Credibility is elusive, but Blinder [(2000) American Economic Review 90, 1421–1431.] generated a consensus in the literature by arguing that “A central bank is credible if people believe it will do what it says.” To implement this idea, we first measure people’s beliefs by using survey data on inflation’s expectations. Second, we compare beliefs with explicit (or tacit) targets, taking into account the uncertainty in our estimate of beliefs (asymptotic 95% robust confidence intervals). Whenever the target falls into this interval we consider the central bank credible. We consider it not credible otherwise. We apply our approach to study the credibility of the Brazilian Central Bank (BCB) by using a world-class database—the Focus Survey of forecasts. Using monthly data from January 2007 until April 2017, we estimate people’s beliefs of inflation 12 months ahead, coupled with a robust estimate of its asymptotic 95% confidence interval. Results show that the BCB was credible 65% of the time, with the exception of a few months in the beginning of 2007 and during the interval between mid-2013 throughout mid-2016.

We build a model that, according to the empirical evidence, gives rise to oscillations in wealth within a dynasty while keeping intergenerational persistence in education attainment. We propose a mechanism based on the interaction between wealth and effort as suggested by the Carnegie conjecture, according to which wealthier individuals devote less effort in their job occupations than poorer. Oscillations in wealth arise from changes in the occupation chosen by different generations of the same dynasty as a response to both inherited wealth and college premium. Our mechanism generates a rich social stratification with several classes in the long run due to the combination of different levels of education and occupation types. Furthermore, we generate a large mobility in wealth among classes even in the long run. Our model highlights the role played by the minimum cost on education investment, the borrowing constraints, and the complementarity between education and occupational effort.

In this paper, I explore in an overlapping generations framework, a mechanism motivating a neurobiological poverty trap. Poverty causes stress and depression in individuals susceptible to depression. Poor and depressed individuals discount the future at a higher rate and invest less in the human capital of their children than mentally healthy or rich individuals. This gene–environment interaction generates a vicious cycle in which poor individuals inherit not only susceptibility to depression, but also stress and poverty. I show that a successful one-time intervention has the power to permanently eliminate the neurobiological poverty trap.

We assess the responses of output and inflation to monetary policy shocks in the context of a Bayesian, monetary structural vector autoregressive model. We allow money supply and leverage measures to enter into the interest rate policy rule and use an identification approach that is by construction devoid of any price puzzles. We provide a comprehensive comparison between monetary policy shocks under a policy regime that follows a standard Taylor rule and those that augment the standard reaction function of the central bank with measures of leverage and the money supply. We find that contractionary monetary policy is more pronounced and persistent when the reaction function of the central bank is augmented with measures of money and leverage than when the reaction function follows a typical Taylor rule. Our results support the use and inclusion of monetary aggregates in monetary policy and business cycle analysis.

Several policies or interventions have been implemented in developing countries with the ultimate goal of improving educational outcomes and human capital. Although many empirical studies have pointed to mixed results of these interventions, the role of uncertainty arising from the state of nature about the educational environment and household characteristics in the efficiency of these interventions still lacks an economic mechanism. This paper aims at developing a theoretical framework that links policy interventions to educational outcomes. We characterize optimal policies and determine the conditions for enhancing social welfare.

This note extends the findings of Benhabib and Rusticchini [Journal of Economic Dynamics and Control 18, 807–813 (1994)], who provide a class of dynamic stochastic general equilibrium (DSGE) models whose solution is characterized by a constant savings rate. We show that this class of models may be interpreted as a standard–representative agent DSGE model with costly adjustment of capital.

Wage dispersion is a critical factor in determining the impact of a minimum wage and severance payments on job creation and destruction in a general equilibrium model with search frictions. When wage dispersion is low, the minimum wage and severance payments behave as substitutes. However, as dispersion in wages increases, these policies become complements. The model is estimated using data from Chile and used to perform quantitative welfare analysis.

For previously identified weakly separable blockings of goods and assets, we construct aggregates using four superlative index numbers, the Fisher, Sato-Vartia, Törnqvist, and Walsh, two non-superlative indexes, the Laspeyres and Paasche, and the atheoretical simple summation. We conduct several tests to examine how well each of these aggregates “fit” the data. These tests are how close the aggregates come to solving the revealed preference conditions for weak separability, how often each aggregate gets the direction of change correct, and how well the aggregates mimic the preference ranking from revealed preference tests. We find that, as the number of goods and assets being aggregated increases, the problems with simple summation manifest.

When the returns to scale of a production process vary with the intensity it is operated at, an AK model with constant returns to scale in production arises endogenously due to replication driven by profit maximization. If replication occurs at the efficiency-maximizing scale, as with perfect competition, the result applies also when the number of production processes must be discrete, thus, overcoming the so-called integer problem. When competition is imperfect, there is only convergence toward the AK model for large enough input use, so an economy is more prone to stalling in a steady state without growth, the smaller and less competitive it is.

I embed a competitive search model of the labor market into a small open economy model with heterogeneous firms and workers. Search frictions generate equilibrium unemployment and income inequality between identical workers, in addition to income differences between skill groups. A quantitative evaluation of the U.S. trade experience suggests that the effect of the increase in goods trade since 1980 may have contributed to the increase in the college premium, but not to the increase in residual inequality.

Traditional regression models have reported conflicting results on the effectiveness of tax incentives in stimulating business investment. This study investigates the effects of the Bush tax cuts on U.S. investment using intervention analysis in conjunction with regression analysis that controls for relevant variables. Although intervention analysis has the advantage of allowing the behavior of investment to be influenced only by the time path of exogenous shocks such as tax reforms, control variables can test for the robustness of the results. We have found that the two tax reforms enacted in 2001 and 2003 had little impact on marginal investment incentives. The intervention analysis results are further reinforced by the evidence provided by alternative regression models that control for a host of variables. The failure of the tax reforms to stimulate investment spending may be attributable to several factors, such as a global savings glut, cheap global money, inappropriate designs for tax incentives, and budget deficits.

The purpose of this note is to analyze the capability of bandpass filters to extract a known periodicity. The specific bandpass filters considered are a conventional discrete Fourier transform (DFT) filter and the filter recently proposed by Iacobucci and Noullez. We employ simulation methods to investigate cycle extraction properties. We also examine the implications arising from the Gibbs effect in practical settings that typically confront applied macroeconomists

We show that the introduction of a constant tariff or subsidy levied on foreign energy can lead to a rich set of endogenous fluctuations around the unique steady state, including stable 2-, 4-, 8-, and 15-cycles, quasiperiodic orbits, and chaos. This is demonstrated in a standard neoclassical growth model with social increasing returns to scale. Numerical exercises could be viewed from a methodological perspective as illustrating that capital income taxes and tariffs are equivalent in generating endogenous fluctuations because Guo and Lansing [Guo, J.T. and K.J. Lansing (2002) Fiscal policy, increasing returns and endogenous fluctuations. Macroeconomic Dynamics 6, 633–664] show that a constant capital tax or subsidy has the same effect on the model dynamics in a one-sector closed economy.

A general equilibrium model with financial frictions in which individuals may encounter unobservable investment opportunities is developed along the lines of Kiyotaki and Moore (2012). I study efficiency properties induced by money and monetary policy when financial frictions prevent optimal equilibrium allocations. By providing closed-form solutions to all prices, allocations, welfare, and, especially, the distribution of individuals with respect to assets, I show that the Friedman rule achieves maximal social welfare, independent of how tight the financial constraints may be. The same level of welfare would be induced by an omniscient central planner able to verify who has an investment opportunity.

Zhang [Tariff and Equilibrium Indeterminacy, available at http://mpra.ub.uni-muenchen.de/13099/ (2009)] shows that endogenous tariffs (or energy taxes) and endogenous labor income taxes are equivalent in generating local indeterminacy. Using methods developed by Stockman [Journal of Economic Theory 145 (2010), 1060–1085], we extend Zhang's analysis to prove that endogenous tariffs and endogenous labor income taxes are also equivalent in generating global indeterminacy (chaotic equilibria) under a balanced-budget rule. More precisely, we show that the existence of Euler equation branching in an arbitrarily small neighborhood of a steady state can imply topological chaos in the sense of Devaney. In addition, Euler equation branching occurs regardless of the local uniqueness of the equilibrium around the steady state.

We discuss the problem known in economics as backward dynamics occurring in models of perfect foresight, intertemporal equilibrium described mathematically by implicit difference equations. In a previously published paper [Journal of Economic Dynamics and Control 31 (2007), 1633–1671], we showed that by means of certain mathematical methods and results known as inverse limits theory it is possible to establish a correspondence between the backward dynamics of a noninvertible map and the forward dynamics of a related invertible map acting on an appropriately defined space of sequences, each of whose elements corresponds to an intertemporal equilibrium. We also proved the existence of different types of topological attractors for one-dimensional models of overlapping generations. In this paper, we provide an extension of those results, constructing a Lebesgue-like probability measure on spaces of infinite sequences that allows us to distinguish typical from exceptional dynamical behaviors in a measure–theoretical sense, thus proving that all the topological attractors considered in MR07 are also metric attractors. We incidentally also prove that the existence of chaos (in the Devaney–Touhey sense) backward in time implies (and is implied by) chaos forward in time.

Understanding the causes of the Industrial Revolution, namely the process of transition from a Malthusian equilibrium to modern economic growth, has been the subject of passionate debate. This paper contributes to insights into the process of industrialization and the demographic transition that followed. We present a model that proposes a mechanism behind the claim that landed elites had strong incentives to block education reforms. By applying the theory of interest groups to landownership, landowners could delay education. However, they could not prevent its introduction indefinitely since gains for the landed elites derived from education would at some moment surpass the costs associated with them. We also sustain that improvements in agricultural productivity prior to the Industrial Revolution may have induced a positive impact on the landowners’ decision to educate the population, which led to an earlier introduction of education reforms. The conclusions fit the patterns of the late boom of industrialization and demographic transition and help explain why some countries (e.g., Britain and The Netherlands) had accelerated education reforms and a faster process of industrialization than most continental countries. A theoretical model is presented, and numerical simulations are exhibited to illustrate our claims.

Edward C. Prescott has argued that mandatory saving is socially desirable because it solves the problem of people intentionally free riding and becoming a welfare burden. Inspired by Prescott's argument, we develop a model in which rational individuals choose between saving and free riding. We find that free riding is a robust outcome for a significant share of the population and that everyone, including the free riders, benefits from the elimination of free riding through mandatory saving. Our results strengthen Prescott's position that free riding is a serious problem and that mandatory saving is socially desirable.

This paper presents a theoretical and empirical investigation of the relationship between human capital composition and economic growth. In the theoretical analysis, we allow for nonconstant returns to scale in technological activities. Differently from previous literature, our results show that, under broad and plausible model parameterizations, the marginal growth effect of skilled workers is increasing with the distance to the frontier for sufficiently poor countries while it is decreasing (in agreement with the existing literature) only for countries close to the technological frontier. Our empirical analysis provides robust evidence for this theoretical prediction by using a 10-year panel of 85 countries for the years in between 1960 and 2000, as well as by using the System Generalized Methods of Moments (GMM) technique to address the problem of endogeneity. Results are robust to different proxies of human capital and different specifications.

We investigate the sectoral and the distributional effects of a food subsidy program, where food consumption in the economy is subsidized by taxing the manufacturing good producers. In a two-agent model comprising of farmer and industrialist households, agents consume food to accumulate health. Simulations indicate that while the subsidy program increases food output and agents’ health both in the short run and the long run, manufacturing output and aggregate real GDP appear to fall in the short run and increase only in the long run. The program does not make both agents better off and exhibits social welfare gains for a limited range of subsidies.