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. 207-210 and output, 215

in traditional Keynesian models, 197-204

and unemployment movements, 220 Aggregate demand {AD) curve, 197-199, 229-230

and inflation, 390-391 Aggregate demand externality, 261, 279 Aggregate demand shocks

antiapated vs unanticipated, 264-265

effects of, 249, 253-255, 264, 269, 276-277, 289-291

and employment movements, 444

measuring, 253-254

and output, 250

and prices, 249-250, 278-279

and unemployment, 472 Aggregate supply, 227 228, 248

models of, 214-222 Aggregate supply {AS) curve, 197, 229-230

and aggregate pnce level, 243

horizontal, 217-218, 220

and inflation, 390-391

and microeconomic environment. 232

nonlinearities in, 416

nonvertical, 214-215 Aggregate supply shocks, 291-293 Aghion-Howitt model, 96-97, 114 Animal spints, 296 Asset pricing, 343-344 Automatic stabilizers, 237 Autoregressive process

first-order, 154

second order, 162

third order, 178

Backshift operator, 270n Balanced budget multipher, 237 Balanced growth path defininon of, 14

and golden-rule capital stock, 52-53 and government financing, 87 and government purchases, 60 61, 86 propernes of, 52

Bargaining (see Contracts, Insider outsider models. Unions)

Barro-Gordon model, 436

Bequests, 61

Beveridge curve 478

Blanchard model, 72n

Bonding, 460 461

Bonds, 64-66, 68, 70, 87, 395

Bubble paths, 94 393

Bubbles asset prices, 343

Budget deficits, 34-35, 67, 143-144, 420

Buffer stock savmg, 340-341

Business steahng effect, 114

Calculus of variations, 44n, 52n, 384-385 Calibration, 22

advantages of, 180

disadvantages of, 188 189

and fluctuations, 181-182

and Keynesian models, 205

vs statistical procedures, 180, 190 Capital

cost of acquirmg 350

elastic supply of, 348

and growth, 7

growth rate of, 56-57, 104-110 human and cross country mcome differences, 126 features of, 126 models incorporating, 126 vs physical capital, 95, 126-128 share in income of, 134 and technology, 129n market value of, 353-354, 356-357, 360,

367-368 rate of return on, 24 rental price of, 345-346 and saving rate, 127 and taxes, 89-90, 142, 347 user cost of, 346-347, 384 Capital accumulation and cross country mcome differences, 6,

23-25, 95, 137-140 and growth, 95

human vs. physical, 129 and knowledge accumulation, 116-117 in models with human capital added, 128 and output per person, 6 Capital adjustment costs: asymmetry in, 366-368 external, 348, 358n, 380 internal, 348, 358n returns in, 354

(See also q theory model of investment) Capital-asset pricing model (CAPM), 330n Capital flows, 24, 27, 31-32, 135-136 Capital goods, 380-381 Capital markets (see Financial markets) Capital mobility:

and interest rates, 212

imperfect, 212-214

perfect, 206-207, 210-211 Capital stocks:

costs of adjusting, 349

desired, 345-348

and government financing, 87

and investment, 13, 345-348

and investment tax credits, 364

and irreversible investment, 367-368

and output movements, 360 Capital-output ratio, 8, 23-24 Capitals share (in income), 21, 23, 26, 33,

126-127, 134, 140 Caplin-Spulber model:

assumptions of, 273-274

neutrality of money in, 276

vs. Taylor model, 275-276 Cash flow, 382-383 Cash-in-advance constraint, 245 Central-bank independence, 410-411 Certainty-equivalence behavior, 246-247, 262, 263, 266, 302, 318-319

and quadratic utility, 318-319 Classical dichotomy, 242 Cobb-Douglas production function, 9-10, 34, 76-77

generalized, 96-97, 102n Coefficient of relative risk aversion, 40, 324, 332

Competition, imperfect, 27, 217, 257-262

impUcations of, 260-262 Consumer-surplus effect, 114 Consumption:

blacks patterns of, vs. whites, 315-316

under certainty, 310-316

and current income, 196

of durable goods, 148, 333n, 342-343

excess sensitivity of, 319, 338

and fluctuations, 309

and government financing, 67

and growth, 309

and income, 311, 313-316, 320-322 and labor supply, 158

and Uquidity constraints, 336 and rates of return, 323-324 and real wage growth, 322-323 relative, 312

and risky assets, 328-332 and saving, 311-312 and taxes, 327

under uncertainty, 157-158, 316-319,

335-336 and unemployment, 415 variability of, 415

(See also Households: consumption

behavior of) Consumption beta, 330 Consumption capital-asset pricing model

(Consumption CAPM), 329-330, 369 Consumption fiinction (Keynes), 67, 312-

Consumption movements: determinants of, 317-319 and income movements, 319-323 and interest rate, 324-325 and precautionary saving, 335-336 predictabiUty of, 317, 319 and stock-price movements, 320 and utility function, 333-335

Contracting models, 440, 461-465, 489-490

and fluctuations, 464-465 tests of, 481-484 and unemployment, 468-469 Contracts: and consumption, 322 efficient, 464-465, 468-469 implicit, 464-465, 489-490 and incomplete nominal adjustment,

256-257 renegotiation-proof, 373n wage, 463-465

(See also Entrepreneur-investor contracts) Convergence:

conditional, 139

and cross-country income differences,

27-31, 138-140 in Diamond model, 78-79 and government purchases, 60-61 in Ramsey-Cass-Koopmans model,

58-59

in Solow model, 21-23, 27, 58-59

tests of, 27-31, 138-140 Convergence scatterplot, 30 Coordination failures:

experiments, 297-299

models of, 294-297

sources of, 297 Copyright laws, 112 Core inflation, 229-231, 248

(See also Inflation)

Corruption, 137n Costly state verification, 371 Credit rationing, 375 Crowding effects, 474

Debt contracts, 288, 372 Debt-deflation, 288 Delegation, 407-409, 410-411 Demand (see Aggregate demand) Diamond model

assumptions of, 72-73

balanced growth path m, 77

capital stock m, 75-76

consumption m, 73-75, 82-83

convergence in, 78-79

dynamics of economy m, 75-81

general case of, 79-81

government m, 85-88

inefficiency m, 83

vs Ramsey-Cass-Koopmans model, 38, 72

saving m, 81

and saving rate, 75

vs Solow. growth model, 79

welfare m. 81-83 Dickey-Fuller unit root test, 177 Differential equations, 55n Discount rate

and capital stock, 54

fall in, m Diamond model, 77

m Ramsey-Cass Koopmans model, 53-59 Discrete time, lln Disequilibrium models, 217n Disturbances (see specific disturbances,

e g, Monetary shocks) Dual labor markets, 460 Dynamic consistency, 402 Dynamic efftciency, 84-85 Dynamic inconsistency, 389, 409-410

and delegation, 407-409

examples of, 402-403

and expectations, 411

and intermediate targets, 418

model of, 399-402

and policymakers reputations, 404

and rules, 403

theories of, 411-412 Dynamic mefftciency, 81-83, 93-94 Dynamic programming, 157n, 452-454, 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 cross-country 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, 444-445 and bargaining, 487 and compensation schemes, 441-442,

460-461 extended model of, 446-450 and fluctuations, 444, 449-450 and interindustry wage differences,

484-486 simple model of, 442-446 sources of, 441-442 and unemployment, 444-449 and unions, 486-487 (See also Shapiro-Stiglitz model) Elasticity of substitution, intertemporal,

40, 75, 88, 187, 324-325, 327-328 Embodied technological progress, 36,

186n

Employment movements

and aggregate demand shocks, 444

and contracts, 482-483

and government purchases shock, 172-174

and insiders, 469, 472-473

and labor demand movements, 439, 465

m Lucas model, 255

m real business-cycle model, 184-185

and sector-speciftc shocks, 186 Entrepreneur investor contracts, 371-375 Equilbria, multiple (see Multiple equilibna) Equity premium, 331-332, 344 Equity premium puzzle, 332 Euler equation, 45, 59-60, 74, 157, 316, 337

European Monetary System, 210n Excess sensitivity of consumption, 319, 336

(See also Random-walk hypothesis) Excess smoothness of consumption,

319n, 342 Exchange-market intervention, 238 Exchange rates

hxed, 207-210

floaung, 207, 210, 212

real, 206, 236 Exchange-rate expectations, 207, 210-212 Exchange rate overshooting, 211-212, 238 Excludability, 112-115 Expectanons, rational (see Rational

expectations) Expected mflation (see Inflation, expected) Expenditures, 201-202

planned, 200, 202, 206, 212-213 Expenments, 297-298