Post war US data show that consumption growth causes output and investment growth. This is puzzling if technology is the driving force of the business cycle. I ask whether general equilibrium models driven by demand shocks can rationalize the observed causal relations. My conclusion is that...

Necessary conditions for indeterminacy in standard RBC models have been extensively studied, but intuitive understanding of the economic mechanism that generates indeterminacy has yet to be fully explored. Following the permanent income theory, this paper provides an alternative framework for...

Why is there inventory investment when its expected rate of return is strictly dominated by that of fixed-capital investment? Why is inventory investment procyclical at business-cycle frequencies but countercyclical at the very high frequencies (e.g., 2-3 quarters per cycle)? Why does the...

We show that dependence of production on foreign inputs (or non-producible natural resources) can significantly increase the likelihood of indeterminacy. Payment of imported foreign factors of production may act as a semi-fixed cost, amplifying production externalities and returns to scale,...

When capacity utilization is allowed to vary, standard equilibrium theory predicts that demand shocks can generate not only closed-economy business cycles that are previously thought explainable only by technology shocks, but also international business cycles that are more consistent with the...

Careful examination of aggregate data from the U.S. and other OECD countries reveals that production and inventory behavior exhibit paradoxical features: 1) Inventory investment is strongly countercyclical at very high frequencies (e.g., 2-3 quarters per cycle); it is procyclical only at...

In this paper, we offer an instance of (topologically) chaotic optimal behavior in a twosector model with irreversible investment, originally formulated by Robinson, Solow and Srinivasan. Our result follows from the theory of turbulence in non-linear dynamical systems, and relies only on the...

We report results on the optimal "choice of technique" in a model originally formulated by Robinson, Solow and Srinivasan. By viewing this model as a specific instance of the general theory of intertemporal resource allocation associated with Brock, Gale and McKenzie, we resolve long-standing...

For a class of aggregative optimal growth models, which allow for a non-convex and non-differentiable production technology, this paper examines whether the set of utilitarian maximal programs coincides with the set of weakly maximal programs. It identifies a condition, called the...

We examine whether the Phelps-Koopmans theorem is valid in models with nonconvex production technologies. We show by example that a nonstationary path that converges to a capital stock above the smallest golden rule may indeed be efficient. This finding has the important implication that...