evaluating fiscal policy with a dynamic simulation model those schooled in the shifting curves of static and steady state macro models may not fully appreciate the dynamic nature of fiscal policy simple blackboard models can convey neither the timing nor the magnitude of responses to shortand intermediate term fiscal policies nor can they isolate the impact of fiscal policies on transitional generations there is also a range of issues such as deficit finance and the relative efficiency of alternative tax structures that cannot be properly addressed without solving for the economy s transition path recent experience has provided several experiments in dynamic fiscal policy including the accumulation of large amounts of official government debt expected future changes in the level of social security benefits shifts in the tax structure and increases and then reductions in investment incentives each of these policies has important transitional as well as long term effects the analysis of these effects is possible using a dynamic general equilibrium numerical simulation model

optimality and monetary equilibria in stationary overlapping generations models with long lived agents growth versus discounting abstract this paper studies the relationship between the existence and optimality of a monetary steady state and the nonoptimality of nonmonetary steady states we construct a sequence of stationary overlapping generations economies with longer and longer lived generations in which all agents maximize a discounted sum of utilities with a common discount rate under some assumptions the following result is established if the discount rate is greater less than the population growth rate then eventually every nonmonetary steady state is optimal nonoptimal and a monetary steady state does not exist exists and is optimal

the effect of public capital in state level production functions reconsidered using a panel data set for the forty eight contiguous states from 1970 to 1983 several estimates are provided of a cobb douglas production function with three types of public capital as inputs various specification tests are systematically applied to test for both random and fixed state effects nonstationarity endogeneity of the private inputs and measurement error in the preferred specification which is first differences with fixed state effects the public capital variables are not significant while the fixed state effects and private input variables are significant copyright 1996 by mit press

on the impact of heterogeneity on indeterminacy some recent research indicates that the occurrence of indeterminacy in models with externalities may be overstated because these models ignore agents heterogeneity we consider a neoclassical two sector growth model with technological externalities agents are heterogeneous with respect to their shares of the initial stock of capital and in labor endowments we find that the sign of the effect of inequality on indeterminacy is not pinned down by the standard properties of preferences however when the inverse of absolute risk aversion is a convex respectively concave function homogeneity heterogeneity tends to neutralize the external effects and eliminate indeterminacy

on the indeterminacy of capital accumulation paths abstract in neoclassical optimal growth models the stability of the accumulation paths depends on the discount parameter we prove that for discount factors small enough the policy function which describes an optimal path can be of any type the result is achieved using the notion of concavity we adopt a constructive approach given any twice differentiable map we show how to construct an optimal growth problem which produces that map as the optimal policy function a consequence is that chaos can appear in these models we also provide bounds on the values of the discount parameter for which indeterminacy is possible

equivariant general equilibrium theory abstract the main purpose of this paper is to investigate the properties of a version of the general equilibrium model where symmetry considerations are explicitely taken into account this version called the equivariant model is shown to be a natural framework to study sunspot equilibria the problem of sunspot equilibria can then be viewed as one of symmetry breaking existence of asymmetric or sunspot equilibria is addressed through the dual approach of price income equilibrium analysis that splits the problem of breaking symmetries into two separate easier problems

the role of public capital in production the impact of the stock of public capital on costs of production in the private sector is examined using annual data over the period 1958 89 a translog cost function is estimated and public capital is found to be a significant input the estimates indicate that public capital has positive marginal product and that private and public capital are complements in production rather than substitutes copyright 1992 by mit press

adjustment costs and indeterminacy in perfect foresight models abstract this paper suggests a method for resolving indeterminacy of equilibrium in perfect foresight models and applies it to several existing models quadratic adjustment costs are introduced into models with multiple equilibria and the limiting behavior of the resulting solutions is studied as the adjustment costs go to zero the method is shown to be useful in selecting among feasible equilibria in examples in which there is local indeterminacy

money interest rates and exchange rates with endogenously segmented markets we analyze the effects of money injections on interest rates and exchange rates when agents must pay a baumol tobin style fixed cost to exchange bonds and money asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money infrequently when the government injects money through an open market operation only those agents that are currently trading absorb these injections through their impact on these agents consumption these money injections affect real interest rates and real exchange rates the model generates the observed negative relation between expected inflation and real interest rates as well as persistent liquidity effects in interest rates and volatile and persistent exchange rates

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

wealth inequality preference heterogeneity and macroeconomic volatility in two sector economies we explore the link between wealth inequality preference heterogeneity and macroeconomic volatility in a two sector neoclassical growth model first we prove that if agents have homogeneous preferences when the absolute risk tolerance is a strictly convex concave function sufficiently high low levels of wealth inequality may lead to endogenous fluctuations in the neighborhood of the steady state second we consider the effects of preference heterogeneity when agents are homogeneous with respect to their wealth we show that when the utility function belongs to the hara class sufficiently high levels of preference heterogeneity may lead to endogenous fluctuations in the neighborhood of the steady state if the elasticity of intertemporal substitution in consumption is greater than one

the type agent core for exchange economies with asymmetric information abstract the type agent core is a new solution concept for exchange economies with asymmetric information it coincides with the set of subgame perfect equilibrium outcomes of a simple competitive screening game uninformed intermediaries help the agents to cooperate in an attempt to make some profit the paper extends the work of perez castrillo cooperative outcomes through non cooperative games games econ behav 7 1994 428 440 to exchange economies with non transferable utility and asymmetric information the type agent core is a subset of wilson s coarse core wilson information efficiency and the core of an economy econometrica 46 1978 807 816 it is never empty even though it may be a strict subset of wilson s fine core in addition it converges towards the set of constrained market equilibria as the economy is replicated

the overlapping generations model iii the case of log linear utility functions existence of competitive equilibria in the overlapping generations model has been studied in some detail see 4 6 9 we need to know more about the properties of these equilibria how many are there how do they depend on the basic parameters of the economy we also need to compare the set of monetary competitive equilibria with the set of nonmonetary competitive equilibria are there vastly more monetary equilibria than nonmonetary equilibria analysis of the properties of competitive equilibria is for the overlappinggenerations model an important but difficult task in his seminal article 8 samuelson put it this way if we take any finite stretch of time and write out the equilibrium conditions we always find them containing discount rates from before the finite period and discount rates from afterward we never seem to get enough equations lengthening our time periods turns out always to add as many new unknowns as it supplies equations samuelson suggested that rather than facing this difficulty directly we can try to cut the gordian knot by our special assumption of stationariness

energy balance climate models and general equilibrium optimal mitigation policies in a general equilibrium model of the world economy we develop a two dimensional energy balance climate model featuring heat diffusion and anthropogenic forcing driven by global fossil fuel use across the sphere of the earth this introduces an endogenous location dependent temperature function driving spatial characteristics in terms of location dependent damages resulting from local temperature anomalies into the standard climate economy framework we solve the social planner s problem and characterize the competitive equilibrium for two polar cases differentiated by the degree of market integration we define optimal taxes on fossil fuel use and how they may implement the planning solution our results suggest that if the implementation of international transfers across latitudes is not possible then optimal taxes are in general spatially non homogeneous and may be lower at poorer latitudes the degree of spatial differentiation of optimal taxes depends on heat transportation by employing the properties of the spatial model we show by numerical simulations how the impact of thermal transport across latitudes on welfare can be studied

on competitive cycles in productive economies abstract in a model of overlapping generations with production money and an endogenous labor supply general conditions are given for the existence of two different types of cyclical equilibria the conditions are given in terms of the elasticities of demand for savings and for capital with respect to the interest rate and of the capital consumption ratio at the golden rule steady state examples using ces technologies are also studied

uniqueness of an equilibrium in infinite horizon economies subject to taxes and externalities abstract this paper verifies the uniqueness of an equilibrium for a class of stochastic infinite horizon economies with capital that are subject to distortionary taxes or externalities the proof develops the property of concavity for a nonlinear monotone operator whose fixed points correspond to equilibria as the underlying monotone operator has been useful for establishing the existence of an equilibrium and for computing an equilibrium this approach also brings under one roof the study of existence uniqueness and approximation of an equilibrium in distorted economies journal of economic literature classification numbers c60 h20

exponentially fading memory learning in forward looking economic models abstract in this paper we analyze forward looking economic models under bounded rationality we consider a learning mechanism characterized by exponentially fading memory with a learning step not vanishing in the limit the dynamics of the model under bounded rationality can be parametrized with respect to the memory of the learning mechanism we show that memory plays a stabilizing role in a local sense it induces local convergence towards a stationary rational expectations equilibrium and in some cases it does not allow for nonperfect foresight attractors obtained through local bifurcations we discuss this learning mechanism in pure exchange overlapping generations models we also analyze models with predetermined state variables in this setting the effect of memory on the learning dynamics is controversial

economies of scope of lending and mobilizing deposits in microfinance institutions a semiparametric analysis microfinance emerged as an innovation in lending to the rural poor in asia and in response to frequent failure of previous interventions in rural financial markets such as directed and subsidized production credit disbursed by agricultural development banks while it started as a collection of banking practices built around providing small loans typically without collateral and accepting tiny savings deposits armendariz de aghion and morduch 2005 p 1 today many microfinance institutions mfis expand their services and strive to offer payment and savings facilities insurance housing and longer term loans to marginalized clientele in rural and urban settings estimates show that there are at least 10 000 microfinance programs worldwide two related and important trends are now emerging the first is toward commercialization which essentially is transforming ngo mfis into regulated intermediaries with the intent to lower costs by accessing deposits as well as strengthen the organizations by privatization the second trend is a renewed interest in experimentation to mobilize savings with emphasis on rural savings economies of scope imply that expansion into the savings market can be more cost efficient if done by the same mfis which makes it a significant factor in assessing the feasibility of these innovations however there are few studies that estimate the magnitude and sign of scope economies in this paper we present some preliminary evidence on scope economies using a large sample of mfis

wealth distribution and output fluctuations we explore the link between wealth inequality and output fluctuations in a general two sector neoclassical growth model with endogenous labor and heterogeneous agents when agents have homogeneous crra preferences and individual wealth is pareto distributed a sufficiently large rise in the gini index typically leads to an increase in endogenous fluctuations of output for general economies we show that under plausible conditions on the fundamentals wealth inequality is still a destabilizing factor

state infrastructure and productive performance recent research on productivity growth has focused on public infrastructure and its impact on economic growth and productivity the authors construct a model of firms technology and behavior taking advantage of the analytical framework provided in the cost function based applied production theory literature and apply it to state level data for u s manufacturing they find that infrastructure investment provides a significant return to manufacturing firms and augments productivity growth the net benefits of infrastructure investment may or may not be positive depending upon the social costs of infrastructure investment and the relative growth rates of output and infrastructure copyright 1996 by american economic association

smooth dynamics and computation in models of economic growth abstract in this paper we give an overview of the differentiability properties of the value and policy functions of dynamic programming based upon the differentiability analysis we also derive approximation estimates for the value and policy functions of a discretized model amenable to the computation of optimal solutions

determinacy of equilibria in dynamic models with finitely many consumers abstract we consider a production economy with a finite number of heterogeneous infinitely lived consumers we show that if the economy is smooth enough equilibria are locally unique for almost all endowments we do so by converting the infinite dimensional fixed point problem stated in terms of prices and commodities into a finite dimensional negishi problem involving individual weights in a social value function by adding artificial fixed factors to utility and production functions we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of time zero factor endowments and derivatives of the social value function

existence and uniqueness of equilibrium in distorted dynamic economies with capital and labor abstract in this paper we provide a set of sufficient conditions under which recursive competitive equilibrium exists and is unique for a large class of distorted dynamic equilibrium models with capital and elastic labor supply we develop a lattice based approach to the problem the class of economies for which we are able to obtain our existence and uniqueness result is considerably larger than those considered in previous work we conclude by applying the new results to some important examples of monetary economies often used in applied work journal of economic literature classification numbers c62 d51 d90 e10

on the dynamics of growth and fiscal policy with redistributive transfers abstract this paper continues the study of optimal fiscal policy in a growing economy by studying the case in which the government simultaneously provides three main categories of expenditures public production services public consumption services and state contingent redistributive transfers we make two contributions to the literature firstly we set up a dynamic general equilibrium model of endogenous growth in which rational voters choose the capital tax rate and the allocation of total tax revenues between productive government expenditures public production services and non productive ones public consumption services and redistributive transfers we study the properties of these policies and their impact on growth secondly we deliver analytic results for the long run and transitional dynamics of optimal fiscal policies and endogenous growth in particular we establish existence and investigate the possibility of uniqueness and dynamic determinacy and how this possibility is affected by the chosen allocative and redistributive policies

the structure of sunspot equilibria the role of multiplicity this paper examines the structure of sunspot equilibria in a standard two period exchange economy with real assets we show that for a generic choice of utility functions and endowments there exists an open set of real asset structures whose payoffs are independent of sunspots such that the economy with this asset structure has a regular sunspot equilibrium an important implication of our result is that the multiplicity of non sunspot equilibria is not necessary for the existence of sunspot equilibria our technique is general and can be applied to show the existence of sunspot equilibria in other frameworks this paper analyses the structure of sunspot equilibria in a standard two period competitive exchange economy with more than one consumption good in each period and a real asset which pays a bundle of commodities there is no uncertainty except for sunspots we show that for an open and dense subset of the set of utility functions and endowments there exists an open set of real asset structures with payoffs independent of sunspots such that the resulting economy with an asset structure in this set has a regular sunspot equilibrium we also show that this result is tight in the space of utility functions endowments and asset structures there is in fact an open set of economies for which sunspot equilibria do not exist moreover our argument provides a systematic method which allows us to find generically all the sunspot equilibria of a given economy thus it can be used as a tool for studying the global structure of the set of sunspot equilibria not just the existence of a sunspot equilibrium the dependence of the existence of sunspot equilibria on the particular specification of the payoff of the asset provides an interesting contrast with the fact that the set of equilibrium allocations of the underlying certainty economy does not depend on the asset structure recall that when markets are complete preferences and endowments completely determine the set of competitive equilibria in our setting markets are complete in the underlying certainty economy so if payoffs change the price of the asset will change accordingly but there is no effect on the equilibrium consumption of the certainty economy thus the fundamentals of the certainty economy are the distribution of endowments and preferences among consumers and our result implies that the existence of sunspot

adjustment costs learning and indeterminacy abstract i compare the adjustment cost and learning approaches to resolving indeterminacy of perfect foresight equilibrium in a continuous time model with local indeterminacy rapid learning tends to select different perfect foresight equilibria of the original model than does the inclusion of vanishing adjustment costs this difference has implications for the dynamic response of the economy to unanticipated shocks

introduction to intertemporal equilibrium theory indeterminacy bifurcations and stability institute of economic research kyoto university yoshida honmachi sakyoku kyoto 606 japannishimura kier kyoto u ac jpthis paper provides an overview of the basic concepts of intertemporal equi librium theory and discusses the frameworks and techniques used in this subject it then goes on to introduce the main themes discussed in the papers included inthis symposium issue journal of economic literature classification numbers c61 d90 o41

the concept of income in a general equilibrium this paper derives a concept of aggregate real income for a competitive economy in general equilibrium consisting of heterogeneous infinitely lived people and relates it to current and future consumption possibilities an important characteristic of our measure of income which we call real income is that deflation is carried out using a consumption deflator rather than any price index of output we suggest that it may be inappropriate to regard capital gains as income we also present a coherent treatment of the effects of changes to the terms of trade on real income and explain the implications of this for resourceexporting economies hicks 1939 defined income as the maximum amount a man can spend and still be as well off at the end of the week as at the beginning since then there has been a succession of attempts to apply this definition the problem is as hicks acknowledged that the correct interpretation of as well off is by no means clear weitzman 1976 and asheim 1997 suggest that income is equal to the level of consumption which could be sustained indefinitely out of the capitalized value of current income and equate this to being as well off at the end of the week as at the beginning eisner 1988 argues specifically that in a total incomes system effects arising from asset price changes and conventionally regarded as capital gains should be included with income here building on earlier work by sefton and weale 1996 asheim and weitzman 2001 and pemberton and ulph 2001 we provide a comprehensive account of the implications of the idea that as well off should be understood to mean that the present discounted value of current and future utility should be unchanged over the interval considered we work in the context of a general equilibrium taking the prices established in the general equilibrium as given we first look at income from the production side showing that in an economy where prices and the interest rates satisfy an intertemporal efficiency condition income along an equilibrium path can be interpreted as a weighted average of the value of the current and future consumption bundle plus a term adjusting for changes in the nominal price level converting prices to real prices by deflating by the divisia consumption price index removes the need for this adjustment these results are suggestive first they offer a way of defining the income of a household entirely in terms of its consumption possibilities second they indicate that to calculate real income deflation is best carried out using a price index of consumption this is a substantial divergence from current national accounting practice third because we have assumed constant returns there is a trivial aggregation result that aggregate income is equal to the sum of the incomes from the individual sectors

comparing the efficiency of alternative policies for reducing traffic congestion abstract this paper compares the efficiency of a single lane toll a uniform congestion tax across freeway lanes a gasoline tax and a transit fare subsidy at reducing congestion there are three conditions for an efficient outcome relating to travel across modes across peak and off peak periods and sorting out drivers with high and low time costs across faster and slower freeway lanes each policy involves some inefficiency indeed the single lane toll gasoline tax and transit subsidy forego at least two thirds of the efficiency gains under an ideal congestion tax that varies across lanes however the uniform congestion tax achieves over 90 of these gains

on non uniqueness in rational expectations models an attempt at perspective abstract many macroeconomic models involving rational expectations give rise to an infinity of solution paths even when the models are linear in all variables some writers have suggested that this non uniqueness constitutes a serious weakness for the rational expectations hypothesis one purpose of the present paper is to argue that the non uniqueness in question is not properly attributable to the rationality hypothesis but instead is a general feature of dynamic models involving expectations it is also argued that there typically exists in a very wide class of linear rational expectations models a single solution that excludes bubble or bootstrap effects one that occur only because they are arbitrarily expected to occur a systematic procedure for obtaining solutions free from such effects is introduced and discussed in addition this procedure is used to interpret and reconsider several prominent examples with solution multiplicities including ones developed by fischer black and john b taylor

nominal price stickiness as a rational expectations equilibrium abstract the equilibrium approach to price stickiness explains the apparent inflexibility of money prices as one possible equilibrium in a model that contains multiple equilibria this paper points out that the equilibrium approach is robust to the assumption that agents may write contracts that are contingent upon the realization of the money supply

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

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

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

public infrastructure investment interstate spatial spillovers and manufacturing costs effects of public infrastructure investment on the costs and productivity of private enterprises have proven difficult to quantify empirically one piece of this puzzle that has received little attention is spatial spillovers we apply a cost function model to 1982 1996 state level u s manufacturing data to untangle the private cost saving effects of inter and intrastate public infrastructure investment we implement two spatial adaptations including a spatial spillover index in the theoretical model and allowing for spatial autocorrelation in the stochastic structure recognizing such spillovers both increases the estimated magnitude and significance of cost savings from intrastate public infrastructure and augments these productive effects

pseudo panel data models with cohort interactive effects when genuine panel data samples are not available repeated cross sectional surveys can be used to form so called pseudo panels in this article we investigate the properties of linear pseudo panel data estimators with fixed number of cohorts and time observations we extend standard linear pseudo panel data setup to models with factor residuals by adapting the quasi differencing approach developed for genuine panels in a monte carlo study we find that the proposed procedure has good finite sample properties in situations with endogeneity cohort interactive effects and near nonidentification finally as an illustration the proposed method is applied to data from ecuador to study labor supply elasticity supplementary materials for this article are available online

introduction to a general equilibrium approach to economic growth abstract endogenous growth theory has had some success in explaining the observed data related to the process of economic growth however the results of the models in this literature are typically very sensitive to their micro economic structure it is therefore important to understand how the growth process behaves under more general specifications of such features as the number of commodities the number and preferences of consumers the factors of production and the financial and information structures in other words valuable insights can be gained by integrating growth theory into the framework of general equilibrium theory the summary of the papers in this volume focuses on seven issues that are crucial to this integration and highlights the contributions of the papers to the resolution of these issues journal of economic literature classification numbers c61 d50 d90 f43 o30 o41

quadratic concavity and determinacy of equilibrium one of the central features of classical models of competitive markets is the generic determinacy of competitive equilibria for smooth economies with a finite number of commodities and a finite number of consumers almost all initial endowments admit only a finite number of competitive equilibria and these equilibria vary locally smoothly with endowments thus equilibrium comparative statics are locally determinate this paper establishes parallel results for economies with finitely many consumers and infinitely many commodities the most important new condition we introduce quadratic concavity rules out preferences in which goods are perfect substitutes globally locally or asymptotically our framework is sufficiently general to encompass many of the models that have proved important in the study of continuous time trading in financial markets trading over an infinite time horizon and trading of finely differentiated commodities

equilibrium analysis of the infinite horizon model with smooth discounted utility functions abstract the equilibrium set and the natural projection are studied within the setup of the pure exchange infinite horizon model with a finite number of infinitely lived agents utility functions belonging to the smooth discounted variety and individual endowments being variable we show that the equilibrium set has convex fibers which implies arc connectedness and more generally contractibility we also show that the sets of regular equilibria and of regular economies are open and dense for the product topology therefore it is generically true that the equilibria of infinite horizon economies with smooth discounted utility functions can be approximated by those of finite horizon truncated economies

public infrastructure private input demand and economic performance in new england manufacturing much of the current debate on the economic performance impacts of public infrastructure investment relates to the input specific effects of such investment in this article we explore these impacts by evaluating substitution patterns affecting private input use in new england manufacturing using a cost based methodology we find that in the short run public capital expenditures provide cost saving benefits that exceed the associated investment costs due to substitutability between public capital and private inputs over time however stimulating investment in private capital increases economic performance more effectively than public capital expenditures alone and in fact reduces the cost incentive for such expenditures in addition growth in output motivated by infrastructure investment increases employment opportunities because this growth overrides short run substitutability

market participation and sunspot equilibria we investigate the structure of competitive equilibria in an exchange economy parametrized by i endowments and ii restrictions on market participation for arbitrary regular endowments if few consumers are restricted there are no sunspot equilibria if endowments are allowed to vary while restrictions on market participation are fixed there is a generic set of preferences such that sunspot equilibria exist for a non empty subset of endowments our analysis extends to the general case of an arbitrary number of restricted consumers the results of cass and shell for the polar cases in which either i no consumers are restricted or ii all consumers are restricted

identifying and testing models of managerial compensation this article analyses the identification and empirical content of the pure moral hazard pmh and the hybrid moral hazard hmh principal agent models the pmh model has hidden actions while the hmh model has hidden information in addition to hidden actions in both models agents are risk averse and principals are risk neutral the article derives the equilibrium restrictions from the optimal contract and uses the restrictions to show that the models have empirical content for any given risk aversion parameter the models other parameters are non parametrically point identified the risk aversion parameter and hence the model are however only partially identified management s ability to manipulate accounting reports arises endogenously within hmh models but not in all versions of pmh models we use our framework to investigate whether shareholders contract with management recognizing that accounting reports are susceptible to manipulation and therefore endogenous to the incentives offered to management the data reject all models in which accounting reports are verifiable furthermore the version of the pmh in which accounting reports can be manipulated is rejected if expected compensation is restricted to be positive

public sector capital and the productivity puzzle a number of studies have suggested a quantitatively important relationship between public sector capital accumulation and private sector productivity with the most compelling evidence derived from analyses of state level data estimates herein of production functions that use standard techniques to control for unobserved state specific characteristics however reveal essentially no role for public sector capital in affecting private sector productivity only estimates of state production functions that do not include such controls find substantial productivity impacts this result reconciles existing econometric estimates with the findings of hulten and schwab based on growth accounting techniques as such techniques effectively control for state specific effects region level estimates are essentially identical to those from state data suggesting no quantitatively important spillover effects across states copyright 1994 by mit press

price level volatility a simple model of money taxes and sunspots abstract we investigate sunspot equilibria in a static one commodity model with taxes and transfers denominated in money units volatility in this economy is purely monetary since the only uncertainty is about the price level we construct simple robust examples of sunspot equilibria that are not mere randomizations over certainty equilibria we also identify the source of these sses equilibrium in the securities market is determined as if there were no restricted consumers and the unrestricted consumers face intrinsic uncertainty perfect securities markets eliminate allocation uncertainty but they exacerbate price level volatility journal of economic literature classification numbers d50 d52 d84 e31 e62

multiplicity of equilibria a pure exchange general equilibrium model is considered and the equilibrium set is studied it is shown for all total endowments and an open and dense set of preferences that if there arel 2 commodities andm 2 consumers then there exists a set of distributions of endowments with nonempty interior such that the associated economies have at leastl 1 min l m equilibria forl min l m even and at leastl 2 min l m equilibria forl min l m odd journal of economic literature classification number d51

is public expenditure productive abstract this paper considers the relationship between aggregate productivity and stock and flow government spending variables the empirical results indicate that i the nonmilitary public capital stock is dramatically more important in determining productivity than is either the flow of nonmilitary or military spending ii military capital bears little relation to productivity and iii a core infrastructure of streets highways airports mass transit sewers water systems etc has most explanatory power for productivity the paper also suggests an important role for the net public capital stock in the productivity slowdown of the last fifteen years

growth externalities and sunspots abstract in this paper we consider a simple model of neo classical capital accumulation with production externalities in which a continuum of identical infinitely lived agents produce output from a standard stationary neo classical production technology and choose their actions to maximize a discounted sum of single period utilities because of the presence of the externality in production the model exhibits sunspot equilibria

pareto optima welfare weights and smooth equilibrium analysis abstract the first part of this paper deals with the parameterization of the set of pareto optima by utility levels and by the welfare weights in the second part the parameterization by the welfare weights is used to establish properties of the negishi equation system associated with the finite general equilibrium model this approach yields proofs of the regularity of the no trade equilibria and of the existence of equilibria by a degree argument that are new the formulation and the proof of these properties within the setup of the negishi equation system plays a crucial role in extending these properties to the infinite horizon model with discounted utility functions

the environmental consequences of trade evidence from subnational trade flows abstract the debate over the environmental consequences of free trade is not only quite heated but also entails significant policy ramifications recently cross sectional analysis at the country level has made use of exogenous determinants of trade to identify the causal effect of trade on the environment finding moderate evidence of a beneficial impact of expanded trade on environmental quality given the stakes involved we revisit this finding using subnational data on trade flows across us states and several measures of pollution not only does the analysis shed further light on the debate at the international level but also addresses a heretofore unexamined question does greater inter regional commerce at the subnational level harm the environment our findings are striking providing further evidence against a negative environmental impact of trade for the majority of measures analyzed however several sources of heterogeneity arise that are noteworthy

public and private capital productivity puzzle a nonparametric approach is public expenditure productive is there a shortfall or excess in public capital investment we address these old issues in the light of new econometric tools it is argued that the cobb douglas specification that ignores nonlinearity inherent in the functional relationship of the production technology causes incorrect estimates of input elasticities to avoid possible model misspecification we use li racine generalized kernel estimation this procedure is used to estimate the returns to private capital employment and public capital in gross state product from a panel of 48 states for 17 years in contrast to previous studies we find that the return to public capital is positive and significantly different from zero

wealth inequality and dynamic stability abstract we explore the link between wealth inequality and stability in a two sector neoclassical growth model with heterogeneous agents we show that when the inverse of absolute risk aversion or risk tolerance is a strictly convex function wealth inequality is a factor that favors instability in the opposite case inequality favors stability our characterization also shows that whenever absolute risk tolerance is linear as when preferences exhibit hyperbolic absolute risk aversion hara wealth heterogeneity is neutral

on the stability of nonsunspot equilibria abstract this paper analyzes the stability of the pareto efficient nonsunspot equilibria as a function of the constraints faced by consumers in their ability to transfer wealth between states of nature equilibria that are stable for the certainty economy define nonsunspot equilibria that are stable in the following two polar cases 1 all consumers are unconstrained 2 all consumers are fully constrained furthermore the stable certainty equilibria with small trade vectors define nonsunspot equilibria that are also stable independently of the constraint levels instability can develop only at intermediate constraint levels and for nonsunspot equilibria that feature sufficiently large trade vectors

intertemporal separability in overlapping generations models abstract in a pure exchange overlapping generations model with many goods but a single consumer with preferences separable between two periods of life there are generically finitely many equilibria in which money has no value if money has value then generically there is at most one dimension of indeterminacy this property does not generalize to a model with many consumers and general preferences it is shown why a separable representative consumer implies such strong conclusions it is also shown that the absence of income effects leads to similar results

on the role of tax subsidy scheme in money search models this article investigates the roles of policy in search models with divisible money recently real indeterminacy of stationary equilibria has been found in both specific and general search models with divisible money thus if we assume the divisibility of money it would be quite difficult to make accurate predictions of the effects of simple monetary policies therefore in this article we introduce a certain tax subsidy scheme and show that this is effective in selecting a determinate efficient equilibrium in other words for a given efficient equilibrium and for any real number 0 a certain tax subsidy scheme induces a locally determinate equilibrium within the neighborhood of the given equilibrium moreover the size of the tax subsidy can be arbitrarily small

intertemporally separable overlapping generations economies abstract intertemporally separable overlapping generations economies typically have a sequentially finite number of equilibria though the equilibrium set may even with probability 1 be uncountable

asset markets and equilibrium processes the failure of the asset market to be complete causes serial dependence in output and prices which is suboptimal we consider an economy with white noise shocks when the asset market is complete an optimal competitive allocation inherits this strong stationarity when the asset market is only sequentially complete prices and output necessarily display serial dependence at equilibrium the further incompleteness of a monetary economy explains co movements in real and nominal variables

nonparametric estimation of the determinants of inefficiency in the presence of firm heterogeneity abstract we consider the application of the profile least squares method to estimate the impact of the determinants of inefficiency in the presence of panel data and unobserved individual specific heterogeneity for the stochastic frontier model this method has the advantage over previous approaches in that the effect of the determinants of inefficiency on output can be recovered nonparametrically in the presence of heterogeneity at the firm level we describe the estimator and offer a small set of monte carlo exercises that showcases the value of the method for the stochastic frontier model application of the method to assess insights generated compared to a pooled cross section approach using data from the taiwan banking system is also provided

efficient estimation with panel data when instruments are predetermined an empirical comparison of moment condition estimators i examine the empirical performance of instrumental variables estimators with predetermined instruments in an application to life cycle labor supply under uncertainty the estimators studied are two stage least squares generalized method of moments gmm forward filter independently weighted gmm and split sample instrumental variables i compare the bias efficiency trade off for the estimators using bootstrap algorithms suggested by freedman and by brown and newey results indicate that the downward bias in gmm is quite severe as the number of moment conditions expands outweighing the gains in efficiency the forward filter estimator however has lower bias and is more efficient than two stage least squares

expectations in stability and in viability in realistic overlapping cohorts models abstract in this paper we shall consider the multi cohort generalization of overlapping generations models namely overlapping cohorts olc models each time period consumers of different ages form expectations on future interest rates and conditionally maximize utility arising from their remaining consumption paths under the condition of zero bequest for every time period a coordinator determines the new interest rate to ensure that the total consumption is equal to the total endowment of the society the message of the paper is the following 1 in olc the dynamics generated by rational expectations is frequently not only unstable but unviable 2 in olc the dynamics generated by naive expectations is practically asymptotically stable and viable around the lower steady state

virtual determinacy in overlapping generations models we reappraise the significance and robustness of indeterminacy in overlapping generations models in any of gale s example economies with an equilibrium that is not locally unique for instance perturbing the economy by judiciously splitting each of gale s goods into two close substitutes restricts that indeterminacy to each period s allocation of consumption between those substitutes in particular prices interest rates the commodity value of nominal savings including money and utility levels become determinate any indeterminacy of equilibrium consumption in the perturbed economy is thus insignificant to consumers and some forecasting and comparative statics policy exercises become possible

earnings mobility and measurement error a pseudo panel approach the degree of mobility in incomes is often seen as an important measure of the equality of opportunity in a society and of the flexibility and freedom of its labor market but estimation of mobility using panel data is biased by the presence of measurement error and non random attrition from the panel this paper shows that dynamic pseudo panel methods can be used to consistently estimate measures of absolute and conditional mobility in the presence of non classical measurement errors these methods are applied to data on earnings from a mexican quarterly rotating panel absolute mobility in earnings is found to be very low in mexico suggesting that the high level of inequality found in the cross section will persist over time however the paper finds conditional mobility to be high so that households are able to recover quickly from earnings shocks these findings suggest a role for policies which address underlying inequalities in earnings opportunities