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Author:Aiyagari, S. Rao 

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. ...
Discussion Paper / Institute for Empirical Macroeconomics , Paper 25

Working Paper
Money and dynamic credit arrangements with private information

The authors construct a model with private information in which consumers write dynamic contracts with financial intermediaries.
Working Papers (Old Series) , Paper 9807

Journal Article
How should taxes be set?

Quarterly Review , Volume 13 , Issue Win , Pages 22-32

Journal Article
Economic fluctuations without shocks to fundamentals; or, does the stock market dance to its own music?

Quarterly Review , Volume 12 , Issue Win , Pages 8-24

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 ...
Quarterly Review , Volume 18 , Issue Win , Pages 22-34

Journal Article
Deficits, interest rates, and the tax distribution

Quarterly Review , Volume 9 , Issue Win

Working Paper
Banking panics, information, and rational expectations equilibrium

This paper shows that bank runs can be modeled as an equilibrium phenomenon. We demonstrate that some aspects of the intuitive ?story? that bank runs start with fears of insolvency of banks can be rigorously modeled. If individuals observe long ?lines? at the bank, they correctly infer that there is a possibility that the bank is about to fail and precipitate a bank run. However, bank runs occur even when no one has any adverse information. Extra market constraints such as suspension of convertibility can prevent bank runs and result in superior allocations.
Working Papers , Paper 320

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 ...
Quarterly Review , Volume 15 , Issue Spr , Pages 21-24

Working Paper
Nonmonetary steady states in stationary overlapping generations models with long lived agents and discounting: multiplicity, optimality, and consumption smoothing

We construct a sequence of pure exchange, stationary OLG economies in which generations have longer and longer life spans and all agents maximize a discounted sum of utilities with a fixed, positive, and common discount rate. Period utility functions and endowment patterns are subject to mild restrictions and within generation heterogeneity is permitted. We show that: (i) Every sequence of equilibrium interest rates converges to the discount rate. (ii) Eventually every nonmonetary steady state is optimal and a monetary steady state will never exist. (iii) For any agent consumption at any ...
Working Papers , Paper 325

Can there be short-period deterministic cycles when people are long lived?

This paper considers whether short-period deterministic cycles can exist in a class of stationary overlapping generations models with long- (but finite-) lived agents. It shows that if agents discount the future positively, then as life spans get large, nonmonetary cycles will disappear. Further, neither constant monetary steady states nor stationary monetary cycles can exist. It also shows that if agents discount the future negatively, then there are robust examples in which constant monetary steady states as well as stationary monetary cycles (with undiminished amplitude) can occur no ...
Staff Report , Paper 114


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