This paper identifies two channels through which the economy can generate endogenous inflation and output volatility, an empirical regularity, by introducing model uncertainty into a Lucas-type monetary model. The equilibrium path of inflation depends on agents’ expectations and a vector of exogenous random variables. Following Branch and Evans (2006a) agents are assumed to underparameterize th...

I introduce bankruptcy into a complete markets model with a continuum of ex ante identical agents who have power utility. Shares in a Lucas tree serve as collateral. The model yields a large equity premium, a low risk-free rate and a time-varying market price of risk for reasonable risk aversion. Bankruptcy gives rise to a second risk factor in addition to aggregate consumption growth risk. Thi...

We introduce endogenous directed technical change into numerical integrated climate and development policy assessment. We distinguish expenditures on innovation (R&D) and imitation (international technology spillovers) and consider the role of capital investment in creating and implementing new technologies. Our main contribution is to calibrate and numerically solve the model and to examine th...

We study the competitive equilibria of a two-country endogenous growth model in which the source of growth is the linearity of technology in reproducible inputs. We begin by showing that in a model with no externalities there is a unique equilibrium; however, there are multiple ways in which the social planner can allocate production plans across countries. We then introduce an externality to h...