Chia-Hui Lu

A two-sector model of endogenous growth with leisure externalities

This paper considers the impact of leisure preference and leisure externalities on growth and labor supply in a Lucas (1988) [12] type model, as in Gomez (2008) [7], with a separable non-homothetic utility and the assumption that physical and human capital are both necessary inputs in both the goods and the education sectors. In spite of the non-concavities due to the leisure externality, the balanced growth path is always unique, which guarantees global stability for comparative-static exercises. We find that small differences in preferences toward leisure or in leisure externalities can generate substantial differences in hours worked and growth, which may play a significant role in explaining differences in growth paths between the US and Europe, in addition to the mechanisms uncovered in Prescott (2004) [15] relying on differing marginal tax rates on labor income. Our model indicates, however, that a higher preference for leisure or leisure externality implies less growth but also less education attainment, which seems counterfactual.

The Dynamic Relationship between Inflation and Output Growth in a Cash-Constrained Economy

This paper studies the dynamic relationship between inflation and output growth in neoclassical growth models with endogenous cash constraints. We show this dynamic relationship is negative if the degree of cash constraints on investment is smaller than the degree of cash constraints on consumption but is positive if otherwise.

Optimal Government Policies Related to Unemployment

This article studies the optimal government policies related to unemployment in a frictional labor market. To achieve the optimal allocation, we find that the government should not issue unemployment compensation or subsidies for hiring costs. Moreover, as both firms and households experience disastrous consequences related to the minimum wage, the government should not intervene in the labor market to influence the wage rate and should not set any minimum wage. What the government can do is to make appropriate expenditures on matching efficacy. Furthermore, considering heterogeneous labor abilities in the model does not change our main finding.