We study the quantitative properties of a dynamic general equilibrium model. Agents face both idiosyncratic and aggregate income risk, state-dependent borrowing constraints that bind occasionally, and markets that are incomplete. Equilibrium consumption-savings plans and asset prices are computed under various assumptions about income uncertainty. Then, we investigate whether the model replicates two empirical observations: the high correlation between individual consumption and individual income, and the equity premium puzzle. We find that, when the driving processes are calibrated according to the data from wage income in different sectors of the U.S. economy, the results move in the direction of explaining these observations, but we fall short of explaining the observations quantitatively. If the incomes of agents are assumed to be independent of each other, the observations can be explained quantitatively.

Most of us are armchair economists. Whether our opinions are right or wrong, we can proffer them at little personal cost—the most we can lose is our reputation. Not so for János Kornai. For much of his life, speaking freely would have led him to land in jail, or worse. He faced a difficult choice. He could publish illegally, take the samizdat route, but reach a very small number of readers. He could instead respect a number of official taboos, publish legally, and reach a much wider readership. These difficulties have not prevented him from giving us the most informed and deepest critique of the socialist system to date. This interview is, I hope, successful in showing the degree to which Kornai's life and work have been intertwined, and how he came to believe what he believes today. Kornai is sharing his time between Harvard and Collegium Budapest. The interview took place in my office when I was visiting Harvard University in June 1998.

Elhanan Helpman is on a quest for knowledge. He is a researcher in transition, constantly redefining his fields of interest by altering the questions asked and the techniques used. Like many of the great economists, Elhanan has worked in many areas: open economy macro, trade under uncertainty, the new international economics, growth theory, and political economy, to list the most famous. However, this interview is not intended as a review of his contributions. Rather, it is about what drives Elhanan's creative process: his wide-ranging reading, his characteristic stubbornness in tackling problems, the conceptualization of his larger research agenda, and his recollections of how he initiated transitions between fields. It is a very personal interview for those in search of creative inspiration.

Every graduate school has its own distinctive history that makes it unique in some way, but every graduate school is also part of the broader economics profession and reflects the currents in the profession. The following dialogue focuses on the question: Is it useful to distinguish a “Yale school of macroeconomics” from other schools of economics? The idea for this dialogue came from William Barnett in a discussion with Bob Shiller. Bill suggested to Bob some names of individuals who might conduct the “dialogue” and I was selected from that list. I happily agreed because, from my knowledge of the writings of the Yale faculty, I felt that there was a uniformity of ideas with which I was sympathetic, and which might deserve to be called a “Yale School”—a view shared with Bob Shiller.

Exploring the issue further, I found that there was far less agreement on whether the macroeconomics work that currently goes on at Yale can be classified meaningfully as “the Yale school.” The objections to specifying a separate Yale school were the following: (1) The term, Yale school, had been used in the 1960's to describe Jim Tobin's position in a debate with monetarists. Some felt it would be confusing to use the Yale school classification to describe a broader set of works that are not connected to that earlier, more narrow, use. (2) Calling the work in macroeconomics currently done at Yale a “school” distinguishes it too much. The work that goes on in Yale is similar to the work that goes on in any top graduate economics program. It is not so clear how the work at Yale differs from, for example, MIT or Princeton. It would need to be more distinct to warrant calling it a “school.” (3) There is a diversity of approaches that are used at Yale, and it is not clear that they actually fit together. For example, Chris Sims's work follows from a time-series statistics tradition with influences from real-business-cycle and calibration work; Shiller's work follows from a Keynesian tradition. Fitting them together requires a bit of a stretch. (4) The degree of continuity in the Yale school over time is not as great as I had first imagined. There was little linkage at Yale from Irving Fisher to Jim Tobin; thus the historical continuity needed for specifying a Yale school does not exist. These objections are elaborated in the dialogues below. After discussing these issues with a number of Yale faculty, I decided that there probably wasn't a Yale school of economics, but that there was a Yale tradition. We also decided to have a conversation with only two individuals—Jim Tobin and Bob Shiller—because they are major figures in maintaining what I believe is a Yale tradition. The conversations were held separately, although I asked many of the same questions to both, and focused much of the conversation on the issue of whether it is useful to distinguish a Yale school. Thus, the conversations discuss the work of other individuals at Yale more than a dialogue with another focus would have, and do not cover Tobin's or Shiller's current work as much as conversations with an alternative focus would have. The results are, I believe, interesting. They provide some useful insight into both the Yale tradition and current thinking and debates in macro.

We analyze how uncertainty about when information about future returns to a project may be revealed affects investment. Whereas good news about future returns boosts investment, good news about news (that is, news that information may arrive sooner) is shown to depress investment. We show that early revelation increases the value of an irreversible investment project to a risk-neutral investor. Our framework allows us to study irreversible investment projects whose value has a time-variable volatility. We also consider how heterogeneity of revelation information across firms may induce a better-informed firm to share its information with competitors.

Linear dynamical systems are widely used in many different fields from engineering to economics. One simple but important class of such systems is called the single-input transfer function model. Suppose that all variables of the system are sampled for a period using a fixed sample rate. The central issue of this paper is the determination of the smallest sampling rate that will yield a sample that will allow the investigator to identify the discrete-time representation of the system. A critical sampling rate exists that will identify the model. This rate, called the Nyquist rate, is twice the highest frequency component of the system. Sampling at a lower rate will result in an identification problem that is serious. The standard assumptions made about the model and the unobserved innovation errors in the model protect the investigators from the identification problem and resulting biases of undersampling. The critical assumption that is needed to identify an undersampled system is that at least one of the exogenous time series be white noise.

Bob Lucas is widely regarded as the most influential economist of the past 25–30 years, at least among those working in macro and monetary economics. His work provided the primary stimulus for a drastic overhaul and revitalization of that broad area, an overhaul that featured the ascendance of rational expectations, the emergence of a coherent equilibrium theory of cyclical fluctuations, and specification of the analytical ingredients necessary for the use of econometric models in policy design. These are the accomplishments for which he was awarded the 1995 Nobel Prize in Economic Sciences. In addition, he has made outstanding contributions on other topics—enough, arguably, for another prize. Among these are seminal writings on asset pricing, economic growth and development, exchange-rate determination, optimal fiscal and inflation policy, and tools for the analysis of dynamic recursive models.

Clearly, Bob Lucas is very much a University of Chicago product; he studied there both as an undergraduate and as a Ph.D. student and has been on the faculty since 1975. Also, he has served as chairman of the Chicago Department of Economics and two terms as an editor of the Journal of Political Economy. Nevertheless, I and several colleagues at Carnegie Mellon like to point out that Bob was a professor here in the Graduate School of Industrial Administration from 1963 until 1974, during which time he conducted and published the central portions of the work for which he was awarded the Nobel Prize. Consequently, I could not resist asking Bob a few questions about his GSIA years in the interview.

Many researchers in the economics profession have been impressed and inspired by Lucas's technical skills, but the clarity and elegance of his writing style also deserve mention, plus his choice of research topics. The latter is reflective of Bob's utter seriousness of purpose. Each of his projects attacks a problem that is simultaneously of genuine theoretical interest and also of considerable importance from the perspective of economic policy. There is nothing frivolous about Lucas's research, as he had occasion to remind me during our interview.

As is well known to those who have been around him, Bob Lucas is a person who never uses three words when one will suffice—but that one will usually be carefully chosen. This characteristic shows up in the interview below. As a departure from standard MD Interview practice, and with the Editor's permission, this interview was conducted at a distance—i.e., via mail and e-mail. It yielded a smaller number of pages than have previous interviews, but I think that readers will find them stimulating. The process of obtaining them was somewhat challenging but highly informative and thoroughly enjoyable for me.