We reconsider the optimal taxation of income from labor and capital in the stochastic growth model analyzed by Chari et al. (1994, 1995), but using a linear-quadratic (LQ) approximation to derive a log-linear approximation to the optimal policy rules. The example illustrates how inaccurate...

In this paper we address the following question: To what extent is the hypothesis that voters vote sincerely testable or falsifiable? We show that using data only on how individuals vote in a single election, the hypothesis that voters vote sincerely is irrefutable, regardless of the number of...

We characterize the evolution over time of a network of credit relations among financial agents as a system of coupled stochastic processes. Each process describes the dynamics of individual financial robustness, while the coupling results from a network of liabilities among agents. The average...

This paper proposes and studies a theory of adaptive consumption behavior under income uncertainty and liquidity constraints. We assume that consumption is governed by a linear function of wealth, whose coefficients are revised each period by a procedure, which, although sophisticated, places...

Continuous Workout Mortgage (CWM) balance and payments are indexed using market-observable house price index in an economic environment with prepayments. Our main results include: (a) explicit modelling of repayment and interest-only CWMs; (b) closed form formulas for mortgage payment and...

We introduce a technique called "precomputation of integrals" that makes it possible to compute conditional expectations in dynamic stochastic models in the initial stage of the solution procedure. This technique can be applied to any set of equations that contains conditional expectations, in...

We develop an empirical search-matching model which is suitable for analyzing the wage, employment and welfare impact of regulation in a labor market with heterogeneous workers and jobs. To achieve this we develop an equilibrium model of wage determination and employment which extends the...

A nonlinear programming formulation is introduced to solve infinite horizon dynamic programming problems. This extends the linear approach to dynamic programming by using ideas from approximation theory to avoid inefficient discretization. Our numerical results show that this nonlinear...

Does the market allocate the right workers to the right jobs? Since observable (to economists) variables account for only a small fraction of the wage variance in the data, to answer this question it is essential to study assortative matching between employers and employees based on their...

Fiscal sustainability is one of the most pressing policy issues of our time. Yet it remains difficult to quantify. Official debt is plagued with a number of measurement difficulties since its measurement reflects the choice of words, not policies. And forming the fiscal gap-the imbalance in the...