Many researchers have explored the implications of Lucas’ misperception model. Arguably, the most important implication of this model is that the slope of the aggregate supply curve depends on the variability of nominal shocks. This paper examines this insight from Lucas’ model using annual...

The paper contributes to the discussion on whether real interest rates smaller than real growth rates can be taken as evidence of dynamic in- efficiency that calls for scal interventions. A seemingly killing objection points to the presence of land, a non-produced durable asset whose value...

By an endogenous growth model with two-period overlapping generations structure and money holding of consumers, we examine the existence of budget deficit in an economy which endogenously grows by investments of firms. The main results are as follows. (1) Budget deficit is necessary for full...

In this note we compare the laissez-faire steady-state solution in the Howitt and Aghion (1998) model to the social optimum. The analysis offers several new insights in comparison to the welfare analysis in Aghion and Howitt (1992). We find various new distortions between private and optimal...