driven solely by self fulfilling shocks to expectations the model can quantitatively account for the main empirical regularities characterizing postwar u s business cycles and for 65 of the fluctuations in measured tfp

long run implications of neoclassical growth models empirical evidence from australia new zealand south korea and taiwan long run implications of the one factor neoclassical growth models are tested by using data from australia new zealand south korea and taiwan testable propositions about the long run relations between log of real output consumption and investment are investigated using unit root tests and cointegration analysis also common trends analysis is used to identify the sources of the permanent shocks driving the common long run trend further variance decomposition is used to examine the extent to which innovations to the common trend component are able to explain short run fluctuations in the data empirical results provide limited support for the neoclassical models in addition to productivity shocks permanent innovations to investment are found to be important components of the long run stochastic trend governing the dynamic behaviour of real output consumption and investment variance decomposition results suggest that although innovations to common trend components are important this is unable t

an intertemporal model of saving and investment this paper characterizes a market economy with infinitely long lived consumers and value maximizing firms which face costs of adjustment for capital the temporary equilibrium of this economy is similar to the short run equilibrium of standard macroeconomic models consumption is a function of wealth investment is related to the value of firms equilibrium between aggregate demand and aggregate supply is achieved by the endogenous adjustment of the sequence of current and future interest rates the dynamic behavior of output consumption and investment in this economy is the same as in an optimal growth model with adjustment costs the paper shows this equivalence and then uses it together with the equivalence of taxes to technological shocks to study the dynamic effects of fiscal policy

redistributive taxation in a simple life cycle model an overlapping generations model with rich and poor life cycle planners is developed positive aspects of redistributive capital and labor taxation are then analyzed the conditions required for feldstein s result that the long run capital labor ratio is invariant to wage taxations are discussed the utility frontier is shown to generally have a slope with an absolute value different from one in the neighborhood of a no tax equilibrium labor income is clearly a more efficient base for long run redistribution only if the economy is dynamically inefficient and the rich household benefits from an increase in the gross interest rate even in this case the labor income base may not be considered more desirable when transitional effects are considered copyright 1989 by the london school of economics and political science

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

insurance and economic growth individuals in a growing economy suffer from heterogeneous stochastic productivity shocks in the absense of perfect information income subsidies that encourage investment are efficient and accelerate growth the subsidies widen wealth disparities the degree of the subsidy is an increasing function of the persistence of productivity shocks rationalizing subsidies to investment in human capital

comparative dynamics of an equilibrium intertemporal asset pricing model this paper uses recursive competitive theory to develop a general equilibrium asset pricing model in this framework all prices and rates of return are endogenously determined thus enabling us to analyze the effects of changes in preferences technological uncertainty and expectations on the structure of security prices in particular we focus on how the market risk premium varies with changes in the underlying economic environment an issue which other asset pricing models have chosen not to address

real business cycles in this paper we demonstrate how certain very ordinary economic principles lead maximizing individuals to choose consumption production plans that display many of the characteristics commonly associated with business cycles our explanation is entirely consistent with i rational expectations ii complete current information iii stable preferences iv no technological change v no long lived commodities vi no frictions or adjustment costs vii no government viii no money and ix no serial dependence in the stochastic elements of the environment we also provide a completely worked out example of the type of artificial economy we have in mind the time series properties of the example exhibit some major features of observed business cycles although this type of model may not be capable of explaining all of the regularities in actual business cycles we believe that it provides a useful well defined benchmark for assessing the relative importance of factors e g monetary disturbances

international evidence on the long run implications of the neoclassical growth model quarterly data from the international finance statistics of the international monetary fund is used to test the long run implications of the neoclassical stochastic growth model for ten oecd countires canada france germany italy the netherlands norway switzerland japan the united kingdom and the united states in doing so johasen s maximum likelihood approach for estimating and testing long run stedy state relations in multivariate vector autoregressive models is used johansen s 1988 statistical analysis of cointegration vectors journal of economic dynamics and control 231 54

on the term structure of interest rates abstract this paper tests the one good stochastic growth model with respect to its ability to explain the term structure of real interest rates we undertake both a qualitative and quantitative analysis first we assess the changing shape of the yield curve over the model economy s business cycle and compare our results with what is empirically observed second we employ the model to study various implications of informational and allocative efficiency properties which the artificial economy must possess it is found for example that long term rates are less volatile than short term rates and that holding premia can be highly correlated over time third we study the time varying risk premium implicit in the economy s forward rate structure a purely quantitative assessment of the model s explanatory power is also provided