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Journal Article
The launch of the euro
The introduction on January 1, 1999, of the euro--the single currency adopted by eleven of the fifteen countries of the European Union--marked the beginning of the final stage of Economic and Monetary Union and the start of a new era in Europe. The creation of a single currency and a single monetary policy has provided both extraordinary challenges and exceptional opportunities within Europe. This article reviews the organization, objectives, and targets of the euro area's new central bank and discusses some of the early challenges it has faced in setting and implementing monetary policy with ...
Working Paper
Risk, entrepreneurship and human capital accumulation
Entrepreneurial human capital plays a relatively more important role in intermediate income countries, but professional human capital is relatively more abundant in richer economies. Because the return to entrepreneurship is risky, individuals devote less time to the accumulation of entrepreneurial skills and more to the accumulation of professional skills as per capita income grows. Countries that initially have too little of either entrepreneurial or professional skills may end up in a development trap. The steady state may be characterized by either too much or too little education.
Working Paper
Income inequality and macroeconomic fluctuations
When per capita income is low, increases in income inequality make macroeconomic cycles less severe. We present a model in which access to credit is based on earnings potential. If low as well as middle income individuals are credit constrained, increases in income inequality lead to smaller fluctuations in aggregate consumption and output. Empirical evidence from cross-country data supports the view that greater income inequality causes lower variation of real consumption and output growth in low income countries. When per capita income is high, however, this effect is reversed.
Working Paper
Macroeconomic implications of competitive college admissions
We present a public higher education model in which there exist indivisibilities in educational investment. Consequently, when demand for educational services exceed supply, a screening mechanism, which may potentially be imperfect, is required to choose the student body. We demonstrate how distortions or biases in screening--caused by parental factors--interact with the distribution of income to help explain the considerable differences across countries in the share of resources devoted to public higher education. Moderate degrees of admission bias lower the share of resources devoted to ...
Working Paper
Timing of childbearing, family size and economic growth
This paper incorporates the timing of childbearing into a growth model with endogenous fertility. It analyzes a model in which individuals' human capital stock depends positively on their education and parental human capital and in which producing and raising children and acquiring human capital are intensive. The model highlights how changes in the human capital stock interact with individuals' timing of childbearing in affecting the evolution of the economy. It shows that, if the complementarity between parental human capital and education in determining individuals' human capital is ...
Working Paper
Economic development and intergenerational economic mobility
This paper examines theoretically how economic growth affects intergenerational economic mobility. In the model developed in this paper, education is provided to the individuals free of cost, and admission to schools is competitive. The quantity of educational services available in any period depends on the total output of the economy in the same period. Individuals differ from each other in two respects. First, their innate mental abilities are determined by a stochastic process, and, second, their parents have different education levels. Individuals are admitted to schools based on their ...
Working Paper
Human capital accumulation, fertility and growth: a re-analysis
This paper develops an economic growth model with endogenous fertility. In doing so, it provides a new explanation for the relation between fertility, economic development and human capital accumulation. The model emphasizes the role returns on human capital play in economic development through individuals' allocation of time between acquiring human capital and production and rearing of children. In the model, production and rearing children are time intensive and accumulating human capital requires time and has a cost. Individuals' stock of human capital depends positively on the time ...
Working Paper
When would educational standards help improve scholastic achievement?
I study the potential effects on student performance to be expected from setting mandatory standards in primary and secondary education. To that end, I present a model in which investment in education is indivisible. Thus, if demand exceeds supply at any level of education, allocation is carried out--at least in part--via test scores. The model highlights how the effectiveness of educational standards in altering student performance depends on the college and secondary school education premia, the stringency of standards, and the supply of college education--factors which together determine ...
Working Paper
The accumulation of human capital: alternative methods and why they matter
We show how the ability to accumulate human capital through formal education and through a learning-by-doing process that occurs on the job affects the dynamic behavior of the human capital stock under a liquidity-constrained and a non-constrained case. When there are alternatives to formal schooling in the accumulation of human capital, investing resources in increasing school enrollment rates in low-income countries may not be the most efficient means of increasing the human capital stock. In addition, removal of liquidity constraints may not be sufficient to escape a development trap.
Working Paper
From indoctrination to the culture of change: technological progress, adaptive skills, and the creativity of nations
We distinguish learning in a static environment from that in a dynamic environment to show the existence of an important interaction between the development of new technologies and human capital accumulation. Since technological progress creates a more dynamic and uncertain environment, it not only increases the rewards to education and ability but also enhances adaptive skills. The latter in turn determine how effectively new technologies are utilized in production because they help the workforce to innovate and improve new technologies. Thus, the adaptive skills of a workforce are an ...