How important is foreign knowledge for domestic innovation outcomes? How is this relation shaped by globalization and the attendant intensification of international competition? Our empirical approach extends the previous literature by analyzing a large panel comprising industries in both advanced and emerging economies over the past two decades. We find that barriers to the domestic diffusion of foreign knowledge have fallen significantly for emerging economies. For all countries, and especially for emerging economies, inflows of foreign knowledge have a growing and quantitatively important impact on domestic innovation. Controlling for the amount of domestic R&D, we find evidence that increases in international competitive pressure at the industry level had a positive effect on domestic innovation outcomes. 

This paper extends the standard Schumpeterian model of creative destruction by allowing the cost of innovation for followers to increase in their technological distance from the leader. This assumption is motivated by the observation that the more technologically advanced the leader is, the harder it is for a follower to leapfrog without incurring extra cost for using leader’s patented knowledge. Under this R&D cost structure, leaders have an incentive to play an “endpoint strategy”: they increase their technological advantage, counting on the fact that followers will eventually stop innovating – allowing leadership to prevail. We find that several results in the standard model fail to hold. In addition to the high-growth steady state in which only followers innovate, there now exists a second saddle-path-stable steady state: a low-growth steady state that features both leaders and followers innovating. A policy that increases monopolistic rents or extends parent duration can push the economy toward the low-growth steady state, causing, in some cases, irreversible harm to long-run growth.

Abstract. Periods of economic booms with rapid credit and GDP growth can be followed by sudden busts. In the presence of financial markets imperfections, a simple modification of a neoclassical growth model can fully account for this behavior. I study a growth model for a small open economy where decreasing marginal returns to capital appear after the country has reached a threshold level of development, which is uncertain. Limited enforceability of contracts allows borrowers to default on their debt. Lenders optimally choose to suddenly restrict the supply of credit when the threshold is reached and decreasing marginal returns appear. Borrowers default, and a boom-bust cycle is generated.  

Abstract. Financial innovation has increased diversification opportunities and lowered investment costs, but has not reduced the relative cost of active (informed) investment strategies relative to passive (less informed) strategies. What are the consequences? I study an economy with linear production technologies, some more risky than others. Investors can use low quality public information or collect high quality, but costly, private information. Information helps avoiding excessively risky investments. Financial innovation lowers the incentives for private information collection and deteriorates public information: the economy invests more often in excessively risky technologies. This changes the business cycle properties and can reduce welfare by increasing the likelihood of "liquidation crises". 

Abstract. What types of monetary and fiscal policy rules give rise to self-fulfilling deflationary paths that are monotonic and empirically relevant? The paper provides simple theoretical conditions that guarantee the existence of these paths in a general equilibrium model with sticky prices. These sufficient conditions turn out to be weak enough to be satisfied by most monetary and fiscal policy rules. A quantification of the model which combines a real shock à la Hayashi and Prescott (2002) with a simultaneous sunspot that disanchors inflation expectations matches the main empirical features of the Japanese deflationary process during the “lost decade”. The results also highlight the key role of the assumption about the anchoring of inflation expectations for the size of fiscal multipliers and, in general, for any policy analysis.

Abstract. Empirical tests of the New Keynesian Phillips Curve have provided results often inconsistent with microeconomic evidence. To overcome the pitfalls of standard estimations on aggregate data, a Full Information Partial Equilibrium approach is developed to exploit sectoral level data. A model featuring sectoral NKPCs subject to a rich set of shocks is constructed. Necessary and sufficient conditions on the structural parameters are provided to allow sectoral idiosyncratic components to be linearly extracted. Estimation biases are corrected using the model's restrictions on the partial equilibrium propagation of idiosyncratic shocks. An application to the US, Japan and the UK rejects the purely forward looking, labor cost-based NKPC.