I introduce a minimum innovation size required for patents into a Schumpeterian growth model. We show that to satisfy the patentability requirement for minimum innovation size, each research and development (R&D) firm targets only industries in which the incumbent's technology is of sufficient obsolescence. This is because the technological gap between innovator and incumbent is greater in industries using older technologies. Although the increase in minimum innovation size reduces the number of industries targeted for R&D, it also increases the amount of R&D investment directed at those targeted industries. Consequently, introducing a minimum innovation size has a nonmonotonic (or negative) effect on the aggregate flow of innovations. Further, by deriving the endogenous long-run distribution of innovation size, we show that an increase in minimum innovation size reduces the mean innovation size. This implies that even if the patent office only grants patents for superior innovations, it causes innovators to produce generally inferior-quality innovations.

Recent empirical research stresses the importance of foresight in tax policy analyses, because failing to model foresight adequately leads to two types of biases: a bias that relates to a mismatch of information sets in the presence of foresight, and one that arises when time variation in foresight is ignored. This paper incorporates tax foresight into a framework of time-varying structural vector autoregression models with stochastic volatility to account for both types of biases. This reveals the effects of changing degrees of tax foresight on U.S. tax policy. Two findings stand out: First, anticipated and unanticipated tax shocks show considerable time variations, suggesting that some tax reforms were more anticipated than others. Second, the time-varying bias reveals that tax foresight was higher during the 1980s and 1990s than during the 1960s and 1970s. The results compare well with the literature and find support in documented U.S. tax episodes.

Is there an economic justification for why technical change is by assumption labor-augmenting in dynamic macroeconomics? The literature on the endogenous choice of capital- and labor-augmenting technical change finds that technical change is purely labor-augmenting in steady state. The present paper shows that this finding is mainly an artifact of the underlying mathematical models. To make this point, Uzawa's steady-state growth theorem is generalized to a neoclassical economy that, besides consumption and capital accumulation, uses current output to create technical progress or to manufacture intermediates. The generalized steady-state growth theorem is shown to encompass four models of endogenous capital- and labor-augmenting technical change and the typical model of the induced innovations literature of the 1960s.

The energy transition from fossil fuels to alternative energy sources has important consequences for technological change and resource extraction. We examine these consequences by incorporating a nonrenewable resource and an alternative energy source in a market economy model of endogenous growth through expanding varieties. During the energy transition, technological progress is nonmonotonic over time: It declines initially, starts increasing when the economy approaches the regime shift, and jumps down once the resource stock is exhausted. A moment of peak-oil does no longer necessarily occur, and simultaneous use of the resource and the alternative energy source will take place if the return to innovation becomes too low. Subsidies to research and development (R&D) and to renewables production speed up the energy transition, whereas a tax on fossil fuels postpones the switch to renewable energy.

We construct a growth model with status preference to explore the effects of patents on innovation and social welfare. We find a nonmonotonic effect of patent protection on innovation. Additionally, the growth-rate-maximizing degree of patent protection decreases when the strength of status preference is larger. The effect of patent protection on social welfare is ambiguous, depending on the strength of status preference. Moreover, wealth inequality widens as patent protection is reinforced. Finally, by using cross-section regression analysis, we document that a nonmonotonic relationship between patent protection and economic growth is statistically significant and that the growth-rate-maximizing degree of patent protection decreases with the strength of status preference.

We study the impacts of investment in public capital on equity and efficiency. Taking into account stylized facts on wealth accumulation, we model agent heterogeneity through differences in saving behavior, income source and time preference. We find that in the long run, public investment is Pareto-improving and that it reduces inequality in wealth, welfare, and income at the same time, if it is financed by a capital tax. Consumption tax financing is also Pareto-improving but distribution-neutral. Only for labor tax financing, a trade-off between equity and efficiency occurs. Additionally, we find that agents differ in their preferred tax rates.The results for capital and labor tax financing are valid for both, the case of decreasing and constant returns to accumulable factors.

We explore the effects of banking regulation on financial stability and macroeconomic dynamics in an agent-based computational model. In particular, we study the minimum level of capital and the lending concentration towards a single counterpart. We show that an overly tight regulation is dangerous because it reduces credit availability. By contrast, overly loose constraints, associated with a high payout ratio, increase financial fragility that, in turn, damage the real economy. Simulation results support the introduction of regulatory rules aimed at assuring an adequate capitalization of banks, such as the Capital Conservation Buffer (Basel III reform).

We estimate a medium-scale dynamic stochastic general equilibrium (DSGE) model for the euro area in an open-economy framework. The model includes structural trends on all variables, allowing us to estimate on gross data. First, we provide a theoretical balanced growth path consistent with permanent productivity shocks, inflation target changes, and permanent shocks to the openness of the economies. We then define the cycle as the gap between this sustainable trajectory and the gross data. Hence, we can properly deal with persistent deviations of the trade balance. Finally, we find persistent and strong effects from the asymmetric increase of euro-area imports during the last 10 years on domestic inflation. From 2000Q1 to 2008Q4, we estimate the contribution of the imbalanced development of international trade on euro-area inflation to an average of −0.7%, and on nominal interest rate, to an average of −1.4%.

This paper argues that the marked reduction in the burden of parasitic and infectious diseases (PID) together with improved nutrition over the past two centuries in today's advanced countries has resulted in markedly improved physiological capital and cognitive skills and, consequently, in productivity advances. Using a unique annual dataset covering the period 1800–2011 for 21 OECD (Organisation for Economic Co-operation and Development) countries, it is found that health improvements can account for approximately a third of the productivity advances in the OECD countries since 1865, and that these improvements have been influential for enhancement in education, savings, innovations, life expectancy, and democracy.

Current Population Survey (CPS) data over the period from 1994 to 2008 show that inflation has a positive effect on the residual wage dispersion. To explain this phenomenon, we introduce uncoordinated job searches into a general equilibrium monetary search framework. Our model shows that the uncoordinated job searches by unemployed workers give rise to an equilibrium, where a firm is matched with zero, one, or multiple job applicants. The ex post difference in matching probabilities generates a two-point wage dispersion among identical workers, when the Mortensen rule is implemented in the wage-determination process. In our model, inflation positively influences the wage dispersion directly through its impact on firm's real profit and indirectly through the effect of inflation that spills over from the goods market to the labor market. With reasonable parameter values, the calibrated model can account for most of the observed responses of residual wage dispersion to inflation.

Using laboratory experiments within a New Keynesian framework, we explore the interaction between the formation of inflation expectations and monetary policy design. The central question in this paper is how to design monetary policy when expectations formation is not perfectly rational. Instrumental rules that use actual rather than forecasted inflation produce lower inflation variability and reduce expectational cycles. A forward-looking Taylor rule where a reaction coefficient equals 4 produces lower inflation variability than rules with reaction coefficients of 1.5 and 1.35. Inflation variability produced with the latter two rules is not significantly different. Moreover, the forecasting rules chosen by subjects appear to vary systematically with the policy regime, with destabilizing mechanisms chosen more often when inflation control is weaker.

We construct a microfounded model of money with Gul–Pesendorfer preferences. In each period, agents are tempted to spend all their money by the end of the period, and they suffer from the forgone utility that could have been obtained by adopting the tempting choice. We find that the Friedman rule may not be optimal. A positive nominal interest rate improves welfare because it reduces the real money balances and renders the temptation less attractive. The welfare gained by deviating from the rule is equivalent to 0.67% of consumption.

The recent financial crisis highlighted the limits of the originate to distribute model of banking, but its nexus with the macroeconomy remains unexplored. I build a business cycle model with banks engaging in credit risk transfer (CRT) under informational externalities. Markets for CRT provide liquidity insurance to banks, but the emergence of a pooling equilibrium can also impair the banks' monitoring incentives. In normal times and in face of standard macro shocks the insurance benefits of CRT prevail and the business cycle is stabilized. In face of financial/liquidity shocks the extent of informational asymmetries is larger and the business cycle is amplified. The macro model with CRT can also reproduce well a number of macro and banking statistics over the period of rapid growth of this banks' business model.