In spite of fiat money is useless in a standard Arrow-Debreu model, in this paper we will show that this does not hold true anymore when goods are indivisible. In our setting, although fiat money yields no utility, its price will always be positive and the set of equilibrium allocations changes...

The inability of a wide array of dynamic stochastic general equilibrium (DSGE) models to generate fluctuations that resemble actual business cycles has lead to the use of habit formation in consumption. For example, habit formation has been shown to help explain the negative response of labour...

In this paper we consider a model where some consumers act in a boundedly rational way by treating money as non-fungible (Kahneman and Tversky (1979) and (1984), Thaler (1987) and (1990). The budget is broken up into different expenditure groups (cookie-jars). Given the amount of resources...

Inflation volatility has significantly declined over the last 20 years in the U.S. To find out why, I follow a structural approach. I estimate a complete New Keynesian model which imposes cross-equation restrictions on the time series of inflation, the output gap and the interest rate. I perform...

This paper provides a preliminary investigation into the lifetime cost of children upon a household's lifetime wealth. By comparing the lifetime cost function of a household with children compared to the lifetime cost function of a household without children, an intertemporal equivalence scale...

In this paper, we formalize the idea of human capital as the ability to follow and enforce the rules necessary for orderly conduct of economic transactions. People in the US and other developed countries stand in lines while waiting for the bus, etc., while in many developing countries lines...

In this paper we provide an explicit characterization of the escape dynamics for the Phellps problem of government controlling inflation with adaptive learning of the approximate Phillips curve, alternative to the one considered by Cho, Williams and Sargent (2002) (CWS in sequel). Our approach...

Most Latin American countries experienced their last peak in output per capita relative to the United States’ between 1971 and 1982. Prior to this peak per capita output was rapidly catching up to the developed world. Twenty years after the peak the average country’s relative per...

In this paper, we set out the JEM (Japanese Economic Model), a large macroeconomic model of the Japanese Economy. Although the JEM is a theoretical model designed with a view to overcoming the Lucas (1976) critique of traditional large macroeconomic models, it can also be used for both...