The nature of the steady state in models of optimal growth under uncertainty

Summary. We study a one-sector stochastic optimal growth model with a representative agent. Utility is logarithmic and the production function is of the Cobb-Douglas form with capital exponent . Production is affected by a multiplicative shock taking one of two values with positive probabilities p and 1-p. It is well known that for this economy, optimal paths converge to a unique steady state, which is an invariant distribution. We are concerned with properties of this distribution. By using the theory of Iterated Function Systems, we are able to characterize such a distribution in terms of singularity versus absolute continuity as parameters and p change. We establish mutual singularity of the invariant distributions as p varies between 0 and 1 whenever . More delicate is the case . Singularity with respect to Lebesgue measure also appears for values such that . For and Peres and Solomyak (1998) have shown that the distribution is a.e. absolutely continuous. Characterization of the invariant distribution in the remaining cases is still an open question. The entire analysis is summarized through a bifurcation diagram, drawn in terms of pairs .Received: 9 April 2002, Revised: 29 October 2002, JEL Classification Numbers: C61, O41.Correspondence to: Tapan MitraThis research was partially supported by CNR (Italy) under the "Short-term mobility" program and by M.U.R.S.T. (Italy) National Group on "Nonlinear Dynamics and Stochastic Models in Economics and Finance" . We are indebted to Rabi Bhattacharya for providing us with the reference to Solomyak's (1995) paper. The present version has benefitted from comments by Mukul Majumdar and two anonymous referees.     

Judicial Branch, Checks and Balances and Political Accountability

This paper attempts to combine the political economics models on separation of powers between the legislature and the executive with public choice theories on the behavior of the judicial branch. We obtain a model of political accountability and checks and balances with up to three government branches: the executive, the legislature and the judiciary. We conclude that an independent judiciary improves the political accountability of democratic systems relative to the political economics models with two government branches. An accommodating judiciary, however, changes the distribution of political rents without improving accountability.     

Economic theory and ideology inMarx and modern economic analysis Giovanni A. Caravale,editor Edward Elgar, 1991, 512 pp.

The collection of essays edited by Giovanni Caravale has the explicit aim of letting the reader know the principal positions that have characterized the long-lasting debate in the themes of Marxian economics. In particular, the book is concerned with the contributions of those authors who recognize the relevance of Piero Sraffa's analysis for the interpretation of Marxian economic thought, showing that, even among these authors, opinions on the topic are deeply different. The book consists of two volumes: the first one, "Values, Prices and Exploitation," deals with the main theme of Marxian value theory, while the second, "The Future of Capitalism and the History of Thought," deals with discussion of the law of the falling rate of profit and of the role of Marx's theory in the history of economic thought.     

Do Institutions and Culture Matter for Business Cycles?

We examine the relationship between cyclical fluctuations and macroeconomic, institutional, and cultural indicators for 46 countries from Europe and the Mediterranean basin. In the Mediterranean cycles are different: the duration of expansions is shorter; the amplitude of recessions is larger; and cyclical synchronization is smaller than elsewhere. Differences in cultural indicators have strong and significant associations with differences in the persistence and volatility of cyclical fluctuations and their synchronization.     

Pervasive inattentiveness

In this paper we analyze how inattentiveness in capital investment decisions shapes business cycle dynamics in a dynamic stochastic general equilibrium (DSGE) model with inattentiveness. We find that the model with pervasive inattentiveness matches several business cycle moments much better than an otherwise identical model without informational frictions in investment. These findings reinforce the need for pervasive stickiness to mimic the inertia found in macroeconomic data.     

Model for evaluating the environmental sustainability of energy projects

This article focuses on the problem of assessing the environmental sustainability of energy projects. For this purpose an original model, which is based on various indicators that measure the environmental sustainability of energy projects, has been developed. This model, so called index of environmental sustainability of energy projects (IESEP), can be used in scenario comparison, while measuring the effectiveness of the proposed alternatives. Finally, an example of how to use this model is provided by analyzing alternatives to ameliorate the environmental sustainability of a hydroelectric project. In doing so, it is possible to show the usefulness of this model when used as a decision making tool for energy planners.     

Learning, monetary policy rules, and macroeconomic stability

Several papers have documented a regime switch in US monetary policy from ‘passive’ and destabilizing in the pre-1979 period to ‘active’ and stabilizing afterwards. These studies typically work with DSGE models with rational expectations.This paper relaxes the assumption of rational expectations and allows for learning instead. Economic agents form expectations from simple models and update the parameters through constant-gain learning. In this setting, the paper aims to test whether monetary policy may have been a source of macroeconomic instability in the 1970s by inducing unstable learning dynamics.The model is estimated by Bayesian methods. The constant-gain coefficient is jointly estimated with the structural and policy parameters in the system.The results show that monetary policy was respecting the Taylor principle also in the pre-1979 period and, therefore, did not trigger macroeconomic instability.     

Some reflections on past and future of nonlinear dynamics in economics and finance

This paper offers an overview of the literature on the economic and financial applications of theory of nonlinear dynamics, especially bifurcation theory. After a short introductory discussion of the first nonlinear dynamic models in social sciences and the economic relevance of the zoo of bifurcations and complicated dynamics that such models can generate, we present an overview of the literature on nonlinear dynamic models in the areas of underdevelopment, environmental poverty traps, the management of common goods, industrial organization and financial markets. The review of the literature is enriched by reflections and ideas for future research.     

ICT diffusion in public administrations and business dynamics: Evidence from Italian municipalities

Public administrations have been adopting information and communication technologies (ICT) to transform their internal organization and provide better public services to citizens and firms. However, the external benefits, despite being deemed relevant, have been empirically overlooked. We first explore the relation between ICT diffusion in public administrations and business demography at the municipal level by studying the Italian context. Our results show that ICT diffusion in the PA contributes to significantly reducing the death rate of firms and boosting their turnover rate. The adoption of ICT in the PA also exerts a positive impact on the firm birth rate, although it is not statistically significant. These results shed light on the importance of promoting e-government and framing coherent digital agendas as public instruments for supporting entrepreneurship and regional economic development.     

Portfolio flows and the US dollar–yen exchange rate

This paper investigates the effects of portfolio flows on the US dollar–Japanese yen exchange rate changes over the period 1988:01–2011:04. Using a time-varying transition probability Markov-switching framework, the results suggest that the impact of portfolio flows on the dollar–yen exchange rate changes is state-dependent. In particular, the results show that portfolio inflows from Japan toward the US, more than monetary variables, strengthen the probability of remaining in the dollar–yen appreciation (low volatility) state. Therefore, credit controls on the flows can be used as a policy tool to pursue economic and financial stability.