To have one central bank governor address you today may be regarded as a misfortune, but to invite two looks like carelessness! It is a great honour to be invited by this year’s President-Elect, Marty Feldstein, to deliver the Ely lecture. Marty has been my teacher, mentor, colleague and friend for over thirty years, and I never cease to be amazed by the energy and imagination which he devotes to the study of economic problems. I got to know Marty during my time as a Kennedy Scholar at Harvard in 1971. The Kennedy Scholarships form one part of Britain's national memorial to President Kennedy. The other part is an acre of land, now American territory, at Runnymede. At the ceremony to open the Runnymede memorial in 1965, Prime Minister Harold Wilson remarked about President Kennedy that "his eyes were on the horizon, but his feet were on the ground”. Almost thirty years earlier Richard T. Ely published his autobiography entitled "Ground under Our Feet". Whereas I found the experience of coming from Europe to the United States intellectually liberating and exhilarating, a hundred years earlier Ely found academic freedom by making the reverse journey. As

This paper studies four classic fiscal-policy experiments within a quantitatively restricted neoclassical model. Our main findings are as follows: (i) permanent changes in government purchases can lead to short-run and long-run output multipliers that exceed 1; (ii) permanent changes in government purchases induce larger effects than temporary changes; (iii) the financing decision is quantitatively more important than the resource cost of changes in government purchases; and (iv) public investment has dramatic effects on private output and investment. These findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy.

This paper studies four classic fiscal-policy experiments within a quantitatively restricted neoclassical model. The authors' main findings are as follows: (1) permanent changes in government purchases can lead to short-run and long-run output multipliers that exceed one; (2) permanent changes in government purchases induce larger effects than temporary changes; (3) the financing decision is quantitatively more important than the resource cost of changes in government purchases; and (4) public investment has dramatic effects on private output and investment. These findings stem from important dynamic interactions of capital and labor absent in earlier equilibrium analyses of fiscal policy.

Neoclassical transitional dynamics are a central element of standard macroeconomic theory. Quantitative experiments with the fixed-savings-rate models of the 1960's showed lengthy transitions, thus potentially rationalizing sustained differences in growth rates across countries. We investigate quantitative transitional dynamics in various neoclassical models with intertemporally optimizing households. Lengthy transitions occur only with very low intertemporal substitution. Generally, when one tries to explain sustained economic growth with transitional dynamics, there are extremely counterfactual implications. These result from the fact that implied marginal products are extraordinarily high in the early stages of development.