This paper analyses the optimal stabilization policy when growth is driven by learning by doing. If benefits of learning by doing are not fully internalized, the optimal policy is to tax labor during expansions and to subsidize it during recessions. The long-term impact of this policy depends...

A fundamentals based monetary policy rule, which would be the optimal monetary policy without commitment when private agents have perfectly rational expectations, is unstable if in fact these agents follow standard adaptive learning rules. This problem can be overcome if private expectations are...

A simple rule of thumb which has been successfully used in the basic neoclassical growth model as an alternative to the unstable dynamic optimization solution is shown to be more generally applicable in a non-scale growth model with learning by doing. The model is formulated in accordance with...