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179 SUBJECT INDEX Accelerator 237, 361 Adjustment {see Capital adjustment costs Convergence, Nominal adjustment. Price adjustment) Adverse selection, 287, 377 Agency costs, 377 Agency problems, 370 Aggregate demand and exchange rates. 207210 and output, 215 in traditional Keynesian models, 197204 and unemployment movements, 220 Aggregate demand {AD) curve, 197199, 229230 and inflation, 390391 Aggregate demand externality, 261, 279 Aggregate demand shocks antiapated vs unanticipated, 264265 effects of, 249, 253255, 264, 269, 276277, 289291 and employment movements, 444 measuring, 253254 and output, 250 and prices, 249250, 278279 and unemployment, 472 Aggregate supply, 227 228, 248 models of, 214222 Aggregate supply {AS) curve, 197, 229230 and aggregate pnce level, 243 horizontal, 217218, 220 and inflation, 390391 and microeconomic environment. 232 nonlinearities in, 416 nonvertical, 214215 Aggregate supply shocks, 291293 AghionHowitt model, 9697, 114 Animal spints, 296 Asset pricing, 343344 Automatic stabilizers, 237 Autoregressive process firstorder, 154 second order, 162 third order, 178 Backshift operator, 270n Balanced budget multipher, 237 Balanced growth path defininon of, 14 and goldenrule capital stock, 5253 and government financing, 87 and government purchases, 60 61, 86 propernes of, 52 Bargaining (see Contracts, Insider outsider models. Unions) BarroGordon model, 436 Bequests, 61 Beveridge curve 478 Blanchard model, 72n Bonding, 460 461 Bonds, 6466, 68, 70, 87, 395 Bubble paths, 94 393 Bubbles asset prices, 343 Budget deficits, 3435, 67, 143144, 420 Buffer stock savmg, 340341 Business steahng effect, 114 Calculus of variations, 44n, 52n, 384385 Calibration, 22 advantages of, 180 disadvantages of, 188 189 and fluctuations, 181182 and Keynesian models, 205 vs statistical procedures, 180, 190 Capital cost of acquirmg 350 elastic supply of, 348 and growth, 7 growth rate of, 5657, 104110 human and cross country mcome differences, 126 features of, 126 models incorporating, 126 vs physical capital, 95, 126128 share in income of, 134 and technology, 129n market value of, 353354, 356357, 360, 367368 rate of return on, 24 rental price of, 345346 and saving rate, 127 and taxes, 8990, 142, 347 user cost of, 346347, 384 Capital accumulation and cross country mcome differences, 6, 2325, 95, 137140 and growth, 95
human vs. physical, 129 and knowledge accumulation, 116117 in models with human capital added, 128 and output per person, 6 Capital adjustment costs: asymmetry in, 366368 external, 348, 358n, 380 internal, 348, 358n returns in, 354 (See also q theory model of investment) Capitalasset pricing model (CAPM), 330n Capital flows, 24, 27, 3132, 135136 Capital goods, 380381 Capital markets (see Financial markets) Capital mobility: and interest rates, 212 imperfect, 212214 perfect, 206207, 210211 Capital stocks: costs of adjusting, 349 desired, 345348 and government financing, 87 and investment, 13, 345348 and investment tax credits, 364 and irreversible investment, 367368 and output movements, 360 Capitaloutput ratio, 8, 2324 Capitals share (in income), 21, 23, 26, 33, 126127, 134, 140 CaplinSpulber model: assumptions of, 273274 neutrality of money in, 276 vs. Taylor model, 275276 Cash flow, 382383 Cashinadvance constraint, 245 Centralbank independence, 410411 Certaintyequivalence behavior, 246247, 262, 263, 266, 302, 318319 and quadratic utility, 318319 Classical dichotomy, 242 CobbDouglas production function, 910, 34, 7677 generalized, 9697, 102n Coefficient of relative risk aversion, 40, 324, 332 Competition, imperfect, 27, 217, 257262 impUcations of, 260262 Consumersurplus effect, 114 Consumption: blacks patterns of, vs. whites, 315316 under certainty, 310316 and current income, 196 of durable goods, 148, 333n, 342343 excess sensitivity of, 319, 338 and fluctuations, 309 and government financing, 67 and growth, 309 and income, 311, 313316, 320322 and labor supply, 158 and Uquidity constraints, 336 and rates of return, 323324 and real wage growth, 322323 relative, 312 and risky assets, 328332 and saving, 311312 and taxes, 327 under uncertainty, 157158, 316319, 335336 and unemployment, 415 variability of, 415 (See also Households: consumption behavior of) Consumption beta, 330 Consumption capitalasset pricing model (Consumption CAPM), 329330, 369 Consumption fiinction (Keynes), 67, 312 Consumption movements: determinants of, 317319 and income movements, 319323 and interest rate, 324325 and precautionary saving, 335336 predictabiUty of, 317, 319 and stockprice movements, 320 and utility function, 333335 Contracting models, 440, 461465, 489490 and fluctuations, 464465 tests of, 481484 and unemployment, 468469 Contracts: and consumption, 322 efficient, 464465, 468469 implicit, 464465, 489490 and incomplete nominal adjustment, 256257 renegotiationproof, 373n wage, 463465 (See also Entrepreneurinvestor contracts) Convergence: conditional, 139 and crosscountry income differences, 2731, 138140 in Diamond model, 7879 and government purchases, 6061 in RamseyCassKoopmans model, 5859 in Solow model, 2123, 27, 5859 tests of, 2731, 138140 Convergence scatterplot, 30 Coordination failures: experiments, 297299 models of, 294297 sources of, 297 Copyright laws, 112 Core inflation, 229231, 248 (See also Inflation)
Corruption, 137n Costly state verification, 371 Credit rationing, 375 Crowding effects, 474 Debt contracts, 288, 372 Debtdeflation, 288 Delegation, 407409, 410411 Demand (see Aggregate demand) Diamond model assumptions of, 7273 balanced growth path m, 77 capital stock m, 7576 consumption m, 7375, 8283 convergence in, 7879 dynamics of economy m, 7581 general case of, 7981 government m, 8588 inefficiency m, 83 vs RamseyCassKoopmans model, 38, 72 saving m, 81 and saving rate, 75 vs Solow. growth model, 79 welfare m. 8183 DickeyFuller unit root test, 177 Differential equations, 55n Discount rate and capital stock, 54 fall in, m Diamond model, 77 m RamseyCass Koopmans model, 5359 Discrete time, lln Disequilibrium models, 217n Disturbances (see specific disturbances, e g, Monetary shocks) Dual labor markets, 460 Dynamic consistency, 402 Dynamic efftciency, 8485 Dynamic inconsistency, 389, 409410 and delegation, 407409 examples of, 402403 and expectations, 411 and intermediate targets, 418 model of, 399402 and policymakers reputations, 404 and rules, 403 theories of, 411412 Dynamic mefftciency, 8183, 9394 Dynamic programming, 157n, 452454, 475 Economic growth (see Growth (economic)) Economies of scale (see Returns to scale) Effective labor, 7, 444 (See also Labor) Effective labor demand, 218 Effectiv eness of labor and crosscountry income differences, 23, 25 as knowledge, 95 and long run growth, 81 meaning of, 25, 95 and output per worker, 25 in Solow model, 25 as technological progress, 96 (See also Knowledge, Labor) Efftciency wages, 220, 440, 444445 and bargaining, 487 and compensation schemes, 441442, 460461 extended model of, 446450 and fluctuations, 444, 449450 and interindustry wage differences, 484486 simple model of, 442446 sources of, 441442 and unemployment, 444449 and unions, 486487 (See also ShapiroStiglitz model) Elasticity of substitution, intertemporal, 40, 75, 88, 187, 324325, 327328 Embodied technological progress, 36, 186n Employment movements and aggregate demand shocks, 444 and contracts, 482483 and government purchases shock, 172174 and insiders, 469, 472473 and labor demand movements, 439, 465 m Lucas model, 255 m real businesscycle model, 184185 and sectorspeciftc shocks, 186 Entrepreneur investor contracts, 371375 Equilbria, multiple (see Multiple equilibna) Equity premium, 331332, 344 Equity premium puzzle, 332 Euler equation, 45, 5960, 74, 157, 316, 337 European Monetary System, 210n Excess sensitivity of consumption, 319, 336 (See also Randomwalk hypothesis) Excess smoothness of consumption, 319n, 342 Exchangemarket intervention, 238 Exchange rates hxed, 207210 floaung, 207, 210, 212 real, 206, 236 Exchangerate expectations, 207, 210212 Exchange rate overshooting, 211212, 238 Excludability, 112115 Expectanons, rational (see Rational expectations) Expected mflation (see Inflation, expected) Expenditures, 201202 planned, 200, 202, 206, 212213 Expenments, 297298
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