This paper devises a fiscal policy by means of which the first-best optimal equilibrium can be attained as a market equilibrium in an endogenous growth model with public capital. The optimal equilibrium requires that public (private) investment be zero along the transition to the balanced growth path if the initial ratio of public to private capital is higher (lower) than its long-term value. We also show that the transitional dynamics can be determined by noting that the continuity of the shadow prices involves the continuity of the consumption path.

We discuss the role of the elasticity of substitution in the local determinacy properties of a steady state or a stationary balanced growth path in a general multisector economy with CES technologies. Our main results are the following: We give some sufficient conditions for the occurrence of local indeterminacy in exogenous and endogenous growth models. We show that local indeterminacy takes place even without a capital intensity reversal from the private to the social level if the productive factors are weakly substitutable. Moreover, we show that the conditions for local indeterminacy in exogenous growth models and in endogenous growth models may be qualitatively different.

This paper studies the transition dynamics predictions of an R&D-based growth model, and evaluates their performance in explaining income disparities across nations. We find that the fraction of the observed cross-country income variation explained by the transitional dynamics of the model is as large as the one accounted for by existing steady-state level regressions. Our results suggest that the traditional view of a world in which nations move along their distinct balanced-growth paths is as likely as the one in which countries move along adjustment paths toward a common (very long run) steady state.

We generalize a money-in-the-utility function model to include interest-bearing deposits and use the model to estimate the welfare cost of inflation. In the model, the user cost of deposits is invariant to inflation in steady state. Currency and deposits are assumed to be weakly separable and the model is calibrated using index number methods. We find that the welfare cost of inflation is substantially lower in the model with interest-bearing deposits than in models where all monetary assets are assumed to be non-interest bearing. We also show that higher inflation can raise or lower the rate of convergence to steady state depending on the coefficient of relative risk aversion, but the effect is weak. We provide evidence for OECD countries suggesting that there could be a positive effect of inflation on user costs, which would lead to higher welfare cost estimates.

It is customary for the Interviewer to begin with an introduction describing the circumstances of the interview and providing an overview of the nature and importance of the work of the interviewee. However, in this case, as Editor of this journal, I feel it would be presumptuous of me to provide my own overview and evaluation of the work of this great man, Paul Samuelson. The scope of his contributions has been so vast (averaging almost one technical paper per month for over 50 years) that it could be particularly difficult to identify those areas of modern economic theory to which he has not made seminal contributions.Perhaps those rare exceptions might include game theoretic and topological models and maybe the recent literatures on complex unstable nonlinear dynamics, sunspots, and incomplete markets. But I would not be surprised, if he were to correct those speculations as misperceptions, if I were to ask. In addition to his over 550 published papers, his books are legendary. He once said: “Let those who will—write the nation's laws–if I can write its textbooks.”

Instead of attempting to provide my own overview, I am limiting this introduction to the following direct (slightly edited) quotation of a few paragraphs from the Web site, The History of Economic Thought, which is maintained online by the New School University in New YorkThe current URL of that Web site is http://cepa.newschool.edu/het/home.htm.: Perhaps more than anyone else, Paul A. Samuelson has personified mainstream economics in the second half of the twentieth century. The writer of the most successful principles textbook ever (1948), Paul Samuelson has been not unjustly considered the incarnation of the economics ‘establishment’—and as a result, has been both lauded and vilified for virtually everything right and wrong about it.Samuelson's most famous piece of work, Foundations of Economic Analysis (1947), is one of the grandest tomes that helped revive Neoclassical economics and launched the era of the mathematization of economics. Samuelson was one of the progenitors of the Paretian revival in microeconomics and the Neo-Keynesian Synthesis in macroeconomics during the post-war period.The wunderkind of the Harvard generation of 1930s, where he studied under Schumpeter and Leontief, Samuelson had a prodigious grasp of economic theory, which has since become legendary. An unconfirmed anecdote has it that at the end of Samuelson's dissertation defense, Schumpeter turned to Leontief and asked, ‘Well, Wassily, have we passed?’ Paul Samuelson moved on to M.I.T. where he built one of the century's most powerful economics departments around himself. He was soon joined by R.M. Solow, who was to become Samuelson's sometime co-writer and partner-in-crime.Samuelson's specific contributions to economics have been far too many to be listed here—being among the most prolific writers in economics. Samuelson's signature method of economic theory, illustrated in his Foundations (1947), seems to follow two rules which can also be said to characterize much of Neoclassical economics since then: With every economic problem, (1) reduce the number of variables and keep only a minimum set of simple economic relations; and (2) if possible, rewrite it as a constrained optimization problem.In microeconomics, he is responsible for the theory of revealed preference (1938, 1947). This and his related efforts on the question of utility measurement and integrability (1937, 1950) opened the way for future developments by Debreu, Georgescu-Roegen, and Uzawa. He also introduced the use of comparative statics and dynamics through his ‘correspondence principle’ (1947), which was applied fruitfully in his contributions to the dynamic stability of general equilibrium (1941, 1944). He also developed what are now called ‘Bergson-Samuelson social welfare functions’ (1947, 1950, 1956); and, no less famously, Samuelson is responsible for the harnessing of ‘public goods’ into Neoclassical theory (1954, 1955, 1958).Samuelson was also instrumental in establishing the modern theory of production. His Foundations (1947) are responsible for the envelope theorem and the full characterization of the cost function. He made important contributions to the theory of technical progress (1972). His work on the theory of capital is well known, if contentious. He demonstrated one of the first remarkable ‘Non-Substitution’ theorems (1951) and, in his famous paper with Solow (1953), initiated the analysis of dynamic Leontief systems. This work was reiterated in his famous 1958 volume on linear programming with Robert Dorfman and Robert Solow, wherein we also find a clear introduction to the ‘turnpike’ conjecture of linear von Neumann systems. Samuelson was also Joan Robinson's main adversary in the Cambridge Capital Controversy—introducing the ‘surrogate’ production function (1962), and then subsequently (and graciously) relenting (1966).In international trade theory, he is responsible for the Stolper–Samuelson Theorem and, independently of Lerner, the Factor Price Equalization theorem (1948, 1949, 1953), as well as (finally) resolving the age-old ‘transfer problem’ relating terms of trade and capital flows, as well as the Marxian transformation problem (1971), and other issues in Classical economics (1957, 1978).In macroeconomics, Samuelson's multiplier-accelerator macrodynamic model (1939) is justly famous, as is the Solow–Samuelson presentation of the Phillips Curve (1960) to the world. He is also famous for popularizing, along with Allais, the ‘overlapping generations’ model which has since found many applications in macroeconomics and monetary theory. In many ways, his work on speculative prices (1965) effectively anticipates the efficient markets hypothesis in finance theory. His work on diversification (1967) and the ‘lifetime portfolio’ (1969) is also well known.Paul Samuelson's many contributions to Neoclassical economic theory were recognized with a Nobel Memorial prize in 1970.

This paper uses daily observations for the Canadian dollar–U.S. dollar exchange rate over the recent flexible exchange-rate period (from January 2, 1974, to October 28, 2002), and various tests from dynamical systems theory, such as a chaos test, a self-organized criticality test, and a threshold effects test, to support a stochastic nonlinear origin for the series.