A number of recent empirical studies have cast doubt on the "modernization theory" of democratization, which posits that increases in income are conducive to increases in democracy levels. This doubt stems mainly from the fact that while a strong positive correlation exists between income and...

We formalize the Keynesian insight that aggregate demand driven by sentiments can generate output fluctuations under rational expectations. When production decisions must be made under imperfect information about demand, optimal decisions based on sentiments can generate stochastic...

We study the wealth distribution in Bewley economies with idiosyncratic capital income risk. We show analytically that under rather general conditions on the stochastic structure of the economy, a unique ergodic distribution of wealth displays a fat tail; more precisely, a Pareto distribution in...

We study a model where some agents have private information about risky asset returns and trade to obtain capital gains, while others acquire the risky asset and hold it to maturity, forming expectations of returns based on market prices. We show that under such a structure, in addition to fully...

We develop a macroeconomic model with adverse selection. A continuum of households purchase goods from a continuum of anonymous producers. The quality of products can only be learned after trade. Adverse selection arises as low-quality goods deliver higher profits for producers but are less...

This paper argues that the home, or nonmarket, sector is empirically large, whether measured in terms of the time devoted to household production activities or in terms of the value of home produced output. We also argue that there may be a good deal of substitutability between the market and...

We reexamine several bodies of data on the growth of output, labor, and capital, within the context of a model that admits the possibility of an externality to the capital input. The model is an augmented version of Paul Romer's (1987) reformulation of the Solow model. Unlike Romer, however, we...

When monetary policy is subject to regime switches conditions for determinacy become more complex. Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009a) have studied such conditons. Using some new results from stochastic processes, we characterize the moments of the stationary...

The existing literature on the stabilizing properties of interest-rate feedback rules has stressed the perils of linking interest rates to forecasts of future inflation. Such rules have been found to give rise to aggregate fluctuations due to self-fulfilling expectations. In response to this...

We present a mechanism to analytically generate a double Pareto distribution of wealth in a continuous time OLG model with optimizing agents who have bequest motives, are subject to stochastic returns on capital and have uncertain lifespans. We disentangle, roughly, the contribution of...