This paper constructs a stationary rational-expectations equilibrium in which an extraneous random variable, called animal spirits, causes fluctuations in unemployment. The model assumes costly matching in the labor market and a thin-market externality in the output market that makes the profitability of hiring depend positively on the number of firms hiring. The equilibrium does not rely on any effect of expected inflation on labor supply. It is also stable under learning; Bayesian updating induces convergence to the equilibrium with positive probability even if people start with no definite belief that animal spirits affect the profitability of hiring.

This paper analyzes the intertemporal allocation effects of anticipated tax-rate changes, reconsidering the recommendations of the Meade Committee in a perfect foresight general equilibrium model of economic growth. We show that the R-base (or consumption) tax can be more distortionary than an income tax and that a revenue-neutral integration of corporate and personal taxation may lower social welfare. Moreover, we argue that a dividend tax dominates the R-base tax because it places its distortions on the financial rather than on the real side of the economy.

This paper deals with a class of models of the demand for money that includes the Baumol-Tobin and other inventory-theoretic models as special cases. Among other things, the analysis shows that many supposedly robust comparative-statics propositions derived by earlier writers do not survive even modest generalization. More generally, the results of the paper strongly reinforce other recent research in indicating the need for a wholesale reconstruction of the microfoundations of contemporary monetary theory.

This paper deals with a class of models of the demand for money that includes the Baumol-Tobin and other inventory-theoretic models as special cases. Among other things, the analysis shows that many supposedly robust comparative-statics propositions derived by earlier writers do not survive even modest generalization. More generally, the results of the paper strongly reinforce other recent research in indicating the need for a wholesale reconstruction of the microfoundations of contemporary monetary theory.

This paper develops a model based on Schumpeter's process of creative destruction. It departs from existing models of endogenous growth in emphasizing obsolescence of old technologies induced by the accumulation of knowledge and the resulting process or industrial innovations. This has both positive and normative implications for growth. In positive terms, the prospect of a high level of research in the future can deter research today by threatening the fruits of that research with rapid obsolescence. In normative terms, obsolescence creates a negative externality from innovations, and hence a tendency for laissez-faire economies to generate too many innovations, i.e too much growth. This business-stealing effect is partly compensated by the fact that innovations tend to be too small under laissez-faire. The model possesses a unique balanced growth equilibrium in which the log of GNP follows a random walk with drift. The size of the drift is the average growth rate of the economy and it is endogenous to the model ; in particular it depends on the size and likelihood of innovations resulting from research and also on the degree of market power available to an innovator.

It is shown that, in a class of models with multiple externalities (one positive and one negative), all stationary equilibria may be locally stable to perturbations, in the sense that there exist perfect foresight trajectories leading back to the equilibrium. Thus, scale diseconomies (arising, for example, out of a common resource pool) generally overturn the Liviatan-Samuelson result, that equilibria are either saddlepoints or sources.

This paper analyzes the intertemporal allocation effects of anticipated tax rate changes, reconsidering the recommendations of the Meade Committee in a perfect foresight general equilibrium model of economic growth. It is shown that the R-base (or consumption) tax can be more distortionary than an income tax and that a revenue-neutral integration of corporate and personal taxation will lower social welfare. Moreover, it is argued that a dividend tax dominates the R-base tax because it places its distortions on the financial, rather than on the real, side of the economy. Copyright 1989 by American Economic Association.

We introduce imperfect creditor protection in a multicountry Schumpeterian growth model. The theory predicts that any country with more than some critical level of financial development will converge to the growth rate of the world technology frontier, and that all other countries will have a strictly lower long-run growth rate. We present evidence supporting these and other implications, in the form of a cross-country growth regression with a significant and sizable negative coefficient on initial per-capita GDP (relative to the United States) interacted with financial intermediation. In addition, we find that other variables representing schooling, geography, health, policy, politics, and institutions do not affect the significance of the interaction between financial intermediation and initial per capita GDP, and do not show any independent effect on convergence in the regressions. Our findings are robust to removal of outliers and to alternative conditioning sets, estimation procedures, and measures of financial development.