Jess Benhabib

THE ROLE OF HUMAN CAPITAL IN ECONOMIC DEVELOPMENT EVIDENCE FROM AGGREGATE CROSS-COUNTRY DATA

Using cross-country estimates of physical and human capital stocks, we run the growth accounting regressions implied by a CobbPDouglas aggregate production function. Our results indicate that human capital enters insignificantly in explaining per capita growth rates. We next specify an alternative model in which the growth rate of total factor productivity depends on a nation’s human capital stock level. Tests of this specification do indicate a positive role for human capital.

Homework in Macroeconomics: Household Production and Aggregate Fluctuations

This paper explores some macroeconomic implications of including household production in an otherwise standard real business cycle model. We calibrate the model on the basis of macroeconomic evidence and long-run considerations, simulate it, and examine its statistical properties. We find that introducing home production significantly improves the quantitative performance of the standard model along several dimensions. It also implies a very different interpretation of the nature of aggregate fluctuations.

Human Capital and Technology Diffusion

This paper generalizes the Nelson-Phelps catch-up model of technology diffusion facilitated by levels of human capital. We allow for the possibility that the pattern of technology diffusion can be exponential, which would predict that nations would exhibit positive catch-up with the leader nation, or logistic, in which a country with a sufficiently small capital stock may exhibit slower total factor productivity growth than the leader nation. ; We derive a nonlinear specification for total factor productivity growth that nests these two specifications. We estimate this specification for a cross-section of nations from 1960 through 1995. Our results support the logistic specification, and are robust to a number of sensitivity checks. ; Our model also appears to predict slow total factor productivity growth well. 22 of the 27 nations that we identify as lacking the critical human capital levels needed to achieve faster total factor productivity growth than the leader nation in 1960 did achieve lower growth over the next 35 years.

Monetary Policy and Multiple Equilibria

In this paper, we characterize conditions under which interest rate feedback rules whereby the nominal interest rate is set as an increasing function of the inflation rate generate multiple equilibria. We show that these conditions depend not only on the fiscal regime (as emphasized in the fiscal theory of the price level) but also on the way in which money is assumed to enter preferences and technology. We analyze this issue in flexible and sticky price environments. We provide a number of examples in which, contrary to what is commonly believed, active monetary policy in combination with a fiscal policy that preserves government solvency gives rise to multiple equilibria and passive monetary policy renders the equilibrium unique.

Social conflict and growth

Despite the predictions of the neoclassical theory of economic growth, we observe that poor countries have invested at lower rates and have not grown faster than rich countries. To explain these empirical regularities we provide a game-theoretic model of conflict between social groups over the distribution of income. Among all possible equilibria, we concentrate on those that are on the constrained Pareto frontier. We study how the level of wealth and the degree of inequality affects growth. We show how lower wealth can lead to lower growth and even to stagnation when the incentives to domestic accumulation are weakened by redistributive considerations.

Indeterminacy and sector-specific externalities

We introduce mild increasing returns to scale into a version of the Real Business Cycle model. These increasing returns to scale occur as a consequence of sector-specific externalities, that is, externalities where the output of the consumption and investment sectors have external effects on the output of firms within their own sector. Keeping the production technologies for both sectors identical, for expositional simplicity, we show that indeterminacy can easily occur for parameter values typically used in the real business cycle literature, and in contrast to some earlier literature on indeterminacies, for externalities mild enough so that labour demand curves are downward sloping.

Avoiding Liquidity Traps

Once the zero bound on nominal interest rates is taken into account, Taylor-type interest-rate feedback rules give rise to unintended self-fulfilling decelerating inflation paths and aggregate fluctuations driven by arbitrary revisions in expectations. These undesirable equilibria exhibit the essential features of liquidity traps, as monetary policy is ineffective in bringing about the governments goals regarding the stability of output and prices. This paper proposes several fiscal and monetary policies that preserve the appealing features of Taylor rules, such as local uniqueness of equilibrium near the inflation target, and at the same time rule out the deflationary expectations that can lead an economy into a liquidity trap.

The hopf bifurcation and the existence and stability of closed orbits in multisector models of optimal economic growth

Abstract It is shown that under very general circumstances, the standard optimal growth model with two or more capital goods can give rise to optimal trajectories that are limit cycles. An example with a nonjoint production Cobb-Douglass technology giving rise to closed cycles around a unique steady state is constructed. The stability of orbits is also studied.

Competitive equilibrium cycles

Recently there has been a surge of interest in endogenous business cycles that arise in competitive laissez-faire economies. In the context of standard overlapping generations economies, conditions for the existence of equilibrium cycles have been given by Grandmont (1983) and by Benhabib and Day (1982). Models of the economy with extrinsic uncertainty or “sunspots” that have been developed by Shell (1977) and by Cass and Shell (1983) (see also Balasko (1983)) can also lead to equilibrium cycles.

Indeterminacy and Sunspots with Constant Returns

Recently there has been a renewed interest in the possibility of indeterminacy and sunspots, or alternatively put, in the existence of a continuum of equilibria that arises in dynamic economies with some market imperfections. Much of the research in this area has been concerned with the empirical plausibility of indeterminacy in markets with external effects or with monopolistic competition and which exhibit some degree of increasing returns. While the early results on indeterminacy relied on relatively large increasing returns and high markups, more recently Benhabib and Farmer (1996a) showed that indeterminacy can also occur in two-sector models with small sector-specific external effects and very mild increasing returns.