nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2005‒09‒17
six papers chosen by
Christian Zimmermann
University of Connecticut

  1. Heterogeneity in Price Setting and the Real Effects of Monetary Shocks By Carlos Carvalho
  2. The Transmission of Monetary Policy in a Multi-Sector Economy By BOUAKEZ, Hafed, CARDIA Emanuela, RUGE-MURCIA Francisco
  3. Endogenous Fertility, Mortality and Economic Growth: Can a Malthusian Framework Account for the Conflicting Historical Trends in Population? By Isaac Ehrlich; Jinyoung Kim
  4. Firm Productivity Dispersion and the Matching Role of UI Policy By Tomer Blumkin; Yossi Hadar; Eran Yashiv
  5. Bargaining Frictions and Hours Worked By Stéphane Auray; Samuel Danthine
  6. Liquidity Constraint and Child Labor In India: Is Market Really Incapable Of Eradicating It From Wage-Labor Households? By Basab Dasgupta

  1. By: Carlos Carvalho (Princeton University)
    Abstract: This paper analyzes the implications of heterogeneity in price setting for the real effects of monetary shocks. Starting from otherwise standard sticky price and sticky information models, I introduce ex-ante heterogeneity in terms of price setting frictions, and compare the resulting dynamics with those of identical firms economies under alternative calibrations. Both the qualitative and the quantitative results show that heterogeneity leads monetary shocks to have substantially larger and more persistent real effects. In particular, reproducing the dynamics of a truly heterogeneous economy with a model based on identical firms requires unrealistically large degrees of price setting frictions.
    JEL: E
    Date: 2005–09–10
  2. By: BOUAKEZ, Hafed, CARDIA Emanuela, RUGE-MURCIA Francisco
    Abstract: This paper constructs and estimates a sticky-price, Dynamic Stochastic General Equilibrium model with heterogenous production sectors. Sectors differ in price stickiness, capital-adjustment costs and production technology, and use output from each other as material and investment inputs following an Input-Output Matrix and Capital Flow Table that represent the U.S. economy. By relaxing the standard assumption of symmetry, this model allows different sectoral dynamics in response to monetary policy shocks. The model is estimated by Simulated Method of Moments using sectoral and aggregate U.S. time series. Results indicate 1) substantial heterogeneity in price stickiness across sectors, with quantitatively larger differences between services and goods than previously found in micro studies that focus on final goods alone, 2) a strong sensitivity to monetary policy shocks on the part of construction and durable manufacturing, and 3) similar quantitative predictions at the aggregate level by the multi-sector model and a standard model that assumes symmetry across sectors.
    Keywords: Multi-sector models, sticky-ice DGSE models, monetary licy
    JEL: E3 E4 E5
    Date: 2005
  3. By: Isaac Ehrlich; Jinyoung Kim
    Abstract: The 19th century economist, Thomas Robert Malthus, hypothesized that the long-run supply of labor is completely elastic at a fixed wage-income level because population growth tends to outstrip real output growth. Dynamic equilibrium with constant income and population is achieved through equilibrating adjustments in "positive checks" (mortality, starvation) and "preventive checks" (marriage, fertility). Developing economies since the Industrial Revolution, and more recently especially Asian economies, have experienced steady income growth accompanied by sharply falling fertility and mortality rates. We develop a dynamic model of endogenous fertility, longevity, and human capital formation within a Malthusian framework that allows for diminishing returns to labor but also for the role of human capital as an engine of growth. Our model accounts for economic stagnation with high fertility and mortality and constant population and income, as predicted by Malthus, but also for takeoffs to a growth regime and a demographic transition toward low fertility and mortality rates, and a persistent growth in per-capita income.
    JEL: O1 J1 I1
    Date: 2005–09
  4. By: Tomer Blumkin (Ben Gurion University); Yossi Hadar (Ben Gurion University); Eran Yashiv (LSE (visiting), Tel Aviv University, CEPR and IZA Bonn)
    Abstract: This paper studies optimal UI policy from the perspective of worker assignment to heterogenous jobs in an environment of random matching. Workers react to UI policy through job acceptance decisions; firms react to UI policy through wage posting. There is endogenous assortative matching as a result of the fact that UI policy induces a time profile for reservation wages, shifting the labor force towards the more productive firms. The relation between productivity dispersion and UI policy is mediated by the wage posting policies of firms that take both productivity and policy into account. Optimal UI policy is shown to crucially depend on the properties of the firm productivity distribution, such as its variance and skewness.
    Keywords: productivity, heterogeneity, UI policy, endogenous assortative matching, search
    JEL: E24 J64 J65
    Date: 2005–08
  5. By: Stéphane Auray (Université Charles-de-Gaulle Lille 3, GREMARS and CIRPÉE); Samuel Danthine (Université du Québec à Montréal, CIRPÉE and IZA Bonn)
    Abstract: A matching model with labor/leisure choice and bargaining frictions is used to explain (i) differences in GDP per hour and GDP per capita, (ii) differences in employment, (iii) differences in the proportion of part-time work across countries. The model predicts that the higher the level of rigidity in wages and hours the lower are GDP per capita, employment, part-time work and hours worked, but the higher is GDP per hours worked. In addition, it predicts that a country with a high level of rigidity in wages and hours and a high level of income taxation has higher GDP per hour and lower GDP per capita than a country with less rigidity and a lower level of taxation. This is due mostly to a lower level of employment. In contrast, a country with low levels of rigidity in hour and in wage setting but with a higher level of income taxation has a lower GDP per capita and a higher GDP per hour than the economy with low rigidity and low taxation, because while the level of employment is similar in both economies, the share of part-time work is larger.
    Keywords: models of search and matching, bargaining frictions, economic performance, labor market institutions, part-time jobs, labor market rigidities
    JEL: E24 J22 J30 J41 J50 J64
    Date: 2005–07
  6. By: Basab Dasgupta (University of Connecticut)
    Abstract: One way to measure the lower steady state equilibrium outcome in human capital development is the incidence of child labor in most of the developing countries. With the help of Indian household level data in an overlapping generation framework, we show that production loans under credit rationing are not optimally extended towards firms because of issues with adverse selection. More stringent rationing in the credit market creates a distortion in the labor market by increasing adult wage rate and the demand for child labor. Lower availability of funds under stringent rationing coupled with increased demand for loans induces the high risk firms to replace adult labor by child labor. A switch of regime from credit rationing to revelation regime can clear such imperfections in the labor market. The equilibrium higher wage rate elevates the household consumption to a significantly higher level than the subsistence under credit rationing and therefore higher level of human capital development is assured leading to no supply of child labor.
    Keywords: Credit Rationing, Informal Credit, Child Labor, Self Revelation Mechanism
    JEL: O16 O17
    Date: 2005–08

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