Article history: Received 2 July 2007 Revised 16 September 2008 Available online 26 September 2008 JEL classification: E21 E25 E62

According to the financial accelerator model, a small monetary or other shock is amplified through credit market restrictions on small firms, and swings in balance sheets over the business cycle cause swings in small firms’ spending. This paper incorporates these notions in an empirical model of firm behavior. We use unit transaction cost of debt and rationed credit as indicators of balance she...

The ‘noise trader’ model of De Long et al. provides a plausible account of the determination of the equity premium. Extension of the model to allow for privatization of publicly-owned assets yields insights into the positive political economy of privatization and into the normative question of how policies should be evaluated in the presence of mistaken beliefs. JEL Classification: E62

A common method to study the dynamic behavior of macroeconomic variables is using linear time series models; however, they are unable to explain nonlinear behavior of the series. Given the dependency between stock market and derivatives, the behavior of the underlying asset price can be modeled using Markov switching process properties and the economic regime significance. In this paper, a two-...

This paper investigates the importance of entrepreneurship when quantifying the aggregate and distributional effects of switching from a progressive to a proportional income tax system. I find that the distributional consequences of the tax reform in a model economy with entrepreneurs contrast markedly from those in a model economy with no entrepreneurs. The elimination of progressive taxation ...

We expand Nakamura’s (2005) neural network based inflation forecasting experiment to an alternative non-linear model; a Markov switching autoregressive (MS-AR) model. The two non-linear models perform approximately on par and outperform the linear autoregressive model on short forecast horizons of one and two quarters. Furthermore, the MS-AR model is the best performer on longer horizons of thr...

Analytical expectational stability results are obtained for both Euler-equation and infinitehorizon adaptive learning in a simple stochastic growth model. The rational expectations equilibrium is stable under both types of learning, though there are differences in the learning dynamics. JEL Classification: E62, D84, E21, E43.

Logistic smooth transition and Markov switching autoregressive models of a logistic transform of the monthly US unemployment rate are estimated by Markov chain Monte Carlo methods. The Markov switching model is identified by constraining the first autoregression coefficient to differ across regimes. The transition variable in the LSTAR model is the lagged seasonal difference of the unemployment...

This paper employs Roback’s locational-equilibrium model of public-goods pricing, crosssectional data from the Census of Population and Housing, and SMSA-level estimates of public capital stocks in order to examine the productive contribution of public capital. I find that public capital has a small positive impact on private output. JEL classification codes: E62, R53