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Author:Aiyagari, S. Rao 

Working Paper
The output, employment, and interest rate effects of government consumption
AUTHORS: Aiyagari, S. Rao; Christiano, Lawrence J.; Eichenbaum, Martin
DATE: 1990

Discussion Paper
Efficient investment in children
Many would say that children are societys most precious resource. So, how should it invest in them? To gain insight into this question, a dynamic general equilibrium model is developed where children differ by ability. Parents invest time and money in their offspring, depending on their altruism. This allows their children to grow up as more productive adults. First, the efficient allocation for the framework is characterized. Next, this is compared with the case of incomplete financial markets. Then, the situation where childcare markets are also lacking is examined. Additionally, the effects of impure altruism are analyzed.
AUTHORS: Greenwood, Jeremy; Aiyagari, S. Rao; Seshadri, Ananth
DATE: 1999

Discussion Paper
The output, employment, and interest rate effects of government consumption
This paper investigates the impact of aggregate variables of changes in government consumption in the context of a stochastic, neoclassical growth model. We show, theoretically, that the impact on output and employment of a persistent change in government consumption exceeds that of a temporary change. We also show that, in principle, there can be an analog to the Keynesian multiplier in the neoclassical growth model. Finally, in an empirically plausible version of the model, we show that the interest rate impact of a persistent government consumption shock exceeds that of a temporary one. Our results provide counterexamples to existing claims in the literature.
AUTHORS: Aiyagari, S. Rao; Eichenbaum, Martin; Christiano, Lawrence J.
DATE: 1990

Journal Article
Macroeconomics with frictions
This article is a progress report on research that attempts to include one type of market incompleteness and frictions in macroeconomic models. The focus of the research is the absence of insurance markets in which individual-specific risks may be insured against. The article describes some areas where this type of research has been and promises to be particularly useful, including consumption and saving, wealth distribution, asset markets, business cycles, and fiscal policies. The article also describes work in each of these areas that was presented at a conference sponsored by the Federal Reserve Bank of Minneapolis in the fall of 1993. ; Reprinted in the Quarterly Review, Summer 1997 (v. 21, no. 3)
AUTHORS: Aiyagari, S. Rao
DATE: 1994-07

Journal Article
Intergenerational linkages and government budget policies
AUTHORS: Aiyagari, S. Rao
DATE: 1987-04

Journal Article
How should taxes be set?
AUTHORS: Aiyagari, S. Rao
DATE: 1989-01

Journal Article
Response to a defense of zero inflation
This essay distills the differences between zero inflation proponents and critics to three main questions: Can the central bank make a credible commitment to maintaining a stable price level? Should monetary policy be used to reduce the tax on capital income? And would reducing uncertainty about inflation produce significant social benefits? Proponents of zero inflation answer all three questions yes, while critics answer no. The essay reviews both answers for each question and suggests that the disagreements are at least partly due to inadequacies in economic models. The essay repeats the author's view, argued in an earlier study, that when other policy options are considered, the overall benefits of a zero inflation policy shrink close to zero, and may even become negative.
AUTHORS: Aiyagari, S. Rao
DATE: 1991-04

Journal Article
On the contribution of technology shocks to business cycles
This article contends that the various measures of the contribution of technology shocks to business cycles calculated using the real business cycle modeling method are not corroborated. The article focuses on a different and much simpler method for calculating the contribution of technology shocks, which takes account of facts concerning the productivity/labor input correlation and the variability of labor input relative to output. Under several standard assumptions, the method predicts that the contribution of technology shocks must be large (at least 78 percent), that the labor supply elasticity need not be large to explain the observed fluctuation in labor input, and that the contribution of technology shocks can be estimated fairly precisely. The method also estimates that the contribution of technology shocks could be lower than 78 percent under alternative assumptions. ; Reprinted in the Quarterly Review, Summer 1997 (v. 21, no. 3)
AUTHORS: Aiyagari, S. Rao
DATE: 1994-01

Journal Article
Explaining financial market facts: the importance of incomplete markets and transaction costs
In this article, I suggest that incomplete markets and transaction costs are crucial for explaining the high equity premium and the low risk-free rate. I first demonstrate the failure of the complete frictionless markets model in explaining these return puzzles and then show how introducing incomplete markets and transaction costs can lead to success. Additionally, I explain how these features lead to predictions concerning individual consumptions, wealths, portfolios, and asset market transactions that are in better agreement with the facts than the predictions of the complete frictionless markets model.
AUTHORS: Aiyagari, S. Rao
DATE: 1993-01

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