We modify the growth model with horizontal innovations from Romer (1990) and Jones (1995) by assuming that researchers can determine the quality of the products they invent. Because research effort increases with product quality, the researchers face a tradeoff between the quantity and the...

We study Markov-perfect Nash equilibria (MPNE) of a Ramsey-Cass-Koopmans economy in which households are aware of their influence on prices. The Ramsey conjecture fails to hold such that households other than the most patient one own positive wealth in the steady state. This confirms results...

The authors derive necessary and sufficient conditions for a pair of functions to be the optimal policy function and the optimal value function of a dynamic maximization problem with convex constraints and concave objective functional. It is shown that every Lipschitz continuous function can be...

We describe a simple mechanism that generates inflation persistence in a standard sticky-price model of optimal fiscal and monetary policy. Key to this mechanism is that policies are decided under discretion. The government's discretionary incentive to erode the real value of nominal public debt...