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Working Paper
Aggregate fluctuations and economic growth: a case of random-walk hypothesis
This paper presents a model economy in which the 'balanced' growth is determined endogenously. The growth process in this economy does not depend on exogenous specifications such as human capital accumulation or technological progress. Rather, it is determined within the model and governed by two economic forces: (1) the intertemporal substitution of consumption and labor and (2) the intertemporal production opportunities. In equilibrium, the real quantities (i.e., consumption, capital, employment and output) will all evolve as logarithm random walks with drift. Therefore, the time series ...
Working Paper
How well do linear approximation methods work? results for suboptimal dynamic equilibria
Real business cycle models have recently been applied to settings in which equilibria are suboptimal. In most models the solutions are approximated using some type of linearization with little attention being given to the accuracy of the approximation. In this paper we investigate three different approximation methods in the context of a neoclassical model with a production tax and compare their solutions with solutions obtained from a discrete state space solution to the Euler equations of the model.
Journal Article
Estimating intertemporal elasticity of substitution: the case of log- linear restrictions
Are linear regression models reliable in testing whether high expected real interest rates encourage current savings and deferred consumption? Here, a Monte Carlo test shows that a linear model yields a fairly accurate estimate and small standard error, but is highly susceptible to specification bias.
Working Paper
Hypothesis testing and finite sample properties of generalized method of moments estimators: a Monte Carlo study
Econometric methods based on the first-order conditions of intertemporal optimization models have gained increasing popularity in recent years. To a large extent, this development stems from the celebrated Lucas critique, which argued forcibly that traditional econometric models are not structural with respect to changes in the economic environment caused by policy regime shifts. The generalized method of moments (GMM) estimation procedure developed by Hansen (1982) is a leading example of a large research program in estimating parameters of taste and technology that are arguably invariant to ...
Journal Article
The macroeconomic effects of government spending
This paper examines the effects of government spending under both lump-sum and income tax regimes. Under a lump-sum tax financing scheme, an increase in government spending induces a rise in the real interest rate and causes labor effort and real output to increase because of the income effect. This result is reversed under an income tax regime due to the dominating wage effect. The interest rate may rise or decline under an income tax scheme, depending on the persistence of government spending.