The Dynamic Effects of Aggregate Demand and Supply Disturbances in Models with Heterogeneous Inputs

In this paper, we propose a tractable variant of the open economy neoclassical growth model that emphasizes political economy and contracting frictions. The political economy frictions involve disagreement and political turnover, while the contracting friction is a lack of commitment regarding...

Bulow and Rogoff (1989) show that a country that has access to a sufficiently rich asset market cannot commit to repay its debts and therefore should be unable to borrow. This is because for any debt contract, there exists a time at which the country is made better off by defaulting and...

This paper studies the optimal trade-off between commitment and flexibility in an intertemporal consumption/savings choice model. Individuals expect to receive relevant information regarding their own situation and tastes - generating a value for flexibility - but also expect to suffer from...

Credit constraints that link a private agent's debt to market-determined prices embody a credit externality that drives a wedge between competitive and constrained socially optimal equilibria, inducing private agents to ``overborrow." The externality arises because agents fail to internalize the...

We explore the welfare consequences of different taxation schemes in an economy where agents are debt-constrained. If agents default on their debt, they are banned from future intertemporal trade, but retain their private (labor) endowments which are subject to income taxation. We impose...

This paper documents the empirical relation between the interest rates that emerging economies face in international capital markets and their business cycles. The dataset used in the study includes quarterly data for Argentina during 1983-2000 and for Brazil, Mexico, Korea, and Philippines,...

This paper first documents the evolution of the cross-sectional income and consumption distribution in the US in the past 25 years. Using data from the Consumer Expenditure Survey we find that a rising income inequality has not been accompanied by a corresponding rise in consumption inequality....

We analyze the role of fiscal policy in the recent showdown in Japan. A dynamic general equilibrium model is developed in which fiscal policy can have both expansionary effects (through increasing returns) and contarctionary effects ( through the increase of public debt and debt and tax burden....

Over the period 1972-1986, the correlations of GDP, employment and investment betweenthe United States and an aggregate of Europe, Canada and Japan were respectively 0.76,0.66, and 0.63. For the period 1986 to 2000 the same correlations were much lower: 0.26,0.03, and -0.07 (real...