Marta Aloi

Endogenous Business Cycles and Stabilization Policies

We analyze the effects of simple stylized economic policy rules, or stabilization principles, when fluctuations in economic activity are created endogenously by self_fulfilling volatile expectations. We study a simple monetary competitive model with intertemporally optimizing agents and a government. We only depart from neoclassical orthodoxy by assuming that a cycle or a sunspot equilibrium, not necessarily a steady state, could be the descriptive dynamic rational expectations equilibrium. The government may then well out of welfare concerns want to conduct systematic stabilization policy through transfers, expenditure, and taxation even though this has distortionary effects. We show that the policy rules that stabilize output in a way that is best for welfare involve countercyclical elements in government activity.

Endogenous Fluctuations In an Open Economy with Increasing Returns to Scale

In this paper we study the effects of opening an economy, with increasing returns in the production of non traded goods, on the existence of multiple Pareto-ranked stationary equilibria, local indeterminacy and bifurcations. We consider a standard Overlapping Generation Model of a small open economy, with a fixed exchange rate, where labour is the only input and money the only asset. We find that when there are increasing returns, the open economy may display persistent equilibrium endogenous fluctuations (deterministic and stochastic) in the balance of trade and main macroeconomic aggregates.

Inequality, growth, and environmental quality trade‐offs in a model with human capital accumulation

This paper develops a simple endogenous growth model where pollution exposure and vulnerability are unequally spread across the population, and growth and distribution are endogenous. In this setup, we investigate whether tradeoffs between growth, distributional, and environmental concerns may emerge. We show that a tighter environmental policy reduces income inequality and can improve both growth and total welfare. Immediate welfare losses, though, do occur, and are larger for countries that start at low levels of environmental quality (e.g. developing countries).

National labor markets, international factor mobility and macroeconomic instability

We analyze how global economic integration of factor markets affects the stability of the macroeconomy, with respect to expectations-driven fluctuations, when countries differ in their labor market institutions. It is shown that, due to the occurrence of equilibrium indeterminacy, liberalization of capital movements is likely to be accompanied by persistent fluctuations at the world level, while allowing also for labor movements may bring macroeconomic stability. Whether this also implies higher welfare in the long run depends on differentials in average firm size across countries. If the average firm size in a country operating under perfect competition and full employment is small relative to a country with rigid wages and unemployment, then free migration reduces unemployment, narrows wage differentials and expands world output.

The Multiplier in an Economy with Monopolistic Output Markets and Competitive Labour Markets

The purpose of this paper is to derive some new results and to link together these results with an existing literature. The focus of the paper is a macroeconomy characterized by monopolistic competition in output markets, but with a perfectly competitive labour market. We explore the implications of imperfect competition for the conduct and effectiveness of fiscal policy for output and employment in both the short run (with the number of firms fixed) and the long run (with free entry and exit of firms).1

Decentralized Fiscal Policy in an Imperfectly Competitive Federal Economy

This paper analyzes the efficacy and desirability of decentralized fiscal policies, in a two-region federal economy, with monopolistic competition in local product markets, unionized local labor markets, and a nationwide competitive sector. Local governments are utilitarian and use balanced-budget policies to provide public goods in their own region. They also may be subjected to constitutional limits to public spending, taking the form of cash-planning. In this case, unilateral fiscal policies increase price and possible wage mark-ups, yielding crowding out and employment losses in the other region. Uncoordinated local policies lead to overexpansion. The central government should intervene to encourage coordination. Copyright 1997 by Blackwell Publishers Ltd and The Victoria University of Manchester