Samuelson's biological theory of interest rate - that population growth rate and interest rate must be the same - affects many countries, especially in shaping their population and retirement policies. This paper proves that he derives his so-called theorem by many tricks, which are, however, in...

Zimbabwe is one nation that has for many years remained on the top list of economies with high interest rates spread. High interest rates are a signal of financial sector inefficiency. The stability of the financial sector is greatly linked to economic growth and economic stability. The study...

The neutral rate of interest is an important concept and communication tool for central banks. We develop a small open economy model with overlapping generations to study the determinants of the neutral real rate of interest in a small open economy. The model captures domestic factors such as...

Real interest rates have fallen substantially in advanced economies since the early 1980's. We show that this trend can be explained by a common pattern in fertility rates. Fertility rates fell in all advanced economies in the 1970's, and this led to an outsized cohort of 'baby boomers'. The...

We estimate that the supply of sovereign safe assets is a major driver of neutral interest rates--real rates consistent with both economic activity and inflation at their trends. We find this result using an empirical cross-country model with many economic drivers for the neutral rates of 11...

Numerous empirical studies find that the spread between long- and short-term interest rates widens (narrows) prior to economic expansions (contractions), a phenomenon called the leading indicator property of the term spread (LIPTS). However, the theoretical mechanism underlying LIPTS remains...

Habit formation has been proposed as a possible solution for explaining the equity premium puzzle. This paper extends the class of models that support the habits explanation in order to account for heterogeneity in earnings, wealth, habits and consumption. I find that habit formation increases...

We study the quantitative properties of a dynamic general equilibrium model in which agents face both idiosyncratic and aggregate income risk, state-dependent borrowing constraints that bind in some but not all periods and markets are incomplete. Optimal individual consumption -savings plans and...

We utilize an overlapping generations model with endogenous production and incomplete markets to quantify the distortionary costs associated with financing the increase in government expenditures directed to investments in the private sector in 2008 and 2009 (also known as ‘the bailout’),...

This paper posits a notion of the value of an individual's human capital and the associated return on human capital. These concepts are examined using U.S. data on male earnings and financial asset returns. We find that (1) the value of human capital is far below the value implied by discounting...