In this paper we present an endogenous growth model with public capital, public debt and where real wages are either flexible or rigid due to labor market imperfections. With flexible wages, a balanced budget scenario yields the highest balanced growth rate. Further, simulations suggest that...

We develop a growth model with unemployment due to imperfections in the labor market. In this model, wage inertia and balanced budget rules cause a complementarity between capital and employment capable of explaining the existence of multiple equilibrium paths. Hysteresis is viewed as the result...

In this paper we analyze effects of public debt on the long-run allocation of resources in a basic endogenous growth model with infinitely lived households. The government levies an income tax and issues government bonds to finance unproductive public spending. We demonstrate that in the case of...

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...

Standard New Keynesian (NK) models feature an optimal inflation target well below two percent, limited welfare losses from business cycle fluctuations and long-term monetary neutrality. We develop a NK framework with labour market frictions, endogenous productivity and downward wage rigidity...