This paper explores the role of public debt and fiscal deficits on factor productivity in an economy with credit market frictions and heterogeneous firms. When credit market conditions are sufficiently weak, low interest rates permit the government to run Ponzi schemes so that permanent primary...

We consider a Diamond-type model of endogenous growth in which there are three assets: fiat money, government bonds, and equity. Because of productivity shocks, the equity return is uncertain, and risk-averse investors require a positive equity premium. Typically, there exist two steady states,...

We incorporate a wage bargaining structure in a dynamic general equilibrium model and show how this feature changes short and long-run properties of equilibria compared with a perfectly competitive setting. We discuss how employment, capital, and income shares respond to wage setting shocks and...

We consider a dynamic general equilibrium model with collective wage bargaining and investigate how unemployment dynamics are affected by two types of budgetary policies. In line with traditional reasoning, a balanced-budget rule amplifies fluctuations in the short run, whereas an...