Theory typically does not give us reason to believe that economic models ought to be formulated at the same level of time aggregation at which data happen to be available. Nevertheless, this is frequently done when formulating econometric models, with potentially important specification-error...

This paper investigates two methods of approximating the optimal decision rules of a stochastic, representative agent model which exhibits growth in steady state and cannot be expressed in linear–quadratic form. Both methods are modifications on the linear quadratic approximation technique...

This paper investigates the impact on aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of temporary...

We develop a model which accounts for the observed equity premium and average risk-free rate, without implying counterfactually high risk aversion. The model also does well in accounting for business-cycle phenomena. With respect to the conventional measures of business-cycle volatility and...

This paper shows how to derive the family of models in which Cagan’s model of hyperinflation is a rational expectations model. The slope parameter in Cagan’s portfolio balance equation is identified in some of these models and in others it is not—a fact which clarifies results obtained in...