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Working Paper
Efficient investment in children
If children are society?s most precious resource, as many would argue, how should we invest in them? To gain insight into this question, the authors develop a dynamic, general-equilibrium model in which children differ by ability. Parents invest time and money in their offspring, depending on their altruism, to help them grow into more productive adults. The authors characterize the efficient allocation, then compare it with the outcome that arises when financial markets are incomplete. They also examine the situation where childcare markets are lacking and analyze the consequences of impure ...
Working Paper
Coexistence of money and interest-bearing securities
A random matching model with money is used to study the nominal yield on small denomination, bearer, safe, discount securities issued by the government. There is always one steady state with matured securities circulating at par and, for some parameters, another with them circulating at a discount. In the former, a necessary and sufficient condition for a positive nominal yield on not-yet-matured securities is exogenous discriminatory treatment of them by the government. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even without such ...
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 ...
Journal Article
Deficits, interest rates, and the tax distribution
Journal Article
Intergenerational linkages and government budget policies
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 ...
Working Paper
Comments on Farmer and Guo's \"The econometrics of indeterminacy: an applied study.\"
(replaced by Staff Report No. 196)
Journal Article
Deflating the case for zero inflation
This paper analyzes the U.S. congressional proposal to instruct the Federal Reserve to, in the next five years, lower inflation to zero from its current rate of around 5 percent. The paper concludes that, when other policy options are considered, the zero inflation policy is not advisable. Its benefits would be very small--possibly negative--while its costs would probably be significant. Other, more direct policy options could produce most of the same benefits with fewer costs. Among these alternative policies are deregulating interest rates on demand deposits, paying interest on financial ...
Working Paper
Existence of steady states with positive consumption in the Kiyotaki-Wright model
We prove the general existence of steady states with positive consumption in an N goods and fiat money version of the Kiyotaki-Wright (?On money as a median of exchange,? Journal of Political Economy 1989, 97 (4), 927?54) model by admitting mixed strategies. We also show that there always exists a steady state in which everyone accepts a least costly-to-store object. In particular, if fiat money is one such object, then there always exists a monetary steady state. We also establish some other properties of steady states and comment on the relationship between steady states and (incentive) ...