We reformulate the Smets-Wouters (2007) framework by embedding the theory of unemployment proposed in Galí (2011a,b). We estimate the resulting model using postwar U.S. data, while treating the unemployment rate as an additional observable variable. Our approach overcomes the lack of...

We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate...

We study the positive and normative effects of counterfeiting, i.e.,trademark infringement, in markets where consumers are not deceived by forgeries.The fact that consumers are willing to pay more for counterfeits than for generic merchandise of similar quality suggests that they value the...

We study a simple, two-stage, stochastic patent race involving two firms. We examine the behavior of the participants as they gain the lead or fall behind in the race. We find that the leader engages in R&D more intensively than does the follower, and that both firms intensify their efforts if...

We study the optimal pattern of outlays for a single firm pursuing an R&D program over time. In the deterministic case, (a) the amount of progress required to complete the project is known, and (b) the relationship between outlays and progress is known. In this case, it is optimal to increase...

In this paper we ask whether a policy of targeted export promotion can raise domestic welfare when several oligopolistic industries all draw on the same scarce factor of production. Our point of departure is one of Cournot duopoly in which a single home firm competes with a single foreign firm...

In this paper we provide an integrative treatment of the welfare effects of trade and industrial policy under oligopoly, and characterize qualitatively the form that optimal intervention takes under a variety of assumptions about the number of firms, their conjectures about the response of their...

In this paper, we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities.In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk averse...

Free trade is not optimal for a small country that faces uncertain terms of trade if some factors are immobile - ex post, and markets for contingent claims are incomplete. The government can improve social welfare by using commercial policy that serves as a partial substitute for missing...