In recent years there has been a resurgence of interest in the empirical behavior of inventories. A great deal of this research examines some variant of the production smoothing model of finished goods inventories. The overall assessment of this model that exists in the literature is quite...

In recent years there has been a resurgence of interest in the empirical behavior of inventories. A great deal of this research examines some variant of the production smoothing model of finished goods inventories. The overall assessment of this model that exists in the literature is quite...

Several recent studies have suggested that empirical rejections of the permanent income/life cycle model might be due to the existence of liquidity constraints. This paper tests the permanent income hypothesis against the alternative hypothesis that consumers optimize subject to a well specified...

When can a government borrow a dollar and never pay back any interest or principal? We call such an arrangement under perfect foresight a rational Ponzi game. We use the transversality condition facing individual agents to show that rational Ponzi games require an infinity of lenders. The...

Microdata studies of household saving often find a significant group in the population with virtually no wealth, rising concerns about heterogeneity in motives for saving. In particular, this heterogeneity has been interpreted as evidence against the life-cycle model of saving. This paper argues...

Under certain conditions, a government can run a "rational Ponzi game," i.e., issue debt and never repay any interest or principal. Does Ricardian equivalence hold with respect to a tax cut that is financed by such a scheme? We study this question using overlapping generations models in which...

Paper for a conference sponsored by the Federal Reserve Bank of New York entitled Financial Innovation and Monetary Transmission

The issue of whether higher lifetime income households save a larger fraction of their income is an important factor in the evaluation of tax and macroeconomic policy. Despite an outpouring of research on this topic in the 1950s and 1960s, the question remains unresolved and has since received...