nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2006‒08‒19
three papers chosen by
Christian Zimmermann
University of Connecticut

  1. Collateral Restrictions and Liquidity Under-Supply: A Simple Model By Ana Fostel; John Geanakoplos
  2. The Timing of Monetary Policy Shocks By Giovanni Olivei; Silvana Tenreyro
  3. Convergence behaviour in exogenous growth models By Jochonia S Mathunjwa; Jonathan Temple

  1. By: Ana Fostel (Dept. of Economics, George Washington University); John Geanakoplos (Cowles Foundation, Yale University)
    Abstract: We show that very little is needed to create liquidity under-supply in equilibrium. Credit constraints on demand by themselves can cause an under-supply of liquidity, without the uncertainty, intermediation, asymmetric information or complicated international financial framework used in other models in the literature. We show that the under-supply is a non-monotone function of the demand distortion that causes it, a result that may have interesting implications for emerging markets economies. Finally, when we make the credit constraint endogenous, the inefficiency can be large due to the presence of a multiplier.
    Keywords: Liquidity under-supply, Credit constraint, Non-monotonicity, Multiplier, Collateral equilibrium
    JEL: D51 E44 F30 G15
    Date: 2004–06
  2. By: Giovanni Olivei; Silvana Tenreyro
    Abstract: A vast empirical literature has documented delayed and persistent effects of monetary policy shockson output. We show that this finding results from the aggregation of output impulse responses thatdiffer sharply depending on the timing of the shock: when the monetary policy shock takes place inthe first two quarters of the year, the response of output is quick, sizable, and dies out at a relativelyfast pace. In contrast, output responds very little when the shock takes place in the third or fourthquarter. We propose a potential explanation for the differential responses based on uneven staggeringof wage contracts across quarters. Using a stylized dynamic general equilibrium model, we show thata very modest amount of uneven staggering can generate differences in output responses similar tothose found in the data.
    Keywords: monetary policy, wage contracts
    JEL: E1 E52 E58 E32 E31
    Date: 2006–05
  3. By: Jochonia S Mathunjwa; Jonathan Temple
    Abstract: This paper analyzes several aspects of convergence behaviour in the Solow growth model. In empirical work, a popular approach is to log-linearize around the steady-state. We investigate the conditions under which this approximation performs well, and discuss convergence behaviour when an economy is some distance from the steady-state. A formal analysis shows that convergence speeds will be heterogeneous across countries and over time. In particular, the Solow model implies that convergence to a growth path from above is slower than convergence from below. We find some support for this prediction in the data.
    Keywords: convergence, economic growth, Solow model
    JEL: O41
    Date: 2006–08

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