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on Dynamic General Equilibrium |
| By: | Jaime Erikson (SUNY-Fredonia); Olivier F. Morand (University of Connecticut); Kevin L. Reffett (Arizona State University) |
| Abstract: | Based on an order-theoretic approach, we derive sufficient conditions for the existence, characterization, and computation of Markovian equilibrium decision processes and stationary Markov equilibrium on minimal state spaces for a large class of stochastic overlapping generations models. In contrast to all previous work, we consider reduced-form stochastic production technologies that allow for a broad set of equilibrium distortions such as public policy distortions, social security, monetary equilibrium, and production nonconvexities. Our order-based methods are constructive, and we provide monotone iterative algorithms for computing extremal stationary Markov equilibrium decision processes and equilibrium invariant distributions, while avoiding many of the problems associated with the existence of indeterminacies that have been well-documented in previous work. We provide important results for existence of Markov equilibria for the case where capital income is not increasing in the aggregate stock. Finally, we conclude with examples common in macroeconomics such as models with fiat money and social security. We also show how some of our results extend to settings with unbounded state spaces. |
| Date: | 2005–08 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-51&r=dge |
| By: | Olivier F. Morand (University of Connecticut); Kevin L. Reffett (Arizona State University) |
| Abstract: | This paper provides new sufficient conditions for the existence, computation via successive approximations, and stability of Markovian equilibrium decision processes for a large class of OLG models with stochastic nonclassical production. Our notion of stability is existence of stationary Markovian equilibrium. With a nonclassical production, our economies encompass a large class of OLG models with public policy, valued fiat money, production externalities, and Markov shocks to production. Our approach combines aspects of both topological and order theoretic fixed point theory, and provides the basis of globally stable numerical iteration procedures for computing extremal Markovian equilibrium objects. In addition to new theoretical results on existence and computation, we provide some monotone comparative statics results on the space of economies. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:uct:uconnp:2005-52&r=dge |
| By: | Manolis Galenianos; Philipp A. Kircher |
| Abstract: | We develop an equilibrium directed search model of the labor market where workers can simultaneously apply for multiple jobs. The main result is that all equilibria exhibit wage dispersion despite the fact that workers and firms are homogeneous. Wage dispersion is driven by the simultaneity of application choice. Risk-neutral workers apply for both ‘safe’ and ‘risky’ jobs. The former yield a high probability of a job offer, but for low pay, and act as a fallback option; the latter provide with higher potential payoff, but are harder to get. Furthermore, the density of posted wages is decreasing, consistent with stylized facts. Unlike most directed search models, the equilibria are not constrained efficient. |
| Date: | 2005–06 |
| URL: | http://d.repec.org/n?u=RePEc:bon:bonedp:bgse20_2005&r=dge |
| By: | Michael Dotsey (Federal Reserve Bank of Philadelpha); Robert G. King (Department of Economics, Boston University) |
| Abstract: | State-dependent pricing (SDP) models treat the timing of price changes as a profit-maximizing choice, symmetrically with other decisions of firms. Using quantitative general equilibrium models that incorporate a “generalized (S,s) approach,” we investigate the implications of SDP for topics in two major areas of macroeconomic research: the early 1990s SDP literature and more recent work on persistence mechanisms. First, we show that state-dependent pricing leads to unusual macroeconomic dynamics, which occur because of the timing of price adjustments chosen by firms as in the earlier literature. In particular, we display an example in which output responses peak at about a year, while inflation responses peak at about two years after the shock. Second, we examine whether the persistence-enhancing effects of two New Keynesian model features, namely, specific factor markets and variable elasticity demand curves, depend importantly on whether pricing is state dependent. In an SDP setting, we provide examples in which specific factor markets perversely work to lower persistence, while variable elasticity demand raises it. |
| Keywords: | Pricing, Macroeconomic models |
| JEL: | E0 E3 |
| Date: | 2005–02 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-002&r=dge |
| By: | Claudia Olivetti (Department of Economics, Boston University) |
| Abstract: | Over the past several decades, married women?s hours of market work increased signi?cantly in the US. I argue that changes in behavior by married women with children account for much of this change. In particular, the pattern of married women?s work hours has changed substantially over the life-cycle. In the past, married women in childbearing age tended to specialize in childrearing and home production activities at the expense of engaging in market work. Now they do not curb the hours worked on the market. What factors contribute to this change in behavior? In this paper, I focus on relative changes in returns to experience as an explanation. I quantitatively assess how these changes in returns to experience contributed to changes in married women?s life cycle pro?les of hours worked. I build a life-cycle model with human capital accumulation and home production in which the basic unit of analysis is a married couple with children, and calibrate it using data from the 1970s and 1990s. I show that changes in returns to experience account for a large part of the observed variation. Moreover, according to the model, the increase in returns to experience accounts for roughly half of the increase in the female/male wage ratio that is found in the data. I also show that a decline in the gender wage gap, holding returns to experience constant, cannot explain the change in the shape of women?s life cycle pro?les. Although the focus of the analysis is the labor supply behavior of women, the model also allows predictions about the behavior of men and single women. These predictions are consistent with the data. |
| Date: | 2005–09 |
| URL: | http://d.repec.org/n?u=RePEc:bos:macppr:wp2005-008&r=dge |