This paper builds on our previous work that used a non linear stochastic dynamic programming problem to solve for the optimal level of phosphorus discharged into a watershed. Typically, there is a trade off between profits from agriculture and environmental damage due to excessive levels of...

In this paper we perform an in—depth investigation of relative merits of two adaptive learning algorithms with constant gain, Recursive Least Squares (RLS) and Stochastic Gradient (SG), using the Phelps model of monetary policy as a testing ground. The behavior of the two learning...

In this paper we show the extent that home ownership varies over the life-cycle and differs by cohort and by education. We explain these differences in a calibrated model of life-cycle behaviour where households choose labour supply and consumption and also home-ownership status. Home-ownership...

This paper embeds the financial accelerator into a medium-scale DSGE model and estimates it using Bayesian methods. Incorporation of financial frictions enhances the model's description of the main macroeconomic aggregates. The financial accelerator accounts for approximately ten percent of...

We analyze the trade-offs faced by a monetary policy authority when a value added tax rate is increased. In the short run, such an increase acts as a cost push shock from the perspective of a central bank that is concerned with stabilizing the welfare relevant output gap. We develop a New...

It is well-documented that economies experience business cycles. Economic and financial activities fall sharply during recessions and rise sharply during booms. This phenomenon also gives rise to cyclical asset pricing implications: high asset prices (low returns) during booms and low prices...

A number of studies have documented a reduction in aggregate macroeconomic volatility beginning in the early 1980s. Using an empirical model of business cycles, we extend this line of research to state-level employment data, find significant heterogeneity in the timing and magnitude of the...

This paper uses bayesian techniques to estimate a small-scale two country model based on the Euro Area and the U.S. data. The model, based on the New Open Economy Macroeconomics framework, is microfounded and characterized by nominal price rigidities, a nontradable sector, home bias in...

Options are believed to contain unique information about the risk-neutral probability density function or risk-neutral moment generating function (mgf hereafter). The wavelet approach is appealing in approximating or reconstructing time-varying functions and it provides a natural platform for...

In some real-life intertemporal decision problems, which include a country's central-bank interest-rate determination problem, optimisation might be an unsuitable solution procedure in that it suggests a unique ``optimal'' solution for problems where many solutions could be "satisficing". This...