We develop a stylized model of economic growth with bubbles. In this model, financial frictions lead to equilibrium dispersion in the rates of return to investment. During bubbly episodes, relatively inefficient investors demand bubbles while relatively efficient investors supply them. Because...

This Paper studies a model of the distribution of income under bounded needs. Utility derived from any given good reaches a bliss point at a finite consumption level of that good. On the other hand, introducing new varieties always increases utility. It is assumed that each variety is owned by a...

This Paper develops a dynamic general equilibrium model of North-South trade with scale-invariant growth. Northern firms devote resources to innovative R&D to discover higher quality products and Southern firms devote resources to imitative R&D to copy state-of-the-art quality Northern products....

This paper develops a dynamic general equilibrium model of North-South trade and economic growth. Both innovation and imitation rates are endogenously determined as well as the degree of wage inequality between Northern and Southern workers. Northern firms devote resources to innovative R&D to...

Over the last two decades U.S. aggregate wealth has fluctuated substantially. Against the backdrop of the Great Recession, the effects of these boom-and-bust cycles have come to dominate academic and policy discussions. How can we explain these fluctuations in wealth? Why are these fluctuations...

We study a dynamic economy where credit is limited by insufficient collateral and, as a result, investment and output are too low. In this environment, changes in investor sentiment or market expectations can give rise to credit bubbles, that is, expansions in credit that are backed not by...

In 2007, countries in the euro periphery were enjoying stable growth, low deficits, and low spreads. Then the Financial crisis erupted and pushed them into deep recessions, raising their deficits and debt levels. By 2010, they were facing severe debt problems. Spreads increased and,...

As a result of debt enforcement problems, many high-productivity firms in emerging economies are unable to pledge enough future profits to their creditors and this constrains the financing they can raise. Many have argued that, by relaxing these credit constraints, reforms that strengthen...

The historical record suggests that economic development is associated with the rise of the financial sector. This rise is often triggered by exogenous events such as large budget deficits generated by wars or the availability of large investment projects such as railroads. This paper discusses...