We provide a model of rational bubbles in a DNK framework. Entrepreneurs are heterogeneous in investment efficiency and face credit constraints. They can trade bubble assets to raise their net worth. The bubble assets command a liquidity premium and can have a positive value. Monetary policy affects the conditions for the existence of a bubble, its steady-state size, and its dynamics including ...

This paper analyzes the pattern of provincial economic integration in China for the period 1991−98 by means of an errorcomponents model that decomposes provincial sectoral real valueadded growth into common national effects, industry-specific effects and province-specific effects. We find significant comovements in the long run although province-specific factors still account for one-third of t...

This paper assumes that a subjective discount factor is affected by an average level of investment in future-oriented resources in an economy (investment externalities) in addition to a level of individual investment in future-oriented resources. Under this assumption, this paper considers a maximization problem formulated as a pseudo planning problem and shows the conditions under which equili...

In a standard overlapping generations model, active monetary policy reinforces mechanisms that lead to equilibrium indeterminacy and to countercyclical behavior of young-age consumption. The policy rule which minimizes inflation volatility can be active or passive, depending on the characteristics of shocks and the risk aversion of households. Inflation forecast errors are always greater under ...

We look at two countries that have independent fundamentals, but share the same group of investors. Each country might face a self-fulfilling crisis: Agents withdrawing their investments fearing that others will. A crisis in one country reduces agents’ wealth. This makes them more averse to the strategic risk associated with the unknown behavior of other agents in the second country, increasing...

In this paper we address the question of deterministic cycles in a Ramsey model with heterogeneous in nite-lived agents and borrowing constraints, augmented to take into account the case of elastic labor supply. Under usual restrictions, not only we show that the steady state is unique, but also we clarify its stability properties through a local analysis. We nd that, in many cases, the introdu...

We analyze optimal monetary policy in a sticky price model where the central bank supplies money outright via asset purchases and lends money temporarily against collateral. The terms of central bank lending a¤ect rationing of money and impact on macroeconomic aggregates. The central bank can set the policy rate and its in‡ation target in a way that implements the …rst best long-run allocation,...

In this paper we study the cyclical behavior of job and worker flows. Wefindfor the Netherlands that employment and unemployment flows are large, relative to the stocks, that both the sum ofemployment in and outflow and the sum of job creation and destruction (je and jd) move countercyclical. Other issues that we examined include the importance ofaggregate vs. sectoral shocks, the persistence o...

We explore the connection between shock observability and equilibrium. When aggregate shocks are unobserved the rational expectations solutions remain unchanged if contemporaneous aggregate outcomes are observable, but their stability under adaptive learning must be reconsidered. We obtain learning stability conditions and show that, provided there is not large positive expectational feedback, ...