Real business cycle models have recently been applied to settings in which equilibria are suboptimal. In most models the solutions are approximated using some type of linearization with little attention being given to the accuracy of the approximation. In this paper we investigate three...

This paper studies the effects of fiscal policies--depicted as stochastic changes in government spending and distortionary tax rates--when the government is constrained from using lump sum taxes for achieving intertemporal budget balance. The ratio of debt to gnp, therefore, has consequences for...

This paper studies the effects of fiscal policies -- depicted as stochastic changes in government spending and distortionary tax rates -- when the government cannot use lump sum taxes to achieve intertemporal budget balance. This framework contrasts the more standard analysis in which spending...

This paper studies the effects of fiscal policies -- depicted as stochastic changes in government spending and distortionary tax rates -- when the government is constrained from using lump sum taxes for achieving intertemporal budget balance. The ratio of debt to gnp, therefore, has consequences...

Econometric methods based on the first-order conditions of intertemporal optimization models have gained increasing popularity in recent years. To a large extent, this development stems from the celebrated Lucas critique, which argued forcibly that traditional econometric models are not...

This paper presents a model economy in which the 'balanced' growth is determined endogenously. The growth process in this economy does not depend on exogenous specifications such as human capital accumulation or technological progress. Rather, it is determined within the model and governed by...

This paper presents a model economy in which the 'balanced' growth is determined endogenously. The growth process in this economy does not depend on exogenous specifications such as human capital accumulation or technological progress. Rather, it is determined within the model and governed by...

Econometric methods based on the first-order conditions of intertemporal optimization models have gained increasing popularity in recent years. To a large extent, this development stems from the celebrated Lucas critique, which argued forcibly that traditional econometric models are not...

Real business cycle models have recently been applied to settings in which equilibria are suboptimal. In most models the solutions are approximated using some type of linearization with little attention being given to the accuracy of the approximation. In this paper we investigate three...

This paper examines the effects of government spending under both lump-sum and income tax regimes. Under a lump-sum tax financing scheme, an increase in government spending induces a rise in the real interest rate and causes labor effort and real output to increase because of the income effect....