|
on Dynamic General Equilibrium |
| By: | Benk, Szilárd; Gillman, Max (Cardiff Business School); Kejak, Michal |
| Abstract: | The paper sets out a monetary business cycle model with three alternative exchange technologies, the cash-only, shopping time, and credit production models. The goods productivity and money shocks affect all three models, while the credit model has in addition a credit productivity shock. The paper compares the performance of the models in explaining the puzzles of the monetary business cycle theory. The credit model improves the ability to explain the procyclic movement of monetary aggregates, inflation and the nominal interest rate. |
| Keywords: | Cash-in-advance; credit production; cycle; inflation |
| JEL: | E13 E32 E44 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2005/14&r=dge |
| By: | Benk, Szilárd; Gillman, Max (Cardiff Business School); Kejak, Michal |
| Abstract: | The paper constructs credit shocks using data and the solution to a monetary business cycle model. The model extends the standard stochastic cash-in-advance economy by including the production of credit that serves as an alternative to money in exchange. Shocks to goods productivity, money, and credit productivity are constructed robustly using the solution to the model and quarterly US data on key variables. The contribution of the credit shock to US GDP movements is found, and this is interpreted in terms of changes in banking legislation during the US financial deregulation era. The results put forth the credit shock as a candidate shock that matters in determining GDP, including in the sense of Uhlig (2003). |
| Keywords: | Business cycle; credit shocks; financial deregulation |
| JEL: | E32 E44 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:cdf:wpaper:2005/13&r=dge |
| By: | Aleksander Berentsen; Gabriele Camera; Christopher Waller |
| Abstract: | In monetary models in which agents are subject to trading shocks there is typically an ex-post inefficiency in that some agents are holding idle balances while others are cash constrained. This inefficiency creates a role for financial intermediaries, such as banks, who accept nominal deposits and make nominal loans. We show that in general financial intermediation improves the allocation and that the gains in welfare arise from paying interest on deposits and not from relaxing borrowers’ liquidity constraints. We also demonstrate that increasing the rate of inflation can be welfare improving when credit rationing occurs. |
| Keywords: | money, credit, rationing, banking |
| JEL: | D90 E40 E50 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1617&r=dge |
| By: | Sergio Rebelo (Northwestern University, NBER, and CEPR.) |
| Abstract: | In this paper I review the contribution of real business cycles models to our understanding of economic fluctuations, and discuss open issues in business cycle research. |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:roc:rocher:522&r=dge |
| By: | Per Engström; Bertil Holmlund |
| Abstract: | The paper presents a tractable general equilibrium model of search unemployment that incorporates absence from work as a distinct labor force state. Absenteeism is driven by random shocks to the value of leisure that are private information to the workers. Firms offer wages, and possibly sick pay, so as to maximize expected profits, recognizing that the compensation package affects the queue of job applicants and possibly the absence rate as well. Shocks to the value of leisure among nonemployed individuals interact with their search decisions and trigger movements into and out of the labor force. The analysis provides a number of results concerning the impact of social insurance benefits and other determinants of workers’ and firms’ behavior. For example, higher nonemployment benefits are shown to increase absenteeism among employed workers. The normative anlysis identifies externalities associated with firm-provided sick pay and examines the welfare implications of alternative policies. Conditions are given under which welfare equivalence holds between publicly provided and firm-provided sick pay. Benefit differentiation across states of non-work are found to be associated with non-trivial welfare gains. |
| Keywords: | absenteeism, search, unemployment, social insurance |
| JEL: | J21 J64 J65 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1607&r=dge |
| By: | Lutz Hendricks |
| Abstract: | This paper investigates the role of discount rate heterogeneity for wealth inequality. The key idea is to infer the distribution of preference parameters from the observed age profile of wealth inequality. The contribution of preference heterogeneity to wealth inequality can then be measured using a quantitative life-cycle model. I find that discount rate heterogeneity increases the Gini coefficient of wealth by 0.06 to 0.11. The share of wealth held by the richest 1% of households rises by 0.03 to 0.13. The larger changes occur when altruistic bequests are large and when preferences are strongly persistent across generations. Discount rate heterogeneity also helps account for the large wealth inequality observed among households with similar lifetime earnings. |
| Keywords: | wealth inequality, preference heterogeneity |
| JEL: | E20 |
| Date: | 2005 |
| URL: | http://d.repec.org/n?u=RePEc:ces:ceswps:_1604&r=dge |
| By: | Axel Boersch-Supan; Alexander Ludwig; Joachim Winter |
| Abstract: | Population aging and pension reform will have profound effects on international capital markets. First, demographic change alters the time path of aggregate savings within each country. Second this process may be amplified when a pension reform shifts old-age provision towards more pre-funding. Third, while the patterns of population aging are similar in most counries, timing and initial conditions differ substantially. Hence, to the extent that capital is internationally mobile, population aging will induce capital flows between countries. All three effects influence the rate of return to capital and interact with the demand for capital in production and with labor supply. In order to quantify these effects, we develop a computational general equilibrium model. We feed this multi-country overlapping generations model with detailed long-term demographic projections for seven world regions. Our simulations indicate that capital flows from fast-aging regions to the rest of the world will initially be substantial but that trends are reversed when households decumulate savings. We also conclude that closed-economy models of pension reform miss quantitatively important effects of international capital mobility. |
| JEL: | E27 F21 G15 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:11850&r=dge |
| By: | Yamin Ahmad (Department of Economics, University of Wisconsin - Whitewater) |
| Abstract: | This paper incorporates heterogeneous agents into a NNS model with nominal inertia. Heterogeneous households are introduced into NNS models to try and reconcile the movements in interest rates, consumption and inflation. The key findings here are that heterogeneity and wage inertia are needed to help reconcile these observations. Aggregate consumption and its expected growth rate responds much more to myopic households than compared to optimizing households when myopic households set wages one periods in advance. When myopic households set wages in the current period, aggregate consumption and its expected growth rate is found to respond much more to the respective profiles for optimizing households. |
| Keywords: | Consumption, Aggregation, Interest Rates, Heterogeneity, Monetary Policy |
| JEL: | E27 E47 E52 |
| Date: | 2004–07 |
| URL: | http://d.repec.org/n?u=RePEc:uww:wpaper:05-02&r=dge |
| By: | Dorofeenko, Viktor (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Lee, Gabriel S. (Department of Real Estate, University of Regensburg and Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria); Salyer, Kevin D. (Department of Economics, University of California) |
| Abstract: | How do differences in the credit channel affect investment behavior in the U.S. and the Euro area? To analyze this question, we calibrate an agency cost model of business cycles. We focus on two key components of the lending channel, the default premium associated with bank loans and bankruptcy rates, to identify the differences in the U.S. and European financial sectors. Our results indicate that the differences in financial structures affect quantitatively the cyclical behavior in the two areas: the magnitude of the credit channel effects is amplified by the differences in the financial structures. We further demonstrate that the effects of minor differences in the credit market translate into large, persistent and asymmetric fluctuations in price of capital, bankruptcy rate and risk premium. The effects imply that the Euro Area's supply elasticities for capital are less elastic than the U.S. |
| Keywords: | Agency costs, Credit channel, Investment behavior, E.U. Area |
| JEL: | E4 E5 E2 |
| Date: | 2005–12 |
| URL: | http://d.repec.org/n?u=RePEc:ihs:ihsesp:182&r=dge |