In this paper, we propose a price-augmenting asymptotically ideal model (AIM) cost function to investigate the effects of public infrastructure on the performance of the U.S. manufacturing industry, using KLEMS data over the period from 1953 to 2001. In doing so, we make a distinction between the productivity effect and the production factor effect of public infrastructure. This distinction allows us to focus on the more interesting productivity effect by incorporating public infrastructure into the AIM cost function through the efficiency index. Moreover, we specify the growth rate of the efficiency index as a Box–Cox function of public infrastructure and a time trend, a proxy for other technology. The excellent flexibility of our price-augmenting AIM cost function offers many insights regarding the effects of infrastructure on the U.S. manufacturing sector.

This paper investigates the effects of a binding minimum wage in an economy which exhibits multiple unemployment equilibria. For this purpose, we develop a theoretical model based on the simple imperfectly competitive model of Manning [In Conference Papers, Economic Journal 100, 151–162 (1990)], in which we introduce labor heterogeneity and knowledge spillovers in the individual production technology. Then, using numerical simulations, we show that a binding minimum wage rules out the occurrence of an inefficient equilibrium. Last, we analyze the effects of a minimum wage increase on the labor market's outcomes.

A negative or nonsignificant empirical correlation between aggregate R&D intensity and the economic growth rate is a well-known fact in the empirical growth literature, but scarcely addressed in the theoretical growth literature. This paper develops an endogenous-growth~model that explores the interrelation~between horizontal and vertical R&D under a lab-equipment specification that is consistent with that stylized fact. A key feature is that the growth rate is fully endogenous both on the intensive and on the extensive margin. Strong composition effects between horizontal and vertical R&D, along both transition and the balanced-growth path, then emerge as the main mechanism producing those results. This setting also allows us to obtain a relationship between economic growth and firm dynamics that is consistent with the empirical facts.

In this paper I develop a dynamic stochastic general equilibrium model of credit frictions in which the production technology provides a U-shaped average cost curve, enabling endogenous solutions for firm size and quantity. Firms weigh the present value of future net revenues against the opportunity cost of staying in business in their entry or exit decisions. I find that credit frictions increase variable investment costs and result in a larger firm size and a smaller number of firms in the steady state. As the economy deviates from the steady state, however, the presence of credit frictions increases fluctuation in the number of firms, raising market entry during an economic upturn and market exit during a downturn. Also, I find that allowing free entry mitigates some of the effects of credit frictions due to macroeconomic fluctuations. In addition to the homogeneous-firm model, I examine the model when firms have heterogeneous access to credit and find that different credit access gives rise to different firm sizes in the steady state. Firms with easier access to credit become larger than those with less access to credit. Heterogeneous credit access also means that these two types of firms will respond differently to a common technology shock.

This paper compares the effects of pro- and countercyclical government spending on income inequality and welfare in a small open economy. We examine the consequences of alternative government spending rules following shocks to productivity, domestic interest rates, terms of trade, and export demand. The simulated results show that welfare and income inequality indices can move in opposite directions for government spending rules, with countercyclical spending improving welfare and procyclical spending improving income equality.

We show the possibility of ergodic chaos in the RSS model, due to Robinson, Solow, and Srinivasan. Moreover, under a relevant parametric regime, we analytically characterize the unique invariant probability measure that describes the statistical properties of a typical trajectory of capital stocks.

This paper explores the interplay between credit market development and human capital accumulation in a two-period overlapping-generations economy with asymmetric information under the assumption that young lenders channel credits to young borrowers and acquire education. We find that, at the self-selection equilibrium, lenders will allocate more time to acquire education if the cost of screening borrowers falls. Furthermore, a longer duration of lenders' schooling time suppresses borrowers' incentive to cheat thereby enabling lenders to screen less frequently. Our preliminary cross-country empirical analysis appears to support these findings.