We evaluate whether the introduction of pessimistic homogeneous beliefs in the frictionless Lucas-Mehra-Prescott model and the Kehoe-Levine-Alvarez-Jermann model with endogenous borrowing constraints, helps explain the equity premium, the risk-free rate and the equity volatility puzzles as well...

This paper analyzes the effectiveness of debt relief and foreign aid in a neoclassical growth framework with a conflict of interest between the donor and the recipient government. Conditionality is modeled as a dynamic contract that is enforceable only by the threat of aid sanctions....

This paper provides a model to account for the empirical evidence that volatility reduces growth. In the model, greater volatility increases the cost associated with capital market imperfections and induces the financial intermediaries to charge higher interest rates. The model is based on one...