Based on neoclassical theory, cutting budget deficits has come to be seen as a principal way to increase long-run growth, but the empirical evidence is ambiguous on the outcome of this macropolicy. A new model, the classical growth cycles (CGC) model, offers an alternative theoretical framework...

This paper is an extension of an earlier working paper ("Finance and the Macroeconomic Process in a Classical Growth and Cycles Model," Levy Institute Working Paper No. 253). The basic structure of the model remains unchanged in that it is based on a social accounting matrix (SAM) with...

The paper argues in favor of significant budget deficits based on the understanding that the expansion of the 1990s was fueled by a great build-up of debt, and that this would eventually give way to a severe recession unless offset by a strong fiscal stimulus. In 2001, with the total government...

This paper provides the details of the construction of new quarterly measures of the real GDPs of the 36 U.S. trading partners that are taken into consideration by the Federal Reserve in its "broad exchange rate" indexes. These new measures have some important advantages. First, they allow the...