This paper provides general equilibrium estimates of the steady-state welfare gains of lowering inflation from a low level to close to price stability, using an overlapping-generations growth model. Money demand is modeled on the basis that real money balances are a factor of production....

The fiscal deficit is "ill defined"; it is "without theoretical background"; it is "a number in search of a concept". Such judgements are characteristic of a prominent part of the literature on the new measurement concept of generational accounting. This paper argues that such criticism is...

This article reconsiders the relationship between government debt and welfare in a two-country overlapping-generations model with lifetime uncertainty and international product differentiation. It has recently been proposed that a higher steady-state debt level may be welfare-enhancing in this...

At moderate levels, debt improves welfare and enhances growth. But high levels can be damaging. When does debt go from good to bad? We address this question using a new dataset that includes the level of government, non-financial corporate and household debt in 18 OECD countries from 1980 to...

This paper sheds new light on the growth implications of public debt introducing a dynamic panel threshold model by accounting for regime dependent intercepts and focusing on 12 Euro zone economies over the 1980-2012 period. The threshold estimates for debt are estimated by using multiple...

The significant difference in saving rates between the United States (near-zero) and the developing nations (exceeding 30%) is a contributing explanation for the record U.S. current-account deficit, now almost 700 billion USD per year. Analytic support for this conclusion is provided herein by...

We compare the implications of speculation versus hedging channels for bond markets in heterogeneous agents’ economies. Treasuries command a significant risk premium when optimistic agents speculate by leveraging their positions using bonds. Disagreement drives a wedge between marginal agent...

The OLG model of Allais and Samuelson retains the methodological assumptions of agent optimization and market clearing from the Arrow-Debreu model, yet its equilibrium set has different properties: Pareto inefficiency, indeterminacy, positive valuation of money, and a golden rule equilibrium in...

This paper studies the importance of heterogeneous beliefs for the dynamics of asset prices. We focus on currency markets, where the absence of short-selling constraints allows us to perform sharper tests of theoretical predictions. We examine both option and underlying markets, so that we can...

This paper solves in closed-form a continuous time model of the nominal and real term structures of interest rates in a monetary economy with habit formation. A crucial property is that, unlike in affine specifications, the price of risk is not a constant multiple of the volatility of interest...