Many studies have stressed that human activities may cause the extinction of single species. Anthropogenic activities, however, may affect not only the number of individuals of single species, but also their behavior. To investigate this issue, we propose a growth model in which agents may care not only for the species’ survival but also for the typicality of their behavior. We assume that the environmental defensive expenditures can protect the species avoiding their extinction, but can induce the species to modify their behavior. Results emerging from the model suggest that if the social planner cares for typicality of species behavior, then an infinite growth process may no longer be optimal. Numerical simulations, moreover, show the possible existence of a trade-off between number and behavior of the species, leading the system to a high number of species’ members that behave in an atypical way or to few members behaving very typically.

This paper builds a theoretical framework for studying migration and education in developing countries. Migration and education decisions are affected by migrants' wealth constraints. Technology and migration costs determine the pattern of migration through level of education, income, and wealth inequality. The model predicts that in the first stages of technological development, migration rates increase, as does economic inequality over time, for high migration costs. At more advanced stages of development, migration rates and wealth inequality decline. I show that these predictions are in line with the data.

This paper examines the mechanisms that determine the “vanishing effect of finance” on economic growth found in recent studies. Based on both current (171 countries, 1960–2014) and historical (21 OECD countries, 1870–2009) data, the results show that financial development promotes growth in poorer countries by increasing education and investment, and by decreasing fertility. The relevance of these transmission channels declines when countries become richer. The growth effect of the financial sector in high-income countries primarily depends on new ideas and potentials for innovation projects. Consequently, the major decline in factor productivity growth since the early 2000s has contributed to the reduction in the financial sector’s average effect on growth.

This paper takes a parametric approach to demand analysis and tests the weak separability assumptions that are often implicitly made in representative agent models of modern macroeconomics. The approach allows estimation and testing in a systems-of-equations context, using the minflex Laurent flexible functional form for the underlying utility function and relaxing the assumption of fixed consumer preferences by assuming Markov regime switching. We generate inference consistent with both theoretical and econometric regularity. We strongly reject weak separability of consumption and leisure from real money balances as well as weak separability of consumption from leisure and real money balances, meaning that the inclusion of a money in economic models would be of quantitative importance. We also investigate the substitutability/complementarity relationship among different categories of personal consumption expenditure (nondurables, durables, and services), leisure, and money. We find that the goods are net Morishima substitutes, but because of positive income effects they are gross complements. The implications for monetary policy are also briefly discussed.

This paper proposes a Bayesian approach to estimating a factor-augmented GDP per capita equation. We exploit the panel dimension of our data and distinguish between individual-specific and time-specific factors. On the basis of 21 technology, infrastructure, and institutional indicators from 82 countries over a 19-year period (1990 to 2008), we construct summary indicators of each of these three components in the cross-sectional dimension and an overall indicator of all 21 indicators in the time-series dimension and estimate their effects on growth and international differences in GDP per capita. For most countries, more than 50% of GDP per capita is explained by the four common factors we have introduced. Infrastructure is the greatest contributor to total factor productivity, followed by technology and institutions.

In this article we use Bayesian classification and finite mixture models to extract information from the MSI database (maintained by the Federal Reserve Bank of St. Louis) and construct a new set of non-nested monetary aggregates (under the Divisia aggregation procedure) based on statistical similarities and multidimensional structures. We also use recent advances in the fields of applied econometrics, dynamical systems theory, and statistical physics to investigate the relationship between the new money measures and economic activity. The empirical results offer practical evidence in favor of this approach to monetary aggregation.

We obtain the transitional dynamics of the decentralized economy described by P.M. Romer and characterize the dynamic behavior of the most relevant variables. We determine the existence of a stable one-dimensional manifold containing a steady state with innovation, unique in ratios, and also find a threshold in the accumulation of physical capital below which the economy is not innovating. Finally, using simulations, we assess the significance of this threshold and analyze the influence that technological and utility parameters have on it.

This paper revisits two classic results in standard overlapping generations models with a pay-as-you-go (PAYG) pension system. Firstly, a PAYG system crowds out private savings and reduces the overall capital stock. Secondly, in dynamically efficient economies, a PAYG system will reduce steady-state welfare. These classic results have been derived and exposed in models with no retirement decision. However, by allowing for endogenous retirement, and without taking recourse to any frictions, uncertainty, or myopia, it is shown that a PAYG system may be neutral and may even increase the capital–labor ratio. In particular, it is shown that the effect of the pension contribution rate on capital intensity depends on the elasticity of substitution between consumption and leisure. If the elasticity of substitution is between 0 and 1, an increase in the contribution rate will increase capital intensity. Moreover, it is shown that the result regarding welfare may also be overturned. An increase in the PAYG contribution rate may increase steady-state welfare.

This article presents a Ricardian model of trade with learning-by-doing to study the effect of barriers to trade in products with low growth potential on the long-run economic growth. The model shows that, when elasticity of demand for the product with a lower learning potential is greater than unity, a tariff imposed on this product can shift the demand toward the product with a higher learning potential, thus enhancing growth in the exporter economy. Therefore, although with some possible negative effect on the welfare in the short run, barriers for the export of natural luxury goods may be beneficial for developing economies in the long run, since they increase their incentive to develop sectors with higher growth potential.

Progress in stochastic macroeconomic modeling justifies revisiting Milton Friedman's program on the relation between macroeconomic stability and active stabilization policies. In the lecture, we use a standard new Keynesian model but depart from rational expectations by assuming that agents behave in line with adaptive learning, which increase the potential for instability in the economy.

Optimal policy under adaptive learning displays some similarity with optimal policy under commitment in the rational expectations setting. Specifically, we find that optimal policy responds in a persistent manner when expectations threaten to become unhinged. Finally, we illustrate the dynamics associated with the change from a simple regime that ignores the expectation formation, to the optimal policy that does. The results are not unlike the behavior of the U.S. economy around the Volcker transition (October 1979).

This paper proposes a tractable sudden stop model to explain the main patterns in firm-level data from a sample of Southeast Asian firms during the Asian crisis. The model incorporates trend shocks and financial frictions, features that have so far been used separately in the literature on emerging markets. A negative shock to trend productivity growth can account, in our model, for the drop in output and its swift recovery together with the sizable and persistent downward adjustment in firms' Tobin's Q and debt levels. These patterns are broadly shared by most sudden stop episodes as documented in the literature. Trend shocks can also generate, in our model, strong leverage effects in line with the firm-level data and other observations from the literature.

This paper examines China's optimal fiscal policy in a general equilibrium model, in which the government finances its budget through both a special instrument, an implicit tax on the residential land, and a typical conventional instrument, the value-added tax (VAT). By solving a Ramsey problem, we find that (i) the optimal policy suggests a much lower land tax rate than the existing rate in China, and (ii) a substantial part of debt stabilization should come through an adjustment in the VAT rate, instead of relying on land financing. Switching from the existing policy to the Ramsey policy generates significant welfare gains.

This paper investigates how a combination of monetary and macroprudential policies might affect the dynamics of a small open economy (SOE) with financial frictions under alternative discretionary shocks. Discretionary shocks in productivity and domestic and foreign monetary policies identify the roles of alternative interest rate and reserve requirement rules to stabilize the economy. The model is calibrated for the Brazilian economy. The exchange rate channel of transmission is relevant for foreign but not for domestic shocks. The interest rate rule should target domestic inflation and should not react to the exchange rate. The countercyclical reserve requirements rule, in its turn, should aggressively react to the credit-gap and not include a fixed component. Under both domestic and foreign shocks, the countercyclical effectiveness of the macroprudential policy improves when the degree of openness increases. There is a complementarity between monetary and macroprudential policy rules to stabilize the SOE.

Viability theory is the study of dynamical systems that asks what set of initial conditions will generate evolutions that obey the laws of motion of a system and some state constraints, for the length of the evolution. We apply viability theory to Judd's dynamic tax model [The welfare cost of factor taxation in a perfect-foresight model, Journal of Political Economy 95(4), 675–709 (1987)] to identify which economic states today are sustainable under only slightly constrained tax-rate adjustments in the future, when the dynamic budget constraint and the consumers' transversality condition at infinity are satisfied. We call the set of such states the economic viability kernel. In broad terms, knowledge of the viability kernel can tell the planner what economic objectives are achievable and assist in the choice of suitable controls to realize them. We observe that high consumption levels can only be sustained when capital is abundant and, unsurprisingly, that a very high consumption economy lies outside such kernels, at least for annual tax-adjustment levels limited by 20 percentage points. Furthermore, we notice that by and large the sizes of the kernel slices do not diminish as the tax rate rises; hence high-taxation economies are not necessarily more prone to explode, or implode, than their low-taxation counterparts. In fact, higher tax rates are necessary to keep many consumption choices viable, especially when capital approaches the constraint-set boundaries.

In his monograph The Conquest of American Inflation (Princeton, NJ: Princeton University Press, 1999), Sargent suggests that the sharp reduction in U.S. inflation that took place under Volker may vindicate the type of econometric policy evaluation famously criticized by Lucas (Carnegie–Rochester Conference Series on Public Policy, 19–46, 1976). At the core of this vindication story is the escape dynamics, recurrent sliding away from the path leading to the time-consistent suboptimal equilibrium level of inflation and toward the low-inflation, optimal, time-inconsistent Ramsey outcome: by recurrently estimating a reduced-form model, in fact, the policy maker could periodically learn an approximate version of the natural rate hypothesis and therefore be induced to disinflate the economy. Two elements seem important in this story: the type of model used by the policy maker to represent the economy, whether structural or reduced-form, and the policy specification, whether derived taking the private sector's expectations as given or as endogenous to the policy design. Although Sargent (1999) stresses the first element, we find that it is instead the second aspect that is crucial to generate recurrent periods of low inflation: the policy maker has to recognize the endogeneity of the private sector's expectations and refrain from exploiting ephemeral short-run trade-offs between inflation and unemployment.

How much can government-driven mortgage modification programs reduce the mortgage default rate? I compare an economy without a modification option to one with easy modifications, and evaluate the impact of these loan modifications on the foreclosure rate. Through loan modification, mortgage servicers can mitigate their losses and households can improve their financial positions without having to walk away from their homes. When modifying loan contracts is prohibitively costly, the default rate increases 1.5 percentage points in response to a 2007-style unexpected drop in housing prices of 30%. I calibrate the cost of modification after the financial crisis to match the Home Affordable Modification Program (HAMP) modification rate of 0.68%. My quantitative exercises show that current government efforts to promote mortgage modifications reduce the mortgage default rate by 0.63 percentage points.

Most papers studying the impacts of technology adoption on income trajectories assume that firms adopt frontier technologies when available. If these technologies are skill intensive, less-developed economies may fail in successfully implementing them and may become trapped in a low-growth equilibrium. Within a Schumpeterian growth model, we show that differences in adoption barriers and incentives to the accumulation of skills produce differences in the technology level that is optimal to adopt. If the economy is not overly distorted, copying nonfrontier technologies helps compensating for the scarcity of skills and increases the likelihood of copying frontier technologies in the long run. If distortions are significant, it may be optimal to copy less-advanced technologies even in the long run. If adoption is not a skill-intensive activity, then copying frontier technologies is always optimal; all economies achieve a high-growth equilibrium and only income differences persist in the long run.

This paper analyzes the dependence of average consumption on the saving rate in a one-sector neoclassical Solow growth model with production shocks and stochastic rates of population growth and depreciation where arbitrary ergodic processes are considered. We show that the long-run behavior of the stochastic capital intensity, and hence average consumption along any sample path, is uniquely determined by a random fixed point that depends continuously on the saving rate. This result enables us to prove the existence of a golden-rule saving rate that maximizes average consumption per capita. We also show that the golden-rule path is dynamically efficient. The results are illustrated numerically for Cobb–Douglas and CES production functions.

This paper studies the evolution of China’s exchange rate policy using real options theory. With intervention costs and ongoing uncertainty, intervention involves the exercise of an option. Increased uncertainty increases the value of this option. This “wait and see” effect leads the Central Bank to widen its intervention band. However, increased volatility also produces larger fluctuations in welfare, which creates a “fear of floating.” This induces the Central Bank to set a tighter band. To study this trade-off, our paper incorporates stochastic volatility into a new Keynesian target zone model and then calibrates it to data from China. We find that increased uncertainty leads to a tighter intervention band, both in the data and in the model. Hence, in China, “fear of floating” appears to dominate the “wait and see” effect.

We suggest that voters' lack of recognition of complex economic links may give rise to economic policies that eventually lead to a crisis. We consider a two-sector economy in which a majoritarian political process determines governmental regulation in one sector: a minimum nominal wage. If voters recognize general equilibrium feedbacks, workers favoring market-clearing wages will form a majority across sectors. If voters take into account only direct effects in the regulated sector, not only workers that enjoy minimum wages but also workers in the other sector are willing to vote for wage rises in each period. The reason is that they expect higher real wages for themselves, too. The political process leads to constantly rising unemployment and tax rates. The resulting crisis may trigger new insights into economic relationships on the part of the voters and may reverse bad times.