This paper demonstrates how fiscal policy rules can be designed to eliminate all forms of endogenous fluctuations in a one-sector growth model with increasing returns-to-scale. When the policy rules are implemented, agents' optimal decisions depend only on the current state of the economy and...

Empirical evidence indicates that the elasticity of capital-labor substitution for the aggregate U.S. economy is below unity. In contrast, the existing indeterminacy literature has mostly restricted attention to a Cobb-Douglas production function which assumes a higher substitution elasticity...

This article adopts a nonparametric approach to examine the exchange-rate exposure of Taiwanese firms between December 1979 and January 1995. The evidence indicates that financial liberalization that took place in July 1987 has introduced an important structural break to firms' foreign exchange...

In the context of a standard one-sector AK model of endogenous growth, we show that the economy exhibits equilibrium indeterminacy and belief-driven aggregate fluctuations under progressive taxation of income. When the tax schedule is regressive or flat, the economy's balanced growth path...

This paper examines the quantitative relationship between the elasticity of capital-labor substitution and the conditions needed for equilibrium indeterminacy (and belief-driven fluctuations) in a one-sector neoclassical growth model. Our analysis employs a “normalized” version of the CES...