Born in Calais in 1921, Gérard Debreu died on the last day of 2004 in the Paris area where he spent the last years of his life. He graduated from Ecole Normale Supérieure, one of the elite schools in France with a strong program in mathematics. While studying there he came to economics through the influence of Maurice Allais, who was teaching economics in a neighboring school, Ecole des Mines. In 1949 a Rockefeller fellowship allowed him to visit American universities and, in particular, the University of Chicago. He was then offered a position of research associate by the Cowles Commission for Research in Economics. In 1962, Gérard Debreu accepted a position of professor of economics (transformed later into a joint professorship of economics and mathematics) at the University of California, Berkeley. He was President of the Econometric Society in 1971 and received the Nobel prize in 1983.

In constitutional democracies, laws take time to be deliberated upon, to be passed, and to be implemented. Motivated by this observation, we study the properties of optimal tax reform when it has to be announced in advance of its implementation. We find that a delay between announcement and implementation has large effects on the optimal fiscal policy during the transition to the new steady state. On the other hand, we find that the welfare gains from optimal tax reform are fairly robust to the introduction of an implementation lag. Increasing the lag from zero to four years reduces the welfare gains by less than a quarter. Moreover, it turns out that this reduction of the welfare gain is mainly due to the delay itself rather than the effect of preannouncement on the character of the optimal tax reform.

We study the sustainability of long-run growth in a two-sector economy where a renewable natural resource is exploited under private property rights. We obtain short- and long-run growth trajectories in closed form, examine transitional dynamics, and characterize convergence properties. We find conditions for sustainable long-run growth, which depend on the harvesting rate, and show that the speed of convergence decreases during transition. We identify a stronger version of Hartwick's rule and analyze parameter dependences for endogenous variables. Economic growth relies less on abundance or scarcity of natural resources than on the way they are managed.

We present an endogenous growth model with two sectors: a real sector where the final good is produced, and a banking sector that intermediates between savers and firms. Banking concentration exerts two opposite effects on growth. On the one hand, it induces economies of specialization, which is beneficial to growth. On the other hand, it results in duplication of banks' investment in fixed capital, which is detrimental to growth. The trade-off between the two opposing effects is ambiguous and can vary along the process of economic development. Hence, there is a potential nonlinear and nonmonotonic relationship between concentration and growth. We test this implication, using cross-country data on income and industry growth. We find that banking concentration is negatively associated with per-capita income growth and industrial growth only in low-income countries. This suggests that reducing concentration is more likely to promote growth in low-income countries than in high-income ones.

In this progress report, we first indicate the origins and early development of the Marshallian Macroeconomic Model and briefly review some of our past empirical forecasting experiments with the model. Then we present recently developed one-sector, two-sector and n-sector models of an economy that can be employed to explain past experience, predict future outcomes, and analyze policy problems. The results of simulation experiments with various versions of the model are provided to illustrate some of its dynamic properties that include “chaotic” features. Last, we present comments on planned future work with the model.

This interview was completed in May 2004, well before Stan Fischer had any idea he would become Governor of the Bank of Israel, a position he took up in May 2005. The interview took place in April 2004 in my office at the Russell Sage Foundation in New York City, where I was spending a sabbatical year. We completed it while running together in Central Park during the following weeks.

Our meeting at Russell Sage was just like the many meetings we have had over the years. I was not sitting with a Master of the Universe, a world VIP, but with the same Stan Fischer I had first met in 1973 when he was a young associate professor, freshly imported from Chicago. There was the same ability to listen carefully, the same ability to talk and to explain simply and straightforwardly. In addition, there was the accumulated wisdom of a professional life spent developing and applying macroeconomics to the very real world.

When I arrived as a PhD student at MIT in 1973, it was clear that Stan would quickly play a central role in the department. Within a few years, he was one of the most popular teachers, and one of the most popular thesis advisers. We flocked to his office, and I suspect that the only time for research he had was during the night. What we admired most were his technical skills (he knew how to use stochastic calculus)—, and his ability to take on big questions and to simplify them to the point where the answer, ex post, looked obvious. When Rudi Dornbusch joined him in 1975, macro and international quickly became the most exciting fields at MIT. Imitation is the sincerest form of admiration, and this is very much what we all did.

When I came back to MIT in 1982, this time as a faculty member, Stan had acquired near-guru status. Teaching the advanced macro courses with him, and writing “Lectures on Macroeconomics,” which we finished in 1988, was one of the most exciting intellectual adventures of my life. We both felt that there was a new macroeconomics, more micro-founded and full of promises and that we understood its architecture and its usefulness. Although we had not thought of it as a textbook, it quickly became one, and it is nice to know that it still sells surprisingly well today.

As the years had passed, Stan had taken more and more interest in applying theory to the real world, working with Rudi on hyperinflation, being involved in the economics of peace with George Shultz in the Middle East. In 1988, he decided to jump from academia to the real world, and became Chief Economist of the World Bank. After a brief return to MIT, he then returned to Washington in 1994 to become First Deputy Managing Director of the IMF, where he remained until 2001. That part of his life has been well documented in newspapers and magazines: While at the IMF, he was on the front lines during the Mexican crisis, the Russian crisis, the Asian crises, and many others. From the peeks I got of him during those times, what strikes me most is how he remained the same as he had been at MIT: calm, careful about the facts, analytical, using macroeconomic theory even in the middle of the most intense fires. Many thought and hoped that he would become the managing director of the IMF. Antiquated rules and country politics prevented it from happening. The IMF's loss turned out to be the private sector's gain. In 2002, Stan joined Citigroup, where he is the President of Citigroup International. He is still active in macro policy debates and remains one of the wise men of our profession.

The concept of E-stability is widely used as a learnability criterion in studies of macroeconomic dynamics with adaptive learning. In this paper, it is demonstrated, via a counterexample, that E-stability generally does not imply learnability of rational expectations equilibria. The result indicates that E-stability may not be a robust device for equilibrium selection.

We show how introducing home bias in government spending in the redux model generates quasi neutrality of fiscal policy shocks. We offer an intuitive explanation for this result and we stress its policy implications.