We review how realistic frictions in information and/or rationality arrest general equilibrium (GE) feedbacks. In one specification, we maintain rational expectations but remove common knowledge of aggregate shocks. In another, we replace rational expectations with Level-k Thinking or a smooth...

This paper formulates and estimates an open-economy overlapping generation general-equilibrium model of endogenous heterogeneous human capital in the form of schooling and on-the-job training. Physical capital accumulation is also analyzed. We use the model to explain rising wage inequality in...

This paper defines and estimates general equilibrium treatment effects. The conventional approach in the literature on treatment effects ignores interactions among individuals induced by the policy interventions being studied. Focusing on the impact of tuition policy, and using estimates from...

This paper develops and estimates an overlapping generations general equilibrium model of labor earnings, skill formation and physical capital accumulation with heterogeneous human capital. The model analyzes both schooling choices and post-school on-the-job investment in skills in a framework...

We argue that standard modeling practices often overstate the potency of general-equilibrium (GE) mechanisms. We formalize the notion that GE adjustment is weak, or that it takes time, by modifying an elementary Walrasian economy in two alternative manners. In one, we replace Rational...

How does the economy respond to news about future policies or future fundamentals? Standard practice assumes that agents have common knowledge of such news and face no uncertainty about how others will respond. Relaxing this assumption attenuates the general-equilibrium effects of news and...