In this paper, we propose a novel estimate for human capital and use it in estimating cross-country production functions in a panel-data setting. We then compare our results with the ones previously obtained to emphasize the neglected importance that human capital has received so far in this context. Here, human capital is the expected present-discounted value of future labor income. We show how this can be easily implemented in empirical exercises, despite the fact that labor income is a non-stationary integrated process. Our human capital proxy has two interesting characteristics: …rst, it captures the well-known trend observed on the number of years of schooling, present in every country. Second, its cross-sectional variation (across countries) is much grater than that observed for the number of years of schooling, which we credit to the fact that it captures cross-country di¤erences in the quality of human capital. Indeed, the coe¢ cient of variation (unit free) of our proxy of human capital is 3 times that of years of schooling for OCDE countries, and more than 7 times when the Penn World Tables data base is used. As a consequence, its use implies an increased human-capital elasticity in the production function vis-a-vis that obtained using years of schooling, and a more prominent role of human capital in growth accounting exercises.

 In closed or open economy models with complete markets, targeting core inflation enables monetary policy to maximize welfare by replicating the flexible price equilibrium. We analyze this result in the context of developing economies, where a large proportion of households are credit constrained and the share of food expenditures in total consumption expenditures is high. We develop an open economy model with incomplete financial markets to show that headline inflation targeting improves welfare outcomes. We also compute the optimal price index, which includes a positive weight on food prices but, unlike headline inflation, assigns zero weight to import prices.