Liquidity plays an important role in explaining how banks determine their allocation of funds. This paper examines whether this fact can explain yield spreads and the term structure of interest rates. The paper models banks’ demand for liquidity in a manner similar to that used to study...

We study the importance of the local elite as a determinant of the effectiveness of foreign aid in developing countries. An "extractive" elite will misuse aid ?ows, an issue that is probably as old as foreign aid itself. We proxy for the existence of an "extractive" elite by using an...

The New Keynesian Phillips Curve (NKPC) model of inflation dynamics based on forward-looking expectations is of great theoretical significance in monetary policy analysis. Empirical studies, however, often find that inflation inertia, rather than inflation expectations, dominate the dynamics of...

Monetary policy is analyzed in a simple model with credit market imperfections, flexible prices, and a floating exchange rate. Banks’ lending rates incorporate a premium, which depends on firms’ net worth, over the cost of borrowing from the central bank. In contrast to models in the...

This paper examines the determinants of financial dollarization in transition economies from a short-run perspective. Using monthly data of deposit and loan dollarization we study the drivers of short-term fluctuations in dollarization and test their importance at different levels of...

This paper examines how success-at-work, interpreted by both subjective and relative criteria, can motivate individuals to enhance their effort and utility. We employ a general specification utility function and show that the final effect of technological growth on individuals’ effort and...

Optimal tax and spending allocation rules are derived in an endogenous growth model in which raw labor must be educated to become productive and infrastructure services affect the schooling technology. The optimal tax rate is found to depend only on the elasticities of output with respect to...

Empirical evidence shows that not all countries with high levels of corruption have su¤ered poor growth performance. Bad quality governance has clearly been much less damaging (if at all) in some economies than in others. Why this is so is a question that has largely been ignored, and the...

We study the relationship between growth and volatility in a simple analytical model, where human capital accumulation depends onboth deliberate and non-deliberate learning, and where stochastic fluctuations arise from both preference and technology shocks. We derive a number of new results...

This paper studies the optimal allocation of government spending between infrastructure and health (which affects labor productivity as well as household utility) in an endogenous growth framework. A key feature of the model is that infrastructure affects not only the production of goods but...