money and capital abstract the effects of money anticipated inflation on capital formation is a classic issue in macroeconomics previous papers adopt reduced form approaches putting money in the utility function or imposing cash in advance but using otherwise frictionless models we follow instead a literature that tries to be explicit about the frictions making money essential this introduces new elements including a two sector structure with centralized and decentralized markets stochastic trading opportunities and bargaining these elements matter quantitatively and numerical results differ from findings in the reduced form literature the analysis also reduces a gap between microfounded monetary economics and mainstream macro

banking in computable general equilibrium economies abstract in this paper we develop a computable general equilibrium economy that models the banking sector explicitly banks intermediate between households and between the household sector and the government sector households borrow from banks to finance their purchases of houses and they lend to banks to save for retirement banks pool households savings and they purchase interest bearing government debt and non interest bearing reserves we use this structure to answer two sets of questions one normative in nature that evaluates the welfare costs of alternative monetary and tax policies and one positive in nature that studies the real effects of following a procyclical interest rate policy rule

the inflation tax in a real business cycle model money is incorporated into a real business cycle model using a cash in advance constraint the model economy is used to analyze whether the business cycle is different in high inflation and low inflation economies and to analyze the impact of variability in the growth rate of money in addition the welfare cost of the inflation tax is measured and the steady state properties of high and low inflation economies are compared

taxes benefits and careers complete versus incomplete markets abstract an incomplete market life cycle model with indivisible labor makes career lengths and human capital accumulation respond to labor tax rates and government supplied non employment benefits we compare aggregate and individual outcomes in this individualistic incomplete market model with those in a comparable collectivist representative family model with employment lotteries and complete insurance markets the incomplete and complete market structures assign leisure to different types of individuals who are distinguished by their human capital and age these microeconomic differences distinguish the two models in terms of how macroeconomic aggregates respond to some types of government supplied non employment benefits but remarkably not to labor tax changes

the role of patent rights in mergers consolidation in plant biotechnology few micro level empirical papers have addressed the impact of the patent system on industry structure using firm level patent data for public and private firms in plant biotechnology we develop a measure of patent enforceability duration models show that patent statistics are a useful predictor of the timing of merger activity we find that patent enforceability is an important factor influencing the likelihood of mergers mergers in plant biotechnology may be partially motivated by the enforcement of patent rights when firms have overlapping technologies some of the merger activity may be explained by attempts to avoid mutually blocking technology as exemplified in the case of roundup ready corn

general equilibrium with nonconvexities and money in a general equilibrium economy with nonconvexities there are sunspot equilibria with good welfare properties sunspots can ameliorate the effects of the nonconvexities for these economies we show that agents act as if they have quasi linear utility functions we use this result to construct a new model of monetary exchange along the lines of lagos and wright where trade occurs in both centralized and decentralized markets but instead of quasi linear preferences we assume general preferences but with indivisible labor this suggests that modern monetary theory is more robust than one might have thought it also constitutes progress on the classic problem of integrating monetary economics and general equilibrium theory

the effects of religion and denomination on earnings and the returns to human capital the effects of religious and denominational background on earnings and the returns to human capital are examined when religious differences are constrained to be additive apart from a jewish differential there is virtually no evidence that religious or denominational background affects earnings this contrasts with greeley s claims of sizable catholic advantage in separate earnings regressions we find that the marginal returns to catholics from college education exceed those to similar protestants this offsets the disadvantage of lower precollege returns earnings differences between protestant denominations appear to reflect the sorting of protestants into denominations according to schooling and income

aggregate employment real business cycles and superior information abstract we test whether dynamic stochastic general equilibrium artificial economies associated with several labor market structures provide an adequate characterization of aggregate employment volatility and dynamics our test is robust to possible misspecifications about the information set used by economic agents to forecast future events accounting for agents superior information we find that the divisible labor indivisible labor labor adjustment costs and labor hoarding structures replicate employment volatility in contrast to the nominal wage contracts structure also the labor hoarding structure provides a substantially better account of employment dynamics

religion and income heterogeneity between countries this paper tests whether the behaviour of households in different countries is homogeneous with respect to the influence of religion on income the violation of the homogeneity assumption would have two consequences first results based on country studies might not be applicable to other countries second one should be careful when pooling cross country data in this type of research data at household level from the european and world values survey are pooled for 25 western countries we estimate simultaneously an income and a religion equation to correct for the endogeneity of religiousness we find that estimation outcomes are different for low and high income countries whereas church membership is found to have a positive effect on income for high income countries this effect is negative for low income countries this result is robust to denominational distribution participation effects and alternative measures of religiousness

overtime labor employment frictions and the new keynesian phillips curve abstract this paper presents a new keynesian nk model that is extended to differentiate between straight time and overtime work the model proposes that the new keynesian phillips curve nkpc should be estimated with marginal cost measured in terms of overtime labor the resulting coefficient estimates are in accordance with theory and statistically significant for the hybrid nkpc which allows for backward looking price setters but not for the purely forward looking nkpc in the hybrid model backward looking behavior is found to be predominant the paper also shows that the incorporation of employment frictions predetermined employment and convex adjustment costs in nk models helps reconcile the frequent price changes found in the microdata with the degree of sluggishness in inflation adjustment to output changes at the macro level

are unemployment and out of the labor force behaviorally distinct labor force states this paper tests the hypothesis that the classifications unemployed and out of the labor force are behaviorally meaningless distinctions this hypothesis is rejected distinct behavioral equations govern transitions from out of the labor force to employment and from unemployment to employment the evidence reported in this paper is broadly consistent with versions of search theory in which unemployment is a state that facilitates the job search process in an appendix we demonstrate that log concavity of the wage offer distribution implies that the exit rate from unemployment is an increasing function of the rate of arrival of job offers

endogenous markups and the effects of income taxation theory and evidence from oecd countries abstract existing studies on the effects of fiscal policy under imperfect competition typically treat each firm s price cost markup as fixed this paper examines the implications of endogenising the markup in a simple model of income taxation under monopolistic competition it is demonstrated that an increase in income tax reduces the number of firms lessens competition among surviving firms and raises the optimal markups in the new steady state through this channel the effects of income taxation on the key macroeconomic variables as well as on consumer welfare are unambiguously enlarged the simple model prediction is largely supported by cross section regressions with data from oecd countries

corporate financial policy and corporate control abstract this paper presents evidence that stockholder wealth declines on average when managers respond to attempted hostile takeovers with defensive changes in asset and ownership structure the data also indicate that these corporate restructurings are typically quite large and that many are attempts by managers to create barriers specific to the hostile bidder and or to consolidate a block of voting securities in the hands of management allies the evidence suggests that defensive motives whether beneficial or harmful influence corporate asset and ownership structure

money and the business cycle with one period nominal contracts a modified version of the nominal contract developed by j a gray 1976 and s fischer 1977 is introduced in a general equilibrium model with money which has been used in the real business cycle literature money is introduced in the model through cash in advance constraint two kinds of contracts are examined namely a nominal wage contract and a nominal price contract the nominal wage contract improves the fit of the model in many respects the nominal price contract increases the output volatility enormously but it has some unrealistic features

bounds on elasticities with optimization frictions a synthesis of micro and macro evidence on labor supply how can price elasticities be identified when agents face optimization frictions such as adjustment costs or inattention i derive bounds on structural price elasticities that are a function of the observed effect of a price change on demand the size of the price change and the degree of frictions the degree of frictions is measured by the utility losses agents tolerate to deviate from the frictionless optimum the bounds imply that frictions affect intensive margin elasticities much more than extensive margin elasticities i apply these bounds to the literature on labor supply the utility costs of ignoring the tax changes used to identify intensive margin labor supply elasticities are typically less than 1 of earnings as a result small frictions can explain the differences between micro and macro elasticities extensive and intensive margin elasticities and other disparate findings pooling estimates from existing studies i estimate a hicksian labor supply elasticity of 0 33 on the intensive margin and 0 25 on the extensive margin after accounting for frictions

the role of energy in real business cycle models abstract this paper modifies hansen s 1985 analysis of a real business cycle mode with indivisible labor by explicitly including energy as a productive input and modelling the relative price of energy as an exogenous random process one goal is to determine the extent to which the introduction of energy price shocks reduces the reliance of the real business cycle model on unobserved technology shocks the other goal following christiano and eichenbaum 1991 is to compare the correlation between real wages and hours predicted by the energy inclusive model to that predicted by hansen s model

by force of demand explaining cyclical fluctuations of international trade and government spending abstract this paper explores the role of demand shocks as an alternative to productivity shocks in driving both domestic and international business cycles within the international real business cycle irbc framework in addition to those well documented domestic business cycle fluctuations e g the volatility and cyclicality of output consumption investment labor hours and labor productivity and international business cycle properties e g the countercyclical net export and the comovement puzzle this paper focuses on two additional stylized facts in the industrialized countries the procyclical trade openness the gdp fraction of trade volume and the countercyclical government size the gdp fraction of government spending using a parsimonious dynamic stochastic general equilibrium model we show that the model s predictions under productivity shocks are not consistent with these facts instead a demand shock driven model replicates the above facts while matching other domestic and international business cycle properties an estimated version of the model confirms the quantitatively important impacts of demand shocks

productivity growth consumer confidence and the business cycle abstract the objective of this paper is to provide in the context of a dynamic general equilibrium model an answer to the following five questions 1 to what extent does an economy subject to regular variations in labor productivity growth differ from one where labor productivity is constant 2 what is the impact on major macro indicators of a one time change in labor productivity growth 3 what are the business cycle implications of autonomous non falsifiable changes in growth expectations 4 what is the potential of such expectation changes for explaining the volatility of consumption to output ratio 5 can autonomous changes in growth expectations help us understand recent business cycle episodes

contested tender offers an estimate of the hazard function in this article we estimate the hazard function takeover probabilities for firms that are targets in unsolicited tender offers the data support a weibull gamma specification and imply a hazard rate that increases sharply in the initial period following the bid announcement after which it declines steadily in explaining the hazard we find that the initial bid premium has no explanatory power but the onset of an auction and the proportion of institutional ownership in the target firm significantly enhance the hazard legal and financial restructuring actions by target management are effective in reducing the hazard thereby prolonging the contest

duration of firms in an infant industry the case of indian computer hardware abstract this study analyses survival of firms in an infant industry in a developing economy it is found that a entry size and the probability of exit are positively related which is the opposite of the result in most previous studies b similar to previous studies post entry size is negatively related to the hazard c firms with longer duration have a more volatile time path of size d the hazard declines with age at an increasing rate suggesting increasing returns to learning and e diversification of firms and public ownership have little effect on duration

household production and the excess sensitivity of consumption to current income empirical research on the permanent income hypothesis pih has found that consumption growth is excessively sensitive to predictable changes in income this finding is interpreted as strong evidence against the pih we propose an explanation for apparent excess sensitivity that is based on a quantitative equilibrium model of household production in which permanent income consumers respond to shifts in sectoral wages and prices by substituting work effort and consumption across home and market sectors although the pih is true this mechanism generates apparent excess sensitivity because market consumption responds to predictable income growth

september 11th and the earnings of muslims in germany the moderating role of education and firm size abstract while available evidence suggests that the events of september 11th negatively influenced the relative earnings of employees with arab background in the us it is not clear that they had similar effects in other countries our study for germany provides evidence that the events also affected the relative earnings of muslims outside the us however the results show that there was no uniform effect on all types of muslims across all types of firms accounting for moderating factors a significantly negative effect can primarily be found for low skilled muslims employed in small and medium sized firms this conforms to theoretical expectations moreover we demonstrate that defining appropriate treatment and control groups is crucial for identifying the effects

note on cyclical employment in the consumption goods sector abstract the basic neoclassical growth model makes the counterfactual prediction that the consumption share of employment is countercyclical when endogenous growth from a formal training sector is added to this model the consumption share of employment becomes procyclical owing to the additional margin of adjustment in the allocation of time

household search and the aggregate labor market we develop a theoretical model with labour market frictions incomplete financial markets and with households which have two members households face unemployment risks but their members adjust their labour supplies to insure against unemployment we use the model to explain the cyclical properties of aggregate employment and participation as in the u s data the model predicts that the participation rate the fraction of individuals that want jobs is not strongly correlated with aggregate economic activity this property is in sharp contrast to the strongly procyclical participation predicted by both neoclassical models and models with search frictions when we assume bachelor households or households with infinitely many members complete markets in the two member household model and in the data primary earners are always in the labour force secondary earners have a mildly countercyclical participation rate and a mildly procyclical employment rate their behaviour insures the household against unemployment risks

indivisible labor lotteries and equilibrium abstract this paper considers an economy where labor is indivisible and agents are identical although the discontinuity in labor supply at the individual level disappears as a result of aggregation it is shown that indivisible labor has strong consequences for the aggregate bahavior of the economy it is also shown that optimal allocations involve lotteries over employment and consumption

optimal fiscal policy with labor selection this paper characterizes long run and short run optimal scal policy in the labor selection framework quantitatively the time series volatility of the labor income tax rate is orders of magnitude larger than the tax smoothing results based on walrasian labor markets but is a few times smaller than the results based on search and matching labor markets to understand these results in terms of model primitives we develop a welfare relevant analytic concept of externalities for the selection model which we label tightness this concept of tightness is the source of the decentralized economy s inecient cross sectional wage premia between the average newly hired worker and the marginal newly hired worker compared to the traditional concept of labor market tightness in the search and matching literature this new concept of tightness plays a highly similar role and like in the matching model is crucial for understanding eciency and optimal policy

indivisible labor and the business cycle abstract a growth model with shocks to technology is studied labor is indivisible so all variability in hours worked is due to fluctuations in the number employed we find that unlike previous equilibrium models of the business cycle this economy displays large fluctuations in hours worked and relatively small fluctuations in productivity this finding is independent of individuals willingness to substitute leisure across time this and other findings are the result of studying and comparing summary statistics describing this economy an economy with divisible labor and post war u s time series

individual and aggregate labor supply in heterogeneous agent economies with intensive and extensive margins we develop a heterogeneous agent general equilibrium model that incorporates both intensive and extensive margins of labor supply a nonconvexity in the mapping between time devoted to work and labor services distinguishes between extensive and intensive margins we consider calibrated versions of this model that dier in the value of a key preference parameter for labor supply and the extent of heterogeneity the model is able to capture the salient features of the empirical distribution of hours worked including how individuals transit within this distribution we then study how the various specications inuence labor supply responses to aggregate technology shocks we nd that abstracting from intensive margin adjustment has large eects on the volatility of aggregate hours even if intensive margin uctuates relatively little

search for a monetary propagation mechanism abstract this paper examines a monetary propagation mechanism in an economy where exchanges in goods and labor markets involve costly search it is shown that an increase in the money growth rate increases steady state employment and output when the money growth rate is low but reduces steady state employment and output when the money growth rate is already high the model produces persistent hump shaped responses in employment and output to money growth shocks even when the shocks have no persistence the model also generates desirable features in job vacancy sales inventory and the velocity of money all these features emerge here in an economy with perfectly flexible prices and wages journal of economic literatureclassification numbers e40 e30

business cycles in international historical perspective business cycle models seek to answer the question of why economies go through cycles of recession and recovery or boom and bust any theory of the business cycle makes two sorts of claims what shocks are most important in disturbing the economy and what economic structure is necessary for propagating these shocks for example one common explanation of business cycles begins with monetary shocks and then seeks to explain why monetary shocks are not purely neutral as neoclassical theory would have it and instead have real effects at least in the short term early models in this vein were often implicitly or explicitly based on the proposition that markets do not clear continuously early equilibrium real business cycle theories instead emphasized the importance of real shocks especially to technology which may cause socially efficient fluctuations even when markets are always in equilibrium more recent models have attempted to marry the equilibrium approach to macroeconomics with the substantive keynesian ideas that money is not neutral and that economic fluctuations are costly new keynesian theories of the business cycle admit the possibility of a number of economic shocks including monetary and technology shocks but then focus on explaining how nominal price rigidities within the economy can turn these shocks into recessions or booms other models show that business cycles driven by keynesian animal spirits are consistent with rigorous microfoundations and rational expectations seeking empirical evidence for and against these various approaches we turn business cycle theories loose on perhaps the greatest macroeconomic laboratory

is consumption growth consistent with intertemporal optimization evidence from the consumer expenditure survey in this paper we show that some of the predictions of models of consumer intertemporal optimization are in line with the patterns of nondurable expenditure observed in u s household level data we propose a flexible specification of preferences that allows multiple commodities and yields empirically tractable equations we estimate preference parameters using the only u s micro data set with complete consumption information we show that previous rejections can be explained by the simplifying assumptions made in previous studies we also show that results obtained using good consumption or aggregate data can be misleading

government spending and the international business cycle in this paper the author develops a stochastic general equilibrium model of the world economy it differs from previous multicountry models in the introduction of the government sector the author assumes that countries produce a nonspecialized traded good and that households derive utility from the consumption of private and public goods and services this simple modification has a potential explanation for the low cross country correlations in private consumption and output and the countercyclical trade balances that are observed empirically

saving and investing for early retirement a theoretical analysis we study optimal consumption and portfolio choice in a framework where investors adjust their labor supply through an irreversible choice of their retirement time we show that investing for early retirement tends to increase savings and reduce an agent s effective relative risk aversion thus increasing her stock market exposure contrary to common intuition an investor might find it optimal to increase the proportion of financial wealth held in stocks as she ages and accumulates assets even when her income and the investment opportunity set are constant the model predicts a decrease in risk aversion following strong market gains like those observed in the nineties

plant level nonconvex output adjustment and aggregate fluctuations in most manufacturing industries plant level output is adjusted along three margins of capacity utilization shiftwork weekend work and closing temporarily down due to the discrete and lumpy nature of these margins only a fraction of plants adjust output in response to shocks in a business cycle model calibrated to establishment level observations these nonconvexities make aggregate output less volatile than when plants can adjust smoothly further the mass of adjusting plants is larger in downturns than in upturns leading to counter cyclical volatility of aggregate output and government policy being slightly more effective in recessions than in expansions

religion and economy religion has a two way interaction with political economy with religion viewed as a dependent variable a central question is how economic development and political institutions affect religious participation and beliefs with religion viewed as an independent variable a key issue is how religiosity affects individual characteristics such as work ethic honesty and thrift and thereby influences economic performance in this paper we sketch previous studies of this two way interaction but focus on our ongoing quantitative research with international data

production growth and business cycles ii new directions abstract this paper outlines new directions for investigations of real business cycle models consideration of stochastic growth of exogenous and endogenous forms analysis of suboptimal outcomes arising due to externalities of distorting taxes and implications of labor market heterogeneity

religion and earnings is it good to be an atheist with religious parental background abstract using german employee data we find that being raised by two religious parents and having no current religious affiliation is associated with higher earnings this conforms to the hypothesis that people who are raised religiously and reject religion as adults are economically more successful as they combine a strong internalized work ethic with an increased interest in present consumption as opposed to afterlife consumption

unemployment and the business cycle abstract this paper presents a dynamic general equilibrium model where labor effort is imperfectly observable and there is unemployment in equilibrium in contrast to shirking models in the efficiency wage literature detected shirkers are not dismissed instead they face a monetary punishment because they forgo an increase in their compensation estimated versions of the model can generate the high variation in employment and low variation of real wages observed over the business cycle and are consistent with existing qualitative evidence about the responses of the economy to fiscal policy shocks

anticipated and unanticipated wage changes wage risk and intertemporal labor supply in this article i estimate how labor supply responds to anticipated wage growth unanticipated wage growth and wage risk using the 1989 93 panel section of the bank of italy survey of households income and wealth shiw which collects individual expectations of future wages the use of subjective expectations has several advantages first they provide information on the evolution and riskiness of future wages that the econometrician may never hope to observe moreover this avoids the need for specifying instruments for the growth rate of wages finally forecast errors can be directly controlled for thus avoiding inconsistency in short panels

in search of the liquidity effect in a modern monetary model abstract this paper examines the impact of a monetary policy shock in a dynamic stochastic general equilibrium model with sticky prices and financial market frictions first we examine the shortcomings of monetary models emphasizing these frictions individually the model then is specified to limit the response of prices and savings to a current period monetary disturbance our results show that this model can account for the following key responses to an expansionary monetary policy shock a fall in the nominal interest rate a rise in output consumption and investment and a gradual increase in the price level finally a detailed sensitivity analysis shows the model s results depend on the parameters assigned to critical structural features

pareto optima and competitive equilibria with adverse selection and moral hazard this paper explores the extent to which standard general equilibrium analysis of pareto optima and of competitive equilibria can be applied to environments with moral hazard and adverse selection problems allowing for lotteries contracts with random components we first establish that an adverse selection insurance economy a moral hazard insurance economy a signaling economy and a private information labor market economy are all special cases of a simple general structure we then show that techniques for characterizing pareto optimal contracts as solutions to concave programming problems are useful and nice and appear to be broadly applicable allowing for lotteries we show how to characterize the optimal allocations for the adverse selection insurance and labor market economies we then show that standard existence and optimality theorems for competitive equilibria apply in the linear space containing lotteries if agents with characteristics which are distinct and privately observed at the time of initial trading enter the economy wide resource constraints in a homogeneous way other kinds of diversity are not critical for economies with moral hazard which satisfy the homogeneity condition competitive contract markets single out a subset of the optima and thus can be consistent with apparent unemployment and with a random allocation of labor supplied though all households are averse to risk the adverse selection insurance and signaling economies however do not satisfy the homogeneity condition and are difficult to decentralize efficiently with a price system

uncertainty inflation and welfare this paper studies the welfare costs and the redistributive effects of inflation in the presence of idiosyncratic liquidity risk in a microfounded search theoretical monetary model we calibrate the model to match the empirical aggregate money demand and the distribution of money holdings across households and study the effects of inflation under the implied degree of market incompleteness we show that in the presence of imperfect insurance the estimated long run welfare costs of inflation are on average 40 to 55 smaller compared to a complete markets representative agent economy and that inflation induces important redistributive effects across households

labor hoarding and the business cycle this paper investigates the sensitivity of solow residual based measures of technology shocks to labor hoarding behavior using a structural model of labor hoarding and the identifying restriction that innovations to technology shocks are orthogonal to innovations in government consumption we estimate the fraction of the variability of the solow residual that is due to technology shocks our results support the view that a significant proportion of movements in the solow residual are artifacts of labor hoarding behavior specifically we estimate that the variance of innovations to technology is roughly 50 percent less than that implied by standard real business cycle models in addition our results suggest that existing real business cycle studies substantially overstate the extent to which technology shocks account for the variability of postwar aggregate u s output

discussion of aggregate implications of indivisible labor incomplete markets and labor market frictions by per krusell toshihiko mukoyama richard rogerson and aysegul sahin

on measuring the welfare cost of business cycles lucas 1987 argues that the gain from eliminating aggregate fluctuations is trivial following lucas a number of researchers have altered assumptions on preferences and found that the gain from eliminating business cycles are potentially very large however in these exercises little discipline is placed on preference parameters this paper estimates the welfare cost of business cycles allowing for potential time non separabilities in preferences where discipline is placed on the choice of preference parameters by requiring that the preferences be consistent with observed fluctuations in a model of business cycles that is a theoretical real business cycle world is constructed and the representative agent is then placed in this world the agent responds optimally to exogenous shocks given the frictions in the economy the agent s preference parameters along with other structural parameters are estimated using a bayesian procedure involving markov chain monte carlo methods two main results emerge from the paper first the form for the time non separability estimated in this paper is very different than the forms suggested and used elsewhere in the literature second the welfare cost of business cycles is close to lucas s estimate

religious participation and income the relationship between religion and income has been explored in several studies in this paper we extend this inquiry by arguing that religious participation through its effects on preferences and net earnings potential reduces participants incomes similarly we argue that high incomes discourage religious participation by encouraging individuals to substitute market work for religious activities in an empirical model we simultaneously estimate the effects of religious participation on income and income on religious participation using us state data on per capita personal income and church membership the results strongly support our hypotheses 2002 elsevier science b v all rights reserved

why has house price dispersion gone up we calibrate a dynamic general equilibrium island model to investigate the 30 year increase in the level of house prices and their dispersion across u s metropolitan areas the model is based on two main assumptions households o w in and out metropolitan areas in response to local productivity shocks and the housing supply cannot adjust instantly because of technological and regulatory constraints the calibration reveals that the observed tightening of housing supply regulation cannot quantitatively account for the rise in the level and dispersion of house prices in equilibrium workers o w out of tightly regulated towards less regulated metropolitan areas undoing most of the price impact of local supply restrictions in contrast the observed increase in wage dispersion across metropolitan areas does create the observed increase in the level and dispersion of house prices workers o w towards exceptionally productive metropolitan areas and drive house prices up the calibration also suggests that the welfare eects of housing supply regulation are large when wages become more dispersed

business cycles and labor market search the quantitative implications of labor market search for economic fluctuations are evaluated in the context of a real business cycle model incorporating labor market search into the model is found to improve its empirical performance along several dimensions in particular hours now fluctuate substantially more than wages and the contemporaneous correlation between hours and productivity falls in addition the model replicates the observation that output growth displays positive autocorrelation at short horizons overall the empirical results suggest that the labor market search environment embodies a quantitatively important propagation mechanism copyright 1996 by american economic association

skill heterogeneity and the business cycle this paper extends the real business cycle framework to incorporate ex ante skill heterogeneity among workers consistent with the empirical evidence skilled and unskilled workers in the model face the same degree of cyclical variation in real wages although unskilled workers are subject to substantially higher procyclical variation in employment systematic cyclical changes in the average skill level of employed workers are shown to induce bias in standard aggregate measures of cyclical variation in the labour input productivity and the real wage the introduction of skill heterogeneity improves the model s ability to match the empirical correlation between total hours and the real wage but the correlation between total hours and labour productivity remains higher than it does in the data

fiscal shocks and their consequences this paper investigates the response of hours worked and real wages to fiscal policy shocks in the post world war ii us we identify these shocks with exogenous changes in military purchases and argue that they lead to a persistent increase in government purchases and tax rates on capital and labor income and a persistent rise in aggregate hours worked as well as declines in real wages the shocks are also associated with short lived rises in aggregate investment and small movements in private consumption we describe and implement a methodology for assessing whether standard neoclassical models can account for the consequences of a fiscal policy shock simple versions of the neoclassical model can account for the qualitative effects of a fiscal shock once we allow for habit formation and investment adjustment costs the model can also account reasonably well for the quantitative effects of a fiscal shock

real returns on government debt a general equilibrium quantitative exploration we extend and apply computable general equilibrium methods to the study of economies with both aggregate uncertainty and uninsured household specific uncertainty in our economies the government issues two types of assets a small denomination non interest bearing asset which we call currency and a large denomination interest bearing asset which we call t bills we find that a real interest rate behavior similar to that observed in the u s can be sustained as equilibrium behavior in our class of economies we also find that policy induced real interest rate changes that are perceived as being permanent have significant real effects and that these effects take a few years to be fully realized

equilibrium prices when the sunspot variable is continuous we analyze sunspot equilibrium prices in nonconvex economies with perfect markets and a continuous sunspot variable our primary result is that every sunspot equilibrium allocation can be supported by prices that when adjusted for probabilities are constant across states this result extends to the case of a finite number of equally probable states under weak nonsatiation conditions but does not extend to general discrete state spaces we use our primary result to establish the equivalence of the set of sunspot equilibrium allocations based on a continuous sunspot variable and the set of lottery equilibrium allocations

learning by doing short sightedness and indeterminacy this article introduces firm specific learning by doing into a real business cycle rbc model this assumption results in indeterminacy of the wage over a large portion of the parameter space when firms use sufficiently high discount factors and when newly employed labour is relatively unproductive when firms and households use the same discount factor the effects of indeterminacy are limited to adding volatility to the wage rate if these discount factors differ however then indeterminacy also destabilises newly employed labour and total hours this result helps to explain the high amount of volatility that newly employed labour exhibits in the us data

seigniorage as a tax a quantitative evaluation in this paper we construct a computable general equilibrium model calibrate it to selected data for the american economy and use it to explore the efficacy of the seigniorage tax associated with various monetary arrangements we find that the key feature of any monetary tax arrangement is its equilibrium after tax real return schedule on liquid assets held by the households we also find that considerable seigniorage which we define to be the diserence between government expenditures other than interest paid on government debt and taxes collected can be large we find that the seigniorage tax is a poor one relative to a tax on labor income ln particular we find that if the after tax real return on saving deposits is 5 percent as it was on average in the 1974 1978 period welfare is one half percent of consumption lower than it would be if the after tax real return were zero as it approximately was in both the 1964 1968 and 19841988 periods the work builds on that of a imrohoroglu 1990 who finds that for worlds in which non interest bearing nominal assets are the only liquid assets the cost of constant inflation is far greater than the area under the empirical demand for money relation with such arrangements the after tax real return is the negative of the inflation rate the key feature of her model is that agents hold money in order to smooth consumption in the face of idiosyncratic income variability for which there

state dependent pricing and the general equilibrium dynamics of money and output economists have long suggested that nominal product prices are changed infrequently because of fixed costs in such a setting optimal price adjustment should depend on the state of the economy yet while widely discussed statedependent pricing has proved difficult to incorporate into macroeconomic models this paper develops a new tractable theoretical state dependent pricing framework we use it to study how optimal pricing depends on the persistence of monetary shocks the elasticities of labor supply and goods demand and the interest sensitivity of money demand

heterogeneous agents in quantitative aggregate economic theory abstract modern macroeconomics with increasing frequency is devoting attention to the fact that agents are heterogeneous especially in their role as providers of labor input into production these differences can take various forms the skills for market production are different some workers are and some are not engaged in market activity in any given period people are at different stages of the life cycle people are faced with uninsurable idiosyncratic shocks perhaps combined with liquidity constraints and so on in some cases the equilibrium still can be computed from a stand in planner s problem the most exciting recent development however is the dramatically expanded ability to compute equilibriums for interesting model economies for which that is not the case examples are given

the macroeconomic effects of war finance in the united states world war ii and the korean war during world war ii government expenditures were financed primarily by issuing debt during the korean war expenditures were financed almost exclusively by higher taxes reflecting president truman s preference for balanced budgets this paper evaluates quantitatively the economic effects of the different policies used to finance these two wars counterfactual experiments are used to explore the implications of financing world war ii like the korean war and financing the korean war like world war ii the author finds that using a korean war policy during world war ii would have resulted in much lower output and welfare relative to the actual policy copyright 1997 by american economic association

fiscal spending shocks endogenous government spending and real business cycles abstract we analyze a real business cycle model in which the government optimally chooses public investment and nonmilitary current expenditures to maximize the welfare of the representative private agent we characterize the optimal response of endogenous spending to shocks to technology and to military expenditures comovements between the components of government spending and other macroeconomic aggregates predicted by the model are compared with the corresponding comovements in the u s data the model captures the qualitative features of the relative volatilities of the components of government spending quite well but predicts too high correlations between the components of government spending and output

labour supply the roles of human capital and the extensive margin we specify and estimate a life cycle labour supply model that expands on earlier work by simultaneously including human capital accumulation saving and bequests an active extensive margin a realistic specification of the progressive tax structure and the social security system and an accounting for private pensions and health expenditures by incorporating all these features we develop new insights into how taxes affect life cycle labour supply for instance we find that labour supply elasticities vary in important ways with age education and the tax structure itself we also show how human capital affects elasticities differently on the intensive versus extensive margins

technical progress and aggregate fluctuations abstract we compare the cyclical fluctuations exhibited by a stochastic growth model under various stochastic processes governing technical change all of which are highly autocorrelated the results obtained are quite sensitive to the precise form of this stochastic process in particular the results depend on whether growth is deterministic or stochastic and in each case are quite sensitive to the persistence of an innovation the model does a relatively poor job of accounting for features of observed business cycles when technical change is difference stationary and does a better job when technical change is trend stationary but highly autocorrelated

sectoral shifts labor market sorting and aggregate fluctuations a model of sectoral reallocation is constructed where intersectoral friction is not caused by search or mobility costs instead a sectoral disturbance has a negative effect on production possibilities because it reduces the value of previous sorting in the labor market in equilibrium a measure of sectoral dispersion is positively correlated with the unemployment rate an increase in the incidence of sectoral disturbances increases unemployment at cyclical peaks and at cyclical troughs copyright 1990 by economics department of the university of pennsylvania and the osaka university institute of social and economic research association

on the stability of the two sector neoclassical growth model with externalities we study a class of two sector growth models with sector specific externalities in which one sector produces consumption and the other sector produces investment the novelty is that investment allocated to the consumption sector is an imperfect substitute for investment allocated to the investment sector we show analytically that in this case local indeterminacy near the steady state is impossible for every empirically plausible specification of the model parameters more specifically we show that a necessary condition for local indeterminacy is an upward sloping aggregate labor demand curve in the investment sector which requires a counterfactual strength of the externality we show numerically that an elasticity of substitution of plausible size implies determinacy near the steady state these findings differ sharply from the standard result for two sector models that if the investments allocated to the two sectors are perfect substitutes then local indeterminacy occurs for a wide range of plausible parameter values

home production with endogenous growth abstract benhabib et al 1991 and greenwood and hercowitz 1991 demonstrate that general equilibrium beckerian home production models that incorporate separate technology shocks to the home and market production functions are able to explain either the comovements in employment across consumption and investment sectors of the economy or the comovement in output across market and home investment sectors but not both simultaneously this paper demonstrates that these comovements can be resolved by introducing endogenous growth into the model while retaining only a single technology shock to market production the additional margin for allocating time between formal training and market activities is sufficient to bring about the observed positive comovements in employment and output across sectors

regional insurance and migration a dynamic model of migration is developed to study whether labor mobility can hedge people against region specific shocks making private or public insurance redundant the model adopts a novel timing for migration which is argued to be the time frame suitable for analyzing risk sharing issues it also innovates on the existing literature by solving individual migration through convexification of the set of actions the results show that the role of migration as an insurance mechanism is small labor mobility cannot fully remove income differentials between regions it is also shown that a fiscal stabilization scheme is in general optimal moreover any pure risk sharing mechanism has no influence on migration flows