According to endogenous growth theory, permanent changes in certain policy variables have permanent effects on the rate of economic growth. Empirically, however, U. S. growth rates exhibit no large persistent changes. Therefore, the determinants of long-run growth highlighted by a specific growth model must similarly exhibit no large persistent changes, or the persistent movement in these variables must be offsetting. Otherwise, the growth model is inconsistent with time series evidence. This paper argues that many AK-style models and R&D-based models of endogenous growth are rejected by this criterion. The rejection of the R&D-based models is particularly strong.

This paper presents a simple model of trade in the housing market. The crucial feature is that a minimum down payment is required for the purchase of a new home. The model has direct implications for the volatility of house prices, as well as for the correlation between prices and trading volume. The model can also be extended to address the correlation between prices and time-to-sale, as well as certain aspects of the cyclical behavior of housing starts.

The determinants of bargaining power and price formation in a dynamic exchange market where new traders enter randomly over time are studied. When agents on the long side of the market possess the option to wait for the arrival of future partners, the terms of trade in the spot market must honor the value of this option. The equilibrium terms of trade are expressed in intuitive closed-form equations that highlight the distinct influences of short-run spot-market conditions and long-run market demographics.

This paper investigates the effects of shocks to U. S. monetary policy on exchange rates. We consider three measures of these shocks: orthogonalized shocks to the federal funds rate, orthogonalized shocks to the ratio of nonborrowed to total reserves and changes in the Romer and Romer index of monetary policy. In sharp contrast to the literature, we find substantial evidence of a link between monetary policy and exchange rates. Specifically, according to our results a contractionary shock to U. S. monetary policy leads to (i) persistent, significant appreciations in U. S. nominal and real exchange rates and (ii) significant, persistent deviations from uncovered interest rate parity in favor of U. S. interest rates.

Decisions under uncertainty depend not only on the degree of uncertainty but also on its source, as illustrated by Ellsberg's observation of ambiguity aversion. In this article we propose the comparative ignorance hypothesis, according to which ambiguity aversion is produced by a comparison with less ambiguous events or with more knowledgeable individuals. This hypothesis is supported in a series of studies showing that ambiguity aversion, present in a comparative context in which a person evaluates both clear and vague prospects, seems to disappear in a noncomparative context in which a person evaluates only one of these prospects in isolation.