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on Dynamic General Equilibrium |
| By: | Luis Fernando Melo Velandia; Alvaro José Riascos Villegas |
| Abstract: | En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés.En este documento estudiamos algunos canales, mecanismos de amplificación y los efectos cuantitativos de la política monetaria en Colombia. Adicionalmente, sugerimos una metodología completa, consistente teóricamente con la teoría del Equilibrio General y práctica para el análisis de política y pronósticos de variables económicas de interés. |
| Date: | 2004–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:col:000070:000176&r=dge |
| By: | Jean-Pierre Danthine (HEC-University of Lausanne, CEPR & FAME); John B. Donaldson (Columbia University) |
| Abstract: | We are interested in the macroeconomic implications of the separation of ownership and control. An alternative decentralized interpretation of the stochastic growth model is proposed, one where shareholders hire a self-interested manager who is in charge of the firm’s hiring and investment decisions. Delegation is seen to give rise to a generic conflict of interests between shareholders and managers. This conflict fundamentally results from the different income base of the two types of agents, once aggregate market clearing conditions are taken into account. An optimal contract exists resulting in an observational equivalence between the delegated management economy and the standard representative agent business cycle model. The optimal contract, however, appears to be miles away from standard practice: the manager’s remuneration is tied to the firm’s total income net of investment expenses, abstracting totally from wage costs. In order to align the interest of a manager more conventionally remunerated on the basis of the firm’s operating results to those of stockholder-workers, the manager must be made nearly risk neutral. We show the limited power of convex contracts to accomplish this goal and the necessity, if the manager is too risk averse (log or higher than log), of considerably downplaying the incentive features of his remuneration. The difficulty in reconciling the viewpoints of a manager with powers of delegation and of a representative firm owner casts doubt on the descriptive validity of the macro-dynamics highlighted in the representative agent macroeconomic model. |
| Keywords: | business cycles, delegated management, contracting |
| JEL: | E32 E44 |
| Date: | 2003–06 |
| URL: | http://d.repec.org/n?u=RePEc:fam:rpseri:rp88&r=dge |
| By: | Garance Genicot (Georgetown University) and Debraj Ray (New York University) (Department of Economics, Georgetown University) |
| Abstract: | In a credit market with enforcement constraints, we study the effects of a change in the outside options of a potential defaulter on the terms of the credit contract, as well as on borrower payoffs. The results crucially depend on the allocation of “bargaining power” between the borrower and the lender. We prove that there is a crucial threshold of relative weights such that if the borrower has power that exceeds this threshold, her expected utility must go up whenever her outside options come down. But if the borrower has less power than this threshold, her expected payoff must come down with her outside options. In the former case a deterioration in outside options brought about, say, by better enforcement, must create a Lorenz improvement in state-contingent consumption. In particular, borrower consumption rises in all “bad” states in which loans are taken. In the latter case, in contrast, the borrower’s consumption must decline, at least for all the bad states. These disparate findings within a single model permit us to interpret existing literature on credit markets in a unified way. Classification-JEL Codes: O120, O160, G190 |
| Keywords: | credit, no commitment, enforcement, bargaining power |
| URL: | http://d.repec.org/n?u=RePEc:geo:guwopa:gueconwpa~05-05-09&r=dge |
| By: | Thomas F. Crossley; Hamish W. Low |
| Abstract: | Job losers exhibit significant heterogeneity in wealth holdings and in the marginal propensity to consume transitory income. We consider potential sources of this heterogeneity, whether (some of) the unemployed face borrowing constraints, and the implications of this heterogeneity for unemployment insurance. We show theoretically how the optimal benefit can depend significantly on borrowing constraints, and on other (non-precautionary) savings motives. We report empirical evidence that (i) a quarter of job losers cannot borrow for current consumption, (ii) this constraint is binding for a much smaller fraction, and (iii) that "excess sensitivity" is not limited to the constrained. |
| Keywords: | unemployment, savings, credit constraints, life-cycle, consumption, unemployment insurance |
| JEL: | H53 D91 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:mcm:sedapp:125&r=dge |
| By: | Oded Galor (Brown University) |
| Abstract: | This chapter examines the process of development from an epoch of Malthusian stagnation to a state of sustained economic growth. The analysis focuses on recently advanced unified growth theories that capture the intricate evolution of income per capita, technology, and population over the entire course of human history. The inconsistency of non-unified growth models with the main characteristics of the process of development across most of human history induced growth theorists to advance an alternative theory that captures in a single unified framework the epoch of Malthusian stagnation, the modern era of sustained economic growth, and the recent transition between these distinct regimes. Unified growth theory reveals the underlying micro foundations that are consistent with the growth process over the entire history of the human species, enhancing the confidence in the viability of the theory, its predictions and its policy implications for the growth process of less developed economies. |
| Keywords: | Growth, Technological Progress, Demographic Transition, Income Distribution, Human Capital, Evolution, Natural Selection, Malthusian Stagnation, Class Structure. |
| JEL: | O11 O14 O33 O40 J11 J13 |
| Date: | 2005–04–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504001&r=dge |
| By: | Ryo Horii (Osaka University); Ryoji Ohdoi (Osaka University); Kazuhiro Yamamoto (Osaka University) |
| Abstract: | This paper develops an overlapping generations model with technology choice and imperfect credit market, in order to investigate a possible source of underdevelopment. Consistent with empirical observations in the literature, the model shows that better financial institutions that provide stronger enforceability of contracts facilitate the development of financial markets, which in turn enables firms to switch to more capital intensive technologies, thereby promoting economic development. In the presence of credit rationing, however, this technological switch widens inequality. Therefore, risk-averse agents would not be willing to improve the financial institutions to the level at which the technological switch occurs, resulting in a development trap. A remedy is to facilitate small firms' adoption of existing technology, rather than the new one. |
| Keywords: | Enforceability of Contracts, Technological Switch, Income Distribution, Credit Rationing, Development Trap. |
| JEL: | O14 O16 |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504004&r=dge |
| By: | Akiomi Kitagawa (Tohoku University); Ryo Horii (Osaka University); Koichi Futagami (Osaka University) |
| Abstract: | This paper examines the economic growth effects of limited availability of higher education in a simple endogenous growth model with overlapping generations. With limited availability, the scarcity of human capital keeps its price high and distributes a larger share of the aggregate output to young households. Under certain conditions, it leads to greater aggregate savings in each period, thereby enabling the economy to grow faster than without any limitation. In such cases, an excessive expansion in the availability causes a temporary boom followed by a serious deficiency in investible funds, resulting in a substantial slowdown in economic growth. |
| Keywords: | Endogenous Growth; Human Capital; Slowdown; Intergenerational Income Distribution |
| JEL: | O41 |
| Date: | 2005–04–12 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504005&r=dge |
| By: | Ryo Horii (Osaka University) |
| Abstract: | This paper develops a demand-pull theory of growth cycles based on variety-expansion models of endogenous growth. In the process of economic growth, cycles are generated by the interaction between consumers' desire to satisfy an indefinite range of wants and firms' incentive to utilize knowledge from past production experiences. Accumulated knowledge induces firms to agglomerate with each other in the technology space, but when the demand for unsatisfied wants reaches a threshold, firms start to adopt new technologies, causing sporadic emergence of new industries. Although emerging industries temporarily decelerates economic growth, they are indispensable parts of sustained long-term growth. |
| Keywords: | demand-pull growth, growth cycles, wants, knowledge, emergence of industries. |
| JEL: | O31 O33 O41 |
| Date: | 2005–04–13 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpdc:0504007&r=dge |
| By: | Pedro S. Amaral (Southern Methodist University); Erwan Quintin (Federal Reserve Bank of Dallas) |
| Abstract: | We present a model in which the importance of financial intermediation for development can be measured. We generate financial differences by varying the degree to which contracts can be enforced. Economies where enforcement is poor employ less capital and less efficient technologies. Calibrated simulations reveal that both effects are important. Yet, accounting for all the observed dispersion in output requires a higher capital share or a lower elasticity of substitution between capital and labor than usually assumed. We find that the effects of changes in those technological parameters on output are markedly larger when financial frictions are present. Finance, that is, matters. |
| JEL: | E |
| Date: | 2005–02–01 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502007&r=dge |
| By: | Kaiji Chen (University of Southern California); Ayse Imrohoroglu (University of Southern California); Selo Imrohoroglu (University of Southern California) |
| Abstract: | Japanese and U.S. saving rates have been significantly different over the last forty years. Can a standard growth model explain this difference? The answer is yes. Our results indicate that both an infinite horizon, complete markets setup and an overlapping generations model with incomplete markets are about equally able to generate saving rates that are remarkably similar to the data during 1961-1998. Our quantitative findings identify changes in the growth rate of total factor productivity and the low initial capital stock as the main factors generating the time series behavior of the net national saving rate in Japan. We show that if the Japanese had faced the U.S. TFP and initial conditions, their saving rate would have looked very similar to that of the U.S. households. In other words, it seems that there is nothing peculiar about the Japanese saving behavior. |
| Keywords: | Neoclassical Growth Model, Saving Behavior, Total Factor Productivity |
| JEL: | E |
| Date: | 2005–02–07 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502017&r=dge |
| By: | David Andolfatto (Simon Fraser University) |
| Abstract: | This paper re-examines the so-called coexistence puzzle in terms of a modified version of the legal restrictions hypothesis initially put forth by Bryant and Wallace (1980). The modification is in terms of dropping a questionable assumption in the original hypothesis; i.e., that large denomination government bonds cannot be intermediated by private banks. This restriction is replaced by one that is arguably more palatable; i.e., that the intermediated monetary instruments created by private banks are not universally acceptable as payment for all exchanges (unlike government money). The friction that gives rise to this latter restriction is one that is commonly employed in monetary models where fiat money is essential for exchange. |
| JEL: | E |
| Date: | 2005–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502020&r=dge |
| By: | Sheikh Selim (University of Southampton) |
| Abstract: | This paper examines dynamic optimal income taxation problem in a two- sector neoclassical model where the government is able to commit to a sequence of tax plans for future. It finds that (1) while it is optimal to set a zero long run capital tax for the capital goods sector, steady state optimal capital tax can be nonzero in the consumption goods sector; (2) if the government faces an ex ante constraint of setting equal factor income taxes, the optimal levels of both capital tax rates are nonzero. The distortion created by the nonzero capital tax in consumption goods sector, given the other capital tax is set at zero, is in no way explosive in nature, since economic agents can avoid the compounding tax liabilities simply by shifting depreciated capital. |
| Keywords: | Optimal Taxation, Primal Approach, Two-sector Model, Ramsey Problem. |
| JEL: | H |
| Date: | 2005–02–21 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502027&r=dge |
| By: | Areendam Chanda (Louisiana State University) |
| Abstract: | This paper explores the consequences of rising returns to human capital investment on the personal savings rate. Over the past two decades, the return to college education has increased relative to high school education leading economists to argue the presence of 'skill biased technological progress'. The literature explaining household savings has also burgeoned considerably, motivated by its declining rate in the US over the past couple of decades. Stylized facts suggest a negative relationship between returns to education and savings rates across most of the past century and also a negative relationship between education spending and savings rates across OECD countries. In this paper, we present a model where a declining savings rate emerges as an outcome of an exogenously driven increase in the return to education. The link between the two is attributed to optimizing behavior of altruistic households. The results of our model are robust to the inclusion of life cycle savings and unintentional bequests. Some of the interesting results of our model are (i) a rise in the return to education raises education spending ratio by less than what it reduces the aggregate savings rate (ii) for some parameter values it actually reduces both the education spending rate and the aggregate savings rate and finally, (iii) it also raises the return to capital due to physical capital-human capital complementarity. |
| Keywords: | Skill Biased Technological Change, Savings, Education, Economic Growth |
| JEL: | D91 E21 O33 |
| Date: | 2005–02–28 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0502034&r=dge |
| By: | Ratto M. (European Commission - Joint Research Centre); Roeger W. (European Commission - DG Economic & Financial Affairs); in’t Veld J. (European Commission - DG Economic & Financial Affairs); Girardi R. (European Commission - Joint Research Centre) |
| Abstract: | In recent years a new consensus has emerged in macroeconomics in general and in model building in particular, the so called New Keynesian Paradigm (NKM). This paper applies Bayesian estimation techniques to a time series data set of the euro area and presents estimates of a DSGE model. The purpose of this paper is not to estimate the current version of the QUEST model directly with these methods but rather to estimate a prototype new generation New-Keynesian DSGE model. This model can then serve as a benchmark for an estimation of a QUEST specification. In fact in some dimensions the QUEST model may need to be adjusted to come closer to a DSGE model. |
| Keywords: | Bayesian Analysis, General Equilibrium Models, SDGE, Estimation |
| JEL: | E22 C11 D58 |
| Date: | 2005–03–03 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpma:0503002&r=dge |
| By: | Onur Ozgur (New York University) |
| Abstract: | The main goal of this paper is to analyze the nature of long-term liquidity contracts that arise between lenders and borrowers in the absence of perfect enforceability and when both parties are financially constrained. We study an infinite horizon dynamic contracting model between a borrower and a lender with the following features: The borrower, is credit-constrained, faces a stochastic project arrival process every period, can choose to renege each period, and can save through the lender. Projects are indivisible. The lender is resource- constrained, and can commit to the terms of the contract as long as it is ex-ante individually rational to do so. We show that: (i) Enforcement problems and endogenous resource constraints can severely curtail the possibility of financing projects, (ii) the economy exhibits investment cycles, (iii) credit is rationed if either the lender has too little capital or the borrower has too little financial collateral. This paper’s technical contribution is to show the existence and characterization of financial contracts that are solutions to a non- convex dynamic programming problem. |
| Keywords: | Credit Rationing, Investment Cycles, Limited Enforceability, Liquidity Provision, Resource Constraints |
| JEL: | C6 C7 D9 G2 |
| Date: | 2005–02–15 |
| URL: | http://d.repec.org/n?u=RePEc:wpa:wuwpmi:0502004&r=dge |
| By: | Pascal Gourdel (CERMSEM); Leila Triki (CERMSEM) |
| Abstract: | We consider an extension of a general equilibrium model with incomplete markets that considers cash-in-advance constraints. The total amount of money is supplied by an authority, which produces at no cost and lends money to agents at short term nominal rates of interest, meeting the demand. Agents have initial nominal claims, which in the aggregate, are the counterpart of an initial public debt. The authority covers its expenditures, including initial debt, through public revenues that consists of taxes and seignorage, and distributes its eventual budget surpluses through transfers to individuals, while no further instruments are available to correct eventual budget deficits. We define a concept of equilibrium in this extended model, and prove that there exists a monetary equilibrium with no transfers. Moreover, we show that if the price level is high enough, a monetary equilibrium with transfers exists. |
| Keywords: | Cash-in-advance constraints, incomplete markets, nominal assets, monetary equilibrium, money, nominal interest rate |
| JEL: | C62 D52 E40 E50 G10 |
| Date: | 2005–01 |
| URL: | http://d.repec.org/n?u=RePEc:mse:wpsorb:b05024&r=dge |