Udayan Roy

Job Rotation and Public Policy: Theory with Applications to Japan and the USA

Argues that the high job mobility observed most prominently among workers in Japanese firms is consistent with the behaviour of risk‐averse individuals when neither private nor public income insurance is widely available to displaced workers. Laissez faire is suboptimal and involves higher job mobility than is socially optimal. Public provision of income insurance yields a Pareto improvement and reduces job rotation. Government job training schemes may push rotation levels even higher than the levels under laissez faire and could, therefore, be counterproductive.

Economic Growth with Negative Externalities in Innovation

It is argued that the linearity of the R&D sector’s technology in Paul Romer’s model of endogenous technological progress is very restrictive. An externality, stemming from the simultaneity and overlap in researchers’ activities, is modeled into the R&D sector. The optimality analysis of this model leads to a sceptical view of the case for government subsidies for investments in R&D. The quality of human capital, a subject discussed rarely if ever in theories of endogenous technological progress, is shown to affect the model economy’s long-run growth rate.

A Simple Treatment of the Liquidity Trap for Intermediate Macroeconomics Courses

Several leading undergraduate intermediate macroeconomics textbooks now include a simple reduced-form New Keynesian model of short-run dynamics (alongside the IS-LM model). Unfortunately, there is no accompanying description of how the zero lower bound on nominal interest rates affects the model. In this article, the authors show how the aforementioned model can easily be modified to teach undergraduate students about the significance of the zero lower bound for economic performance and policy. This acquires additional significance because economies such as the United States and Japan have been close to the zero lower bound since 2008 and 1995, respectively. The authors show that when the zero lower bound is introduced, an additional long-run equilibrium exists. This equilibrium is unstable and can lead to a deflationary spiral.

Optimal Growth with Public Capital and Public Services

We characterize optimal economic growth in an endogenous growth model in which production requires public capital (a stock) and public services (a flow) in addition to private capital and labor. We analyze the comparative static effects of changes in the fundamental technological and preference parameters of the model on the optimal values of several variables, such as the optimal rate of growth and the optimal allocation of resources among consumption, the provision of public services, and investment in public and private capital. We show that the general optimal path converges in finite time to the balanced growth optimal path. We relate our paper to important contributions to the existing literature by obtaining them as special cases of our model.

Macroeconomic Stabilization When The Natural Real Interest Rate Is Falling

The authors modify the Dynamic Aggregate Demand-Dynamic Aggregate Supply model in Mankiws widely used intermediate macroeconomics textbook to discuss monetary policy when the natural real interest rate is falling over time. Their results highlight a new role for the central banks inflation target as a tool of macroeconomic stabilization. They show that even when the zero lower bound is not binding, a prudent central bank must match every decrease in the natural real interest rate with an equal increase in the target rate of inflation in order to stabilize the risk of the economy falling into a deflationary spiral, which is an acute case of simultaneously falling output and inflation in which the economys self-correcting forces are inactive.

The final triumph of Adam Smith

Those who teach undergraduate courses on the history of economic thought are on a constant and alert lookout for a suitable textbook—more so than those who teach other courses. Such a book must introduce readers to the chief dramatis personae in a full and accurate manner and—no less important—have the sense to leave out the minor characters. Such a book must describe clearly the breakthrough ideas—and their evolution over time—and also have the confidence to sidestep the duds. It must be deep enough to not trivialize the magnificence of the major works, and it must also be able to hold the interest of the Nintendo generations in the classroom.

Vertical Product Differentiation and the Value of Time

This paper presents a model of international trade in goods that are ranked by quality. The model differs from existing theories of trade under vertical product differentiation in several ways. The main difference is in the way quality is modeled. But this paper also has different positive implications for the pattern of trade and it provides a theoretical explanation for Leontief Paradox-type empirical findings. The model indicates that several of the most important empirical challenges faced by the Heckscher-Ohlin-Vanek model can be dealt with by taking into account the quality aspect of traded goods.[F1]

Intra-industry competitiveness and economic growth

Abstract The Cass-Koopmans model of economic growth is reworked with imperfect competition in the final good sector. In the special case of the AK model, a direct link is shown between the degree of intra-industry competition and the rate of growth. Anti-trust enforcement which increases intra-industry competition, therefore, has growth effects and not just level effects. Imperfect competition generates excess profits at the expense of payments to labor and capital. Entry increases the competition for—and, therefore, the payments to—both of those factors. In response to the increase in the return to capital, capital accumulation increases and growth speeds up.