# 1999

99-01. Ortigueira, S., *"Equilibrium Indeterminacy in an Endogenous Growth Model: Debt as a Coordination Device"*

**Resumen: **This paper presents a two-sector endogenous growth model where public spending -which is endogenous and productive- may generate equilibrium indeterminacy. Under certain mild conditions, there exists a continuum of expectations-driven equilibrium paths approaching a common balanced growth path. We show that the welfare-maximizing equilibrium path is associated with a labor supply as large as possible at time zero. Furthermore, the welfare cost of indeterminacy can represent more than a 2.1% of total consumption. It is also shown that public debt may be used to coordinate private expectations on current and future prices, and therefore, may break down the indeterminacy result. The equilibrium selection mechanism works through the amount of debt issued at time zero.

99-02. Betts, C., y Huybens, E., *"Financial Market Imperfections, Real Exchange Rates, and Capital Flows"*

**Resumen:** We explore the role of domestic financial market frictions in explaining sharp movements in real and nominal exchange rates, capital flows, and output for a small open economy. Financial intermediaries arise endogenously to insulate depositors from the consequences of liquidity shocks and stochastic investment project returns, and to provide intermediation for efficient capital accumulation in the presence of a costly state verification problem. An increase in the world interest rate may provoke an increase in the fraction of credit-rationed entrepreneurs, a decrease in the steady state capital stock, and - when the elasticity of substitution between labor and capital is low - a depreciation of the real exchange rate and an outflow of capital. Hence we can account qualitatively for the recent experience of several emerging market economies in a model where all prices, including exchange rates, are perfectly flexible.

99-03. Del Negro, M., *"Asymmetric shocks among U.S. states"*

**Resumen:** The paper uses a factor analysis model to study co-movements in non-durable consumption and output among the fifty U.S. states from 1969 to 1995. The paper finds that asymmetric shocks in output are, on average, large, i.e., of the same magnitude of U.S. business cycle fluctuations. Regional business cycles and state-specific shocks are equally important sources of asymmetries in output. Asymmetric shocks in consumption, excluding disturbances due to measurement error, are, on average, as large as asymmetric shocks to output, suggesting a lack of inter-state smoothing.

99-04. Duggan, J., y Martinelli, C., *"A Bayesian Model of Voting in Juries"*

**Resumen:** We take a game-theoretic approach to the analysis of juries by modelling voting as a game of incomplete information. Rather than the usual assumption of two possible signals (one indicating guilt, the other innocence), we allow jurors to perceive a full spectrum of signals. Given any voting rule requiring a fixed fraction of votes to convict, we characterize the unique symmetric equilibrium of the game, and we consider the possibility of asymmetric equilibria: we give a condition under which no asymmetric equilibria exist and show that, without under which no asymmetric equilibria exist and show that, without it, asymmetric equilibria may exist. We offer a condition under which unanimity rule exhibits a bias toward convicting the innocent, regardless of the size of the jury, and we exhibit an example showing this bias can be reversed. And we prove a "jury theorem" for our general model: as the size of the jury increases, the probability of a mistaken judgment goes to zero for every voting rule, except unanimity rule; for unanimity rule, we give a condition under which the probability of a mistake is bounded strictly above zero, and we show that, without this condition, the probability of a mistake may go to zero.

99-05. Martinelli, C., y Matsui, A., *"Policy Reversals: Electoral Competition with Privately Informed Parties"*

**Resumen: **We develop a unidimensional spatial model of two party competition in which parties are better informed than voters about the bliss point of voters. The announced positions of the two parties serve as signals to the voters concerning the parties' private information. Surprisingly, in all separating equilibria the policies implemented by the left-wing party, when it attains power, are to the right of the policies implemented by the right-wing party when it attains power in turn. The driving force behind this result is that, in the event of a shock making right-wing policies more attractive, the incentives pushing the left party to the right are strong, since by winning the election it can avoid the right party implementing extreme policies, while the right-wing party can stay put in a radical stance with the prospect of seeing relatively attractive policies implemented by the rival party.