Search Results
Working Paper
Enduring Relationships in an Economy with Capital and Private Information
We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to an agent and his lifetime utility entitlement. The mapping implies properties that are distinct from those in private-information endowment models. In contrast to the endowment model, the value of the risk-sharing arrangement in our model always remains above autarky value, so there is no need for ...
Working Paper
Idiosyncratic shocks and the role of nonconvexities in plant and aggregate investment dynamics
The authors study a model of lumpy investment wherein establishments face persistent shocks to common and plant-specific productivity, and nonconvex adjustment costs lead them to pursue generalized (S,s) investment rules. They allow persistent heterogeneity in both capital and total factor productivity alongside low-level investments exempt from adjustment costs to develop the first model consistent with the cross-sectional distribution of establishment investment rates. Examining the implications of lumpy investment for aggregate dynamics in this setting, the authors find that they remain ...
Working Paper
Optimal monetary policy
Optimal monetary policy maximizes the welfare of a representative agent, given frictions in the economic environment. Constructing a model with two broad sets of frictions ? costly price adjustment by imperfectly competitive firms and costly exchange of wealth for goods ? we find optimal monetary policy is governed by two familar principles. ; First, the average level of the nominal interest rate should be sufficiently low, as suggested by Milton Friedman, that there should be deflation on average. Yet, the Keynesian frictions imply that the optimal nominal interest rate is positive. ; ...
Working Paper
Financial development and economic growth
The author develops a theory of financial development based on the costs associated with the provision of external finance. These costs are assumed to arise within an environment where informational asymmetries between borrowers and lenders are costly to resolve. When borrowing is limited, producers with access to financial intermediary loans obtain higher returns to investment than other producers. This creates incentives for others to undertake the technology adoption necessary to access investment loans. Over time, as increasing numbers of producers gain access to external finance, ...
Journal Article
Accounting for cross-country differences in income per capita
Living standards, as measured by average income per person, vary widely across countries. Differences in income result in large disparities in spending on goods and services by people living in different economies. What makes some countries rich and others poor? Furthermore, what determines income per person in a country, and why are these factors unevenly allocated across the world? In "Accounting for Cross-Country Differences in Income Per Capita," Aubhik Khan outlines a framework for growth accounting to account for cross-country differences in income. The current consensus is that ...
Working Paper
Modeling inventories over the business cycle.
We search for useful models of aggregate fluctuations with inventories. We focus exclusively on dynamic stochastic general equilibrium models that endogenously give rise to inventory investment and evaluate two leading candidates: the (S,s) model and the stockout avoidance model. Each model is examined under both technology shocks and preference shocks, and its performance gauged by its ability to explain the observed magnitude of inventories in the U.S. economy, alongside other empirical regularities, such as the procyclicality of inventory investment and its positive correlation with sales. ...
Working Paper
Enduring Relationships in an Economy with Capital and Private Information
We study efficient risk sharing in a model where agents operate linear production technologies with private information about idiosyncratic productivity. Capital is the sole factor of production, and accumulable. We establish a time-invariant, one-to-one mapping between the capital allocated to an agent and his lifetime utility entitlement. The mapping implies properties that are distinct from those in models with private information about endowments. In contrast to the latter, the value of the risk-sharing arrangement in our model always remains above the autarky value. There is no need for ...
Working Paper
Costly technology adoption and capital accumulation
The authors develop a model of costly technology adoption where the cost is irrecoverable and fixed. Households must decide when to switch from an existing technology to a new, more productive technology. Using a recursive approach, the authors show that there is a unique threshold level of wealth above which households will adopt the new technology and below which they will not. This threshold is independent of preference parameters and depends only on technology parameters. Prior to adoption, households invest at increasing rates, but consumption growth is constant. The authors also show ...
Journal Article
Why are married women working more? Some macroeconomic explanations.
What accounts for the sharp increase in the number of hours worked by married women? Although the number of hours worked per person in the U.S. has changed very little over the past 60 years, the labor force has undergone some pronounced shifts over that same period. One prominent change is this sharp increase. In "Why Are Married Women Working More? Some Macroeconomic Explanations," Aubhik Khan discusses how the composition of the labor force has changed since 1945, how women's work in the marketplace has increased so dramatically, and how macroeconomists explain these changes.
Working Paper
Optimal monetary policy
Optimal monetary policy maximizes welfare, given frictions in the economic environment. Constructing a model with two sets of frictions ? the Keynesian friction of costly price adjustment by imperfectly competitive firms and the Monetarist friction of costly exchange of wealth for goods ? the authors find optimal monetary policy is governed by two familiar principles. ; First, the average level of the nominal interest rate should be sufficiently low, as suggested by Milton Friedman, that there should be deflation on average. Yet, the Keynesian frictions imply that the optimal nominal interest ...