This paper studies the conditions under which an IT revolution may occur and have permanent effects on long-term growth. To this end, we construct a multi-sectoral growth model with endogenous embodied technical progress. The R&D sector expands the range of softwares. The capital sector produces...

This paper provides a closed-form solution for the price-dividend ratio in a standard asset pricing model with stochastic volatility. The growth rate of the endowment is a first-order Gaussian autoregression, while the stochastic volatility innovations can be drawn from any distribution for...

Addressing issues of social diversity, we introduce a model of housing transactions between agents who are heterogeneous in their willingness to pay. A key assumption is that agents' preferences for a location depend on both an intrinsic attractiveness and on the social characteristics of the...

The optimal investment policy for a standard multi-period mean–variance model is not time-consistent because the variance operator is not separable in the sense of the dynamic programming principle. With a nested conditional expectation mapping, we develop an investment model with time...

This paper presents an economic interpretation of the optimal “stopping” of perpetual project opportunities under both certainty and uncertainty. Prior to stopping, the expected rate of return from delay exceeds the rate of interest. The expected rate of return from delay is the sum of the...

We establish explicit socially optimal rules for an irreversible investment decision with time-to-build and uncertainty. Assuming a price sensitive demand function with a random intercept, we provide comparative statics and economic interpretations for three models of demand (arithmetic...

In a general discrete time model of optimal forest management where land may be diverted to alternative use and stocks of standing trees may yield flow benefits, we investigate the economic and ecological conditions under which optimal paths lead to (total) deforestation i.e., complete long term...

This paper derives a general New Keynesian framework with heterogeneous expectations by explicitly solving the micro-foundations underpinning the model. The resulting reduced form is analytically tractable and encompasses the representative rational agent benchmark as a special case. We specify...

We extend a continuous-time approximation approach to the analysis of escape dynamics in economic models with constant gain adaptive learning. This approach is based on the application of the results of continuous-time version of large deviations theory to the linear diffusion approximation of...

We examine the stability under learning (E-stability) of sunspot equilibria in non-convex real business cycle models. The production technology is Cobb–Douglas with externalities generated by factor inputs. We establish that, with a general utility function, the well-known Benhabib–Farmer...