In an overlapping generations economy, households (lenders) fund risky investment projects of firms (borrowers) by drawing up loan contracts on the basis of asymmetric information. An optimal contract entails either the issue of only debt or the issue of both debt and equity according to whether...

The potential instability of a fixed monetary rule combined with automatic fixed stabilisers is a well-established feature of closed economy IS/LM models with wealth effects and asset accumulation. This paper examines the stability issue in a general open economy macromodel with alternative...

This paper documents the statistical properties of the contemporary business fluctuations in the United Kingdom. The authors study the period 1956-90 using quarterly, detrended data on key aggregate variables. They compute selected moments of the data, compare their results with those for the...

This paper presents an analysis of the effect of bureaucratic corruption on economic growth through a public finance transmission channel. At the theoretical level, we develop a simple dynamic general equilibrium model in which financial intermediaries make portfolio decisions on behalf of...

This paper explores the role of the exchange rate and the interest rate as information variables in a small macroeconomic model under conditions of perfect and imperfect capital mobility. It is shown that, despite the intimate relationship between these variables via interest parity, the...

This paper presents an analysis of the joint determination of real and financial development. Privately informed designers obtain external finance for their research projects through incentive-compatible loan contracts. Contracts are enforced through costly monitoring activity which lenders may...