I have a paper (OLG model) w/ Bullard that has stochastic growth and dynamic inefficiency-cured by optimal debt management. In eqm, r(x) = g(x) under optimal policy in every state x. So risk premium seems not 2B issue here?
The mistake is Over Lapping Generations model. we do not do i well an it is a bad assumption. Econs should know better than to assume it true. In this case, yes indeed, the kids plan on a evaluation of the USD.
But, econs do make wrong assumptions. and many of them end up yapping at us for a lifetime because they made a bad assumption in some paper. I don't read many of their old papers, they all seem to make some untrue assumption from the start.
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