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Creator: Boldrin, Michele and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 301 Abstract: We study a simple model of factor saving technological innovation in a concave framework. Capital can be used either to reproduce itself or, at additional cost, to produce a higher quality of capital that requires less labor input. If higher quality capital can be produced quickly, we get a model of exogenous balanced growth as a special case. If, however, higher quality capital can be produced slowly, we get a model of endogenous growth in which the growth rate of the economy and the rate of adoption of new technologies are determined by preferences, technology, and initial conditions. Moreover, in the latter case, the process of growth is necessarily uneven, exhibiting a natural cycle with alternating periods of high and low growth. Growth paths and technological innovations also exhibit dependence upon initial conditions. The model provides a step toward a theory of endogenous innovation under conditions of perfect competition.
Palavrachave: Choices and consequences, Technological change, Aggregate productivity, Processes and incentives, Innovation and invention, One, two and multisector growth models, and Measurement of economic growth Sujeito: C61  Optimization Techniques; Programming Models; Dynamic Analysis, D41  Market Structure, Pricing, and Design: Perfect Competition, O30  Innovation; Research and Development; Technological Change; Intellectual Property Rights: General, O40  Economic Growth and Aggregate Productivity: General, and D24  Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity 
Creator: Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 386 Abstract: In a monetary model, it is shown that if there is a unique Pareto inefficient barter equilibrium, then a monetary equilibrium exists when traders are sufficiently patient.
Palavrachave: Money, Monetary equilbria, Inflation, Barter equilibria, and Consumers Sujeito: E42  Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems and D51  Exchange and Production Economies 
Creator: Kehoe, Timothy Jerome, 1953, Levine, David K., and Romer, Paul Michael, 1955 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 400 Abstract: We consider a production economy with a finite number of heterogeneous, infinitely lived consumers. We show that, if the economy is smooth enough, equilibria are locally unique for almost all endowments. We do so by converting the infinite dimensional fixed point problem stated in terms of prices and commodities into a finite dimensional Negishi problem involving individual weights in a social value function. By adding a set of artificial fixed factors to utility and production functions, we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of time zero factor endowments and derivatives of the social value function.
Palavrachave: Consumer, Equilibrium, and Dynamic model Sujeito: C62  Existence and Stability Conditions of Equilibrium 
Creator: Kehoe, Timothy Jerome, 1953, Levine, David K., and Romer, Paul Michael, 1955 Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 118 Abstract: We consider a production economy with a finite number of heterogeneous, infinitely lived consumers. We show that, if the economy is smooth enough, equilibria are locally unique for almost all endowments. We do so by converting the infinitedimensional fixed point problem stated in terms of prices and commodities into a finitedimensional Negishi problem involving individual weights in a social value function. By adding artificial fixed factors to utility and production functions, we can write the equilibrium conditions equating spending and income for each consumer entirely in terms of timezero factor endowments and derivatives of the social value function.

Creator: Kehoe, Timothy Jerome, 1953 and Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 445 Abstract: We develop a theory of general equilibrium with endogenous debt limits in the form of individual rationality constraints similar to those in the dynamic consistency literature. If an agent defaults on a contract, he can be excluded from future contingent claims markets trading and can have his assets seized. He cannot be excluded from spot markets trading, however, and he has some private endowments that cannot be seized. All information is publicly held and common knowledge, and there is a complete set of contingent claims markets. Since there is complete information, an agent cannot enter into a contract in which he would have an incentive to default in some state. In general there is only partial insurance: variations in consumption may be imperfectly correlated across agents; interest rates may be lower than they would be without constraints; and equilibria may be Pareto ranked.

Creator: Kehoe, Timothy Jerome, 1953 and Levine, David K. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 380 Abstract: Typical models of bankruptcy and collateral rely on incomplete asset markets. In fact, bankruptcy and collateral add contingencies to asset markets. In some models, these contingencies can be used by consumers to achieve the same equilibrium allocations as in models with complete markets. In particular, the equilibrium allocation in the debt constrained model of Kehoe and Levine (2001) can be implemented in a model with bankruptcy and collateral. The equilibrium allocation is constrained efficient. Bankruptcy occurs when consumers receive low income shocks. The implementation of the debt constrained allocation in a model with bankruptcy and collateral is fragile in the sense of Leijonhufvud’s “corridor of stability,” however: If the environment changes, the equilibrium allocation is no longer constrained efficient.
Sujeito: G13  Contingent Pricing; Futures Pricing; option pricing, D52  Incomplete Markets, D50  General Equilibrium and Disequilibrium: General, and D61  Allocative Efficiency; CostBenefit Analysis 
Creator: Levine, David K. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 388 Abstract: Previous authors have argued that the optimal monetary policy is contractionary. If buyers value consumption substantially more than sellers, there is some randomness and informational constraints make asset trading useful, we show that there is an incentive compatible expansionary policy that dominates all incentive compatible contractionary policies.
Palavrachave: Optimal monetary policy, Contraction, Trade, Private information, Asset trading, and Expansion Sujeito: D82  Asymmetric and Private Information; Mechanism Design and E52  Monetary Policy