Output dynamics in an endogenous growth model

The aim of this paper is to analyze whether endogenous growth RBC models are consistent with two stylized facts about U.S. output dynamics. First, GNP growth is positively correlated in the short run and it has a weak negative autocorrelation over longer horizons. Second, GNP appears to have an important trend-reverting component that has a hump-shaped MA representation. In particular, this article considers a stochastic version of Lucas' (1988) model in the absence of externalities in discrete time with two modifications: agents derive utility not only from consumption but also from leisure and labor adjustment costs are included. Results reveal that combining the endogenous character of the engine of growth with labor adjustment costs may help solve the Cogley-Nason (1995) puzzle since it provides a stronger propagation mechanism which, in turn, improves the model's ability to generate realistic output dynamics.real business cycle models, endogenous growth, propagation mechanism

Consumption-Leisure Trade-offs and Persistency in Business Cycles

This paper studies whether nonseparabilities between consumption and leisure may help to explain the observed persistence in GNP growth. We consider an extended version of Lucas' (1988) human capital investment model that includes labor adjustment costs and compare its performance under different utility specifications with different degrees of complementarity and substitutability between consumption and leisure. We find that when consumption and leisure are complements the model succeeds in matching not only the autocorrelation of output growth but also the important trend-reverting component found in US data. These results hold even if low adjustment costs of labor are considered. Hence, we conclude that an arguably simple margin not studied previously can provide useful insights into observed business cycle patterns.real business cycle models, endogenous growth, propagation mechanism, persistence

Long-Term Growth and Persistence with Endogenous Depreciation: Theory and Evidence

Previous research has shown a strong positive correlation between short-term persistence and long-term output growth as well as between depreciation rates and long-term output growth. This evidence, therefore, contradicts the standard predictions from traditional neoclassical or AK-type growth models with exogenous depreciation. In this paper, we first confirm these findings for a larger sample of 101 countries. We then study the dynamics of growth and persistence in a model where both the depreciation rate and growth are endogenous and procyclical. We find that the model s predictions become consistent with the empirical evidence on persistence, long-term growth and depreciation rates.Spanish Ministry of Science and Technology through grant ECO2009-07939, the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Universidades e Investigación del Gobierno Vasco (IT-223-07).Spanish Ministry of Science and Technology through grant ECO2009-13357, the Spanish Ministry of Economics and Competitiveness through grant ECO2012-35430 and the Andalusian Council of Innovation and Science under Excellence Project SEJ-4546

Optimal Taxation and Indeterminacy in the Uzawa-Lucas Model with Sector-specific Externalities

Documento de trabajoIn an extended Uzawa-Lucas model that includes labor-leisure decisions, sector-speci c externalities in the production of goods generate a market failure relative to the socially optimal decisions. We show that, regardless of whether agents value pure or effective units of leisure, the first best solution can be attained either by using a time-varying subsidy to the human capital employed to produce goods or by combining consumption and labor income taxes with this type of subsidy. Moreover, when leisure is de ned as raw time, we fi nd that even when there is global determinacy, local indeterminacy may arise for several combinations of the parameters that are consistent with empirical evidence and previous literature. Importantly, under local indeterminacy the optimal policy does not ensure that identical economies will converge to the same per capita levels. Thus, not only the size and type of human capital externalities are important for optimal policy but also the indeterminacy aspects are relevant.Financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged

Consumption-Leisure Trade-offs and Persistency in Business Cycles

This paper studies whether nonseparabilities between consumption and leisure may help to explain the observed persistence in GNP growth. We consider an extended version of Lucas' (1988) human capital investment model that includes labor adjustment costs and compare its performance under different utility specifications with different degrees of complementarity and substitutability between consumption and leisure. We find that when consumption and leisure are complements the model succeeds in matching not only the autocorrelation of output growth but also the important trend-reverting component found in US data. These results hold even if low adjustment costs of labor are considered. Hence, we conclude that an arguably simple margin not studied previously can provide useful insights into observed business cycle patterns.Financial support from Ministerio de Educación y Ciencia (SEJ2005-08269) and the Department of Education of the Basque Government (IT-334-07) is gratefully acknowledged

Foreign Aid Linked to Infrastructure and/or Pollution Abatement

This paper studies the macroeconomic effects of a permanent increase in foreign aid in a model that takes into account environmental quality. We develop a dynamic equilibrium model in which both public investment in infrastructure and environmental protection can be financed using domestic resources and international aid programs. The framework considers four scenarios for international aid: untied aid,aid fully tied to infrastructure, aid fully tied to abatement, and aid equally tied to both types of expenditures. We find that the effects of the transfers may depend on (i) the structural characteristics of the recipient country (the elasticity of substitution in production and its dependence on environment and natural resources) and on (ii) how recipient countries distribute their public expenditure. These results underscore the importance of these factors when deciding how and to what extent to tie aid to infrastructure and/or pollution abatement.Financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged

Experimental Economics Meets Language Choice

Roughly one half of World's languages are in danger of extinction. The endangered languages, spoken by minorities, typically compete with powerful languages such as En- glish or Spanish. Consequently, the speakers of minority languages have to consider that not everybody can speak their language, converting the language choice into strategic,coordination-like situation. We show experimentally that the displacement of minority languages may be partially explained by the imperfect information about the linguistic type of the partner, leading to frequent failure to coordinate on the minority language even between two speakers who can and prefer to use it. The extent of miscoordination correlates with how minoritarian a language is and with the real-life linguistic condition of subjects: the more endangered a language the harder it is to coordinate on its use, and people on whom the language survival relies the most acquire behavioral strategies that lower its use. Our game-theoretical treatment of the issue provides a new perspective for linguistic policies.The Basque Departamento de Educacion, Polí tica Linguistica y Cultura (IT869-13 & IT-783-13), the Spanish Ministerio de Economía y Competividad (ECO 2012-31626, ECO 2012- 35820), and GACR (14-22044S)

Long-Term Growth and Persistence with Endogenous Depreciation: Theory and Evidence

Previous research has shown a strong positive correlation between short-term persistence and long-term output growth as well as between depreciation rates and long-term output growth. This evidence, therefore, contradicts the standard predictions from traditional neoclassical or AK-type growth models with exogenous depreciation. In this paper, we first confirm these findings for a larger sample of 101 countries. We then study the dynamics of growth and persistence in a model where both the depreciation rate and growth are endogenous and procyclical. We find that the model s predictions become consistent with the empirical evidence on persistence, long-term growth and depreciation rates.Spanish Ministry of Science and Technology through grant ECO2009-07939, the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Universidades e Investigación del Gobierno Vasco (IT-223-07).Spanish Ministry of Science and Technology through grant ECO2009-13357, the Spanish Ministry of Economics and Competitiveness through grant ECO2012-35430 and the Andalusian Council of Innovation and Science under Excellence Project SEJ-4546

Optimal Taxation and Indeterminacy in the Uzawa-Lucas Model with Sector-specific Externalities

Documento de trabajoIn an extended Uzawa-Lucas model that includes labor-leisure decisions, sector-speci c externalities in the production of goods generate a market failure relative to the socially optimal decisions. We show that, regardless of whether agents value pure or effective units of leisure, the first best solution can be attained either by using a time-varying subsidy to the human capital employed to produce goods or by combining consumption and labor income taxes with this type of subsidy. Moreover, when leisure is de ned as raw time, we fi nd that even when there is global determinacy, local indeterminacy may arise for several combinations of the parameters that are consistent with empirical evidence and previous literature. Importantly, under local indeterminacy the optimal policy does not ensure that identical economies will converge to the same per capita levels. Thus, not only the size and type of human capital externalities are important for optimal policy but also the indeterminacy aspects are relevant.Financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged

Foreign Aid Linked to Infrastructure and/or Pollution Abatement

This paper studies the macroeconomic effects of a permanent increase in foreign aid in a model that takes into account environmental quality. We develop a dynamic equilibrium model in which both public investment in infrastructure and environmental protection can be financed using domestic resources and international aid programs. The framework considers four scenarios for international aid: untied aid,aid fully tied to infrastructure, aid fully tied to abatement, and aid equally tied to both types of expenditures. We find that the effects of the transfers may depend on (i) the structural characteristics of the recipient country (the elasticity of substitution in production and its dependence on environment and natural resources) and on (ii) how recipient countries distribute their public expenditure. These results underscore the importance of these factors when deciding how and to what extent to tie aid to infrastructure and/or pollution abatement.Financial support from the Spanish Ministry of Economy and Competitiveness through grant ECO2012-31626 and Departamento de Educación, Política Lingüística y Cultura del Gobierno Vasco (IT869-13) is gratefully acknowledged