A Toolbox for the Numerical Study of Linear Dynamic Rational Expectations Models

By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying ``LDRE Toolbox' of Matalb functions guide a researcher with almost no experience in computational work to resolve and study his own model. After coding the model following specific guidelines, a single function call is all that is needed to log-linearize the model; simulate it under exogenous sequences of shocks; compute sample and population moment conditions; and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying LDRE models using the LDRE Toolbox. Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: the Discounted Case, Journal of Economic Theory, 4(3): 479-513; 1972); King, Plosser, and Rebelo (Production, Growth and Business Cycles I: The Basic Neoclassical Model, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (Real Business Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991).RBC models; Solution method; Toolbox of Matlab functions; Log- linear approximation techniques

World Interest Rate, Business Cycles, and Financial Intermediation in Small Open Economies

The consensus about the ability of the standard open-economy neoclassical growth model to account for interest-rate driven business cycles has changed over time: whereas early research concluded that business cycles are neutral to interest-rate shocks, more recent investigations suggest that these shocks can explain a large extent of the business cycles of a small open economy when firms borrow to pay for their labor cost before cashing their sales. The first goal of this paper is to show that the recently found effectiveness of interest-rate shocks to cause business cycles rests more on the statistical properties of the shocks than on the working-capital constraint; in particular, recent results are only valid when the level and volatility of the interest rate are high and when the interest rate is negatively correlated with total factor productivity. The paper also shows that interest-rate shocks cannot be the sole driving force of business cycles even when the canonical model is augmented to include a working-capital constraint. The second goal of the paper is to quantitatively explore the dynamic properties of the neoclassical growth model extended to include financial intermediation. It is shown that the extended model with external effects in financial intermediation can match the negative correlation between GDP and a domestic borrowing-lending spread in emerging countries if the economy is subject to productivity shocks but not when the model is subject to both productivity and interest-rate shocks.financial intermediation; open-economy business cycles; interest rates; capital inflows

Sustainable Fiscal Policy with Rising Public Debt-To-Gdp Ratios

In financial and economic policy circles concerned with public debt in developing countries, a rising debt-GDP ratio is interpreted as a signal of overborrowing, warning of debt defaults if strong fiscal corrections are not adopted in time. This paper shows why this interpretation is incorrect by building a simple model of fiscal policy in which upward-sloping debt paths are observed even though the probability of default is ``almost surely" equal to zero.public debt; fiscal policy; debt sustainability; debt limits

A Toolbox for the Numerical Study of Linear Dynamic Rational Expectations Models

By simplifying the computational tasks and by providing step-by-step explanations of the procedures required to study a linear dynamic rational expectations (LDRE) model, this paper and the accompanying ``LDRE Toolbox" of Matalb functions guide a researcher with almost no experience in computational work to resolve and study his own model. After coding the model following specific guidelines, a single function call is all that is needed to log-linearize the model; simulate it under exogenous sequences of shocks; compute sample and population moment conditions; and obtain impulse-response functions. Three classical models in the Real-Business-Cycles literature are solved and studied throughout to give detailed examples of the steps involved in solving and studying LDRE models using the LDRE Toolbox. Namely, the economies in Brock and Mirman (Optimal Growth and Uncertainty: the Discounted Case, Journal of Economic Theory, 4(3): 479-513; 1972); King, Plosser, and Rebelo (Production, Growth and Business Cycles I: The Basic Neoclassical Model, Journal of Monetary Economics 21: 195-232; 1988); and Mendoza (Real Business Cycles in a Small Open Economy, American Economic Review 81(4): 797-818; 1991).

Initial Semantics for Strengthened Signatures

We give a new general definition of arity, yielding the companion notions of signature and associated syntax. This setting is modular in the sense requested by Ghani and Uustalu: merging two extensions of syntax corresponds to building an amalgamated sum. These signatures are too general in the sense that we are not able to prove the existence of an associated syntax in this general context. So we have to select arities and signatures for which there exists the desired initial monad. For this, we follow a track opened by Matthes and Uustalu: we introduce a notion of strengthened arity and prove that the corresponding signatures have initial semantics (i.e. associated syntax). Our strengthened arities admit colimits, which allows the treatment of the \lambda-calculus with explicit substitution.Comment: In Proceedings FICS 2012, arXiv:1202.317

Dogmatism and Theoretical Pluralism in Modern Cosmology

This work discusses the presence of a dogmatic tendency within modern cosmology, and some ideas capable of neutralizing its negative influence. It is verified that warnings about the dangers of dogmatic thinking in cosmology can be found as early as the 1930's, and we discuss the modern appearance of "scientific dogmatism". The solution proposed to counteract such an influence, which is capable of neutralizing this dogmatic tendency, has its origins in the philosophical thinking of the Austrian physicist Ludwig Boltzmann (1844-1906). In particular we use his two main epistemological theses, scientific theories as representations of nature and theoretical pluralism, to show that once they are embodied in the research practice of modern cosmology, there is no longer any reason for dogmatic behaviours.Comment: 14 pages; LaTeX sourc