Foreign debt supply in an imperfect international capital market: Theory and evidence

e investigate the determinants of foreign borrowing costs in a stochastically growing economy. We find that these increase with the debt-wealth ratio, depending also upon the volatilities of domestic and foreign origin, and the length of debt contract. In addition, the sensitivity of the short-term debt supply to the debt-wealth ratio exceeds that of long-term debt, and the effects of volatility on the borrowing premium, growth of wealth, and its volatility, depend on the relative size of a direct effect and a secondary portfolio-adjustment effect of the initial shock, as well as the length of the debt contract. Panel regressions suggest that the empirical evidence generally support the theoretical predictions.close

Demography, growth, and inequality

We extend the single-sector endogenous growth model to allow for a general demographic structure. The model shows that due to the "generational turnover term," the equilibrium growth rate is less than that of a representative agent model. We find the local dynamics about the balanced growth path (bgp) to be unstable, implying that the bgp is the only viable equilibrium. Using numerical simulations, we analyze how economic consequences of a change in the population growth rate differ, depending on the source of the demographic change. In addition, we analyze the relationship between changes in the demographic structure and what we call the "natural rate of wealth inequality". Finally, we use our model to study how the demographic transition experienced by the United States has affected the economic growth rate and the degree of wealth inequality

Capital accumulation and the sources of demographic change

We develop a neoclassical growth model having a realistic demographic structure. We identify the critical channel of impact to be the intertemporal consumption allocation decision through the "generational turnover term". Expressing the aggregate dynamics as a generalization of the conventional neoclassical growth model provides important insights, enabling us to view in a unified way how alternative demographic structures impinge on the macrodynamic equilibrium. Using an approximation to the generational turnover term, we are able to characterize both the steady state and the local transitional dynamics. Through numerical simulations, we analyze the steady state as well as the transitional effects of structural and demographic changes.</p

Foreign lending under limited enforcement

[No abstract available

Habit Formation, Catching up with the Joneses, and Economic Growth

Our objective is to investigate how alternative assumptions about preferences affect the process of economic growth. To do this, we analyze a neoclassical growth model under three alternative preference specifications: (i) time separable, (ii) catching up with the Joneses, and (iii) habit formation. Departing from the time separable specification leads to important differences in the dynamic structure, the adjustment path followed by key economic variables, the correlation patterns implied by the time series generated by the model, and the speed of convergence to the new steady state. In the catching up with the Joneses economy the differences arise from a consumption externality, while in the habit formation economy the difference arises from the fact that agents not only smooth consumption but also its rate of change

Fiscal policy, adjustment costs, and endogenous growth

Presented at 1994 Warwick Economic Summer Research Workshop on 'Econometric modelling of European macroeconomic integration'SIGLEGBUnited Kingdo