What is the economic rationale for investing in science? Based on an open economy model of creative destruction, we characterize four key factors of optimal investment in basic research: the stage of economic development, the strength of the manufacturing base, the degree of openness, and the...

We integrate banks and the coexistence of bank and bond financing into an otherwise standard New Keynesian framework. There are two policy-makers: a central banker, who can decide on short-term nominal interest rates, and a macroprudential policy-maker, who can vary aggregate capital...

Innovation clusters combining public and private effort to develop breakthrough technologies promise greater technological advances to slow down climate change. We use a multi-country model with emissions permit trade to examine how international climate policy can incentivize countries to...

We study a model where economic growth is fueled by public basic-research investment and the importation of leading technology from foreign countries. In each period, the government chooses the amount of basic research, balancing the cost and benefits of stimulating growth through both channels....

We introduce a new type of incentive contract for central bankers: inflation forecast contracts, which make central bankers’ remunerations contingent on the precision of their inflation forecasts. We show that such contracts enable central bankers to influence inflation expectations more...

We examine a global refunding scheme for mitigating climate change. Countries pay an initial fee into a global fund that is invested in long-run assets. In each period, part of the fund is distributed among the participating countries in relation to the emission reductions they have achieved in...

We present a model of elections in which interest group donations allow candidates to shift policy positions. We show that if donations were prohibited, then a unique equilibrium regarding the position choices of candidates would exist. With unrestricted financing of political campaigns two...

The relationship between our general equilibrium model with multi- member households and club models with multiple private goods is investigated. The main distinction in the definitions consists of the equilibrium concepts. As a rule, competitive equilibria among households where no group of...