nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2005‒07‒25
four papers chosen by
Christian Zimmermann
University of Connecticut

  1. Searching, Matching and Education: a Note By João Cerejeira Silva
  2. Banks, Markets, and Efficiency By Falko Fecht; Antoine Martin
  3. Sustainability of the Slovenian Pension System: An Analysis with an Overlapping-generations General Equilibrium Model By Miroslav Verbic; Boris Majcen; Renger van Nieuwkoop
  4. A theory of low inflation in a non Ricardian economy with credit Constraints. By Xavier Ragot

  1. By: João Cerejeira Silva (Universidade do Minho - NIPE; European University Institute)
    Abstract: In this paper the individual optimal level of education is set in a frictional labor market, where matching is not perfect. Also search frictions are a function of the average education can improve economic efficiency, not only through improvements in workers productivity, but also making the matching process more efficient, and thus reducing the unemployment level.
    Keywords: Education, Externalities, Search, Matching, Unemployment.
    JEL: I21 J41 J64
    Date: 2005
  2. By: Falko Fecht (Deutsche Bundesbank); Antoine Martin (Federal Reserve Bank of New York)
    Abstract: Following Diamond (1997) and Fecht (2004) we use a model in which financial market access of households restrains the efficiency of the liquidity insurance that banks' deposit contracts provide to households that are subject to idiosyncratic liquidity shocks. But in contrast to these approaches we assume spacial monopolistic competition among banks. Since monopoly rents are assumed to bring about inefficiencies, improved financial market access that limits monopoly rents also entails a positive effect. But this beneficial effect is only relevant if competition among banks does not sufficiently restrain monopoly rents already. Thus our results suggest that in the bank-dominated financial system of Germany, in which banks intensely compete for households' deposits, improved financial market access might reduce welfare because it only reduces risk sharing. In contrast, in the banking system of the U.S., with less competition for households' deposits, a high level of households' financial market participation might be beneficial.
    Keywords: Financial Intermediaries, Risk Sharing, Banking Competition, Comparing Financial Systems
    JEL: E44 G10 G21
    Date: 2005–07–19
  3. By: Miroslav Verbic (Institute for Economic Research Ljubljana); Boris Majcen (Institute for Economic Research Ljubljana); Renger van Nieuwkoop (ECOPLAN Berne)
    Abstract: The article presents an analysis of welfare effects in Slovenia, an analysis of macroeconomic effects of the Slovenian pension reform and an analysis of effects of the pension fund deficit on sustainability of Slovenian public finances with a dynamic OLG general equilibrium model. It has been established that while young generations and new generations will lose from the pension reform, even complete implementation of the reform might not be sufficient to compensate unfavourable demographic developments. The level of expected deficit of the PAYG-financed state pension fund seems to be most worrying. Financing the pension system with VAT revenues as an extreme case could result in more sustainable public finances, since GDP and welfare levels ought to increase, yet this might be infeasible to implement politically, given that the generations of voters would have their welfare decreased. In addition, the present pension system is intransparent and tremendously complicated and should primarily be made more comprehensible to the public.
    Keywords: general equilibrium models, macroeconomic effects, OLG-GE, PAYG, pension system, sustainability of public finances, Slovenia, welfare analysis
    JEL: C68 D58 D61 D91 E62 H55
    Date: 2005–07–19
  4. By: Xavier Ragot
    Abstract: This paper explores the relationship between the severity of credit constraints and long run inflation in a simple non Ricardian setting. It is shown that a low positive inflation can loosen credit constraints and that this effect yields a theory of the optimal long run inflation target with no assumption concerning nominal rigidities or expectation errors. Credit constraints introduce an un-priced negative effect of the real interest rate on investment. Because of this effect, the standard characterization of economic efficiency with the Golden Rule fails to apply. When fiscal policy is optimally designed, the first best allocation can be achieved thanks to a positive inflation rate and a proportional tax on consumption.
    Date: 2005

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