By endowing his agents with simple forecasting models, or representations, Woodford (1990) found that finite state Markov sunspot equilibria may be stable under learning. We show that common factor representations generalize to all sunspot equilibria the representations used by Woodford (1990). We find that if finite state Markov sunspots are stable under learning then all sunspots are stable u...

Self-Employment Dynamics, State Dependence and Cross-Mobility Patterns This paper analyzes the mobility between self-employment, wage employment and nonemployment. Using data for men in West Germany, we find strong true state dependence in all three states. Moreover, compared to wage employment, non-employment increases the probability of self-employment significantly, and self-employment goes ...

The Transmission of Democracy: From the Village to the Nation-State We provide evidence that a history of democracy at the local level is associated with contemporary democracy at the national level. Auxiliary estimates show that a tradition of local democracy is also associated with attitudes that favor democracy, with better quality institutions, and higher level of economic development. JEL ...

We investigate the issue of strategic substitutability/complementarity in a Cournot differential game with sticky prices. We show that first order conditions do not produce instantaneous best reply functions. However, we identify negatively sloped reaction functions in steady state, with the open-loop best reply being flatter than its closed-loop counterpart. JEL classification: C73, D43, D92, ...

This short paper analyzes whether a federal transfer system can be designed to increase welfare, when state governments create political budget cycles to increase the likelihood of reelection. The results show how the federal government may announce a transfer scheme in advance for the post-election year that counteracts the welfare costs of political budget cycles. JEL Classification: D61, D72...

We prove the generality of the methodology proposed in Benigno and Woodford (2006). We show that, even in the presence of a distorted steady state, it is always possible and relatively simple to obtain a purely quadratic approximation to the welfare measure. We also show that, in order to do so, the timeless perspective assumption is crucial. JEL classification: C61, C63

This paper shows how to compute a second-order accurate solution of a non-linear rational expectation model using algorithms developed for the solution of linear rational expectation models. The result is a state-space representation for the realized values of the variables of the model. This state-space representation can easily be used to compute impulse responses as well as conditional and u...

Benhabib and Rustichini [Optimal taxes without commitment, J. Econ. Theory 77 (1997) 231–259] study the properties of optimal capital taxes in economies without commitment and no government debt. They find that capital taxes may be different from zero at steady state. This note shows that, once governments have the possibility of issuing debt and smoothing taxes over time, optimal steady state ...

This paper shows that state control of some industries may have contributed to the increase in European unemployment from the 1970s to the early 1990s. We develop a simple model with both publicly-run and privately-run enterprises and show that when economic turbulence increases, higher unemployment rates may result in economies that have a larger public sector. JEL Classification: E240, J450, ...

Political stock markets (PSM) are sometimes seen as substitutes for opinion polls. On the bases of a behavioral model, specific preconditions were drawn out under which manipulation in PSM can weaken this argument. Evidence for manipulation is reported from the data of two separate PSM during the Berlin 99 state elections. JEL Classification: C93, D4, G1