nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2006‒09‒11
seven papers chosen by
Christian Zimmermann
University of Connecticut

  1. The Consumption-Tightness Puzzle By Morten O. Ravn
  2. Social Security Reform with Uninsurable Income Risk and Endogenous Borrowing Constraints By Juan A. Rojas; Carlos Urrutia
  3. Does Wealth Explain Black-White Differences in Early Employment Careers? By Silvio Rendon
  4. The Direction of Technical Change in Capital-Resource Economies By Corrado Di Maria; Simone Valente
  5. Markov-Perfect Nash Equilibria in Models with a Single Capital Stock By Engelbert J. Dockner; Florian O.O. Wagener
  6. Endogenous Growth and Time-to-Build: the AK Case By Mauro Bambi
  7. Life Cycle Employment and Fertility Across Institutional Environments By Daniela del Boca; Robert M. Sauer

  1. By: Morten O. Ravn
    Abstract: This paper introduces a labor force participation choice into a labor market matching model embedded in a dynamic stochastic general equilibrium set-up with production and savings. The participation choice is modelled as a tradeoff between forgoing the expected benefits of being search active and engaging in costly labor market search. The model induces a symmetry in firms’ and workers’ search decision since both sides of the labor market vary search effort at the extensive margins. We show that this set-up is of considerable analytical convenience and that it gives rise to a linear relationship between labor market tightness and the marginal utility of consumption. We refer to the latter as the “consumption - tightness puzzle” because (a) it gives rise to a number of counterfactual implications, and (b) it is a robust implication of theory. Amongst the counterfactual implications are very low volatility of tightness, procyclical unemployment, and a positively sloped Beveridge curve. These implications all derive from procyclical variations in participation rates that follow from allowing for the extensive search margin.
    Keywords: Labor market participation, matching models, intensive search margin, labor market tightness, unemployment, homework.
    JEL: E24 E32 J20 J41 J64
    Date: 2006
  2. By: Juan A. Rojas (Universidad Carlos III de Madrid); Carlos Urrutia (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: We study the aggregate effects of a social security reform in a large overlapping generations model where markets are incomplete and households face uninsurable idiosyncratic income shocks. We depart from the previous literature by assuming that, because of lack of commitment in the credit market, the borrowing constraint in the unique asset is endogenously determined by the agents' incentives to default on previous debts. We find that a model with exogenous borrowing constraints overestimates the positive effect of reforming social security on the capital stock and the saving rate, compared to our model with endogenous borrowing limit. The reason is that, in the latter, the size of precautionary savings is smaller because after the reform the incentives to default on previous debts are lower and consequently households face more relaxed borrowing limits. Adding retirement accounts to the basic model does not change these conclusions, although the quantitative importance of endogenizing borrowing constraints is reduced.
    Date: 2004–10
  3. By: Silvio Rendon (Centro de Investigacion Economica (CIE), Instituto Tecnologico Autonomo de Mexico (ITAM))
    Abstract: In this paper I inquire about the effects initial wealth has on black-white differences in early employment careers. I set up a dynamic model in which individuals simultaneously search for a job and accumulate wealth, and fit it to data from the National Longitudinal Survey (1979-cohort). The estimates show that borrowing constraints are tight for both race groups. Regime changes reveal that differences in initial wealth account almost fully for the racial gap in wealth and wages at the beginning of employment careers, but their effect tapers off and completely dissapears several years after graduation. In contrast, differences in the labor market environment and in preferences are shown to account fully for both racial gaps, in wealth and in wages, persisting several years after High School graduation.
    Keywords: Job search, wealth, racial differences, borrowing constraints, consumption, unemployment, estimation of dynamic structural models
    JEL: C33 E21 E24 J64
    Date: 2006–05
  4. By: Corrado Di Maria (CentER, Tilburg University); Simone Valente (Center of Economic Research, Swiss Federal Institute of Technology Zurich (ETH))
    Abstract: We analyze a multi-sector growth model with directed technical change where man-made capital and exhaustible resources are essen- tial for production. The relative profitability of factor-specific inno- vations endogenously determines whether technical progress will be capital- or resource-augmenting. We show that convergence to bal- anced growth implies zero capital-augmenting innovations: in the long run, the economy exhibits purely resource-augmenting technical change. This result provides sound microfoundations for the broad class of models of exogenous/endogenous growth where resource-aug- menting progress is required to sustain consumption in the long run, contradicting the view that these models are conceptually biased in favor of sustainability.
    Keywords: Endogenous Growth, Directed Technical Change, Exhaustible Resources, Sustainability
    JEL: O31 O33 O41 Q32
    Date: 2006–03
  5. By: Engelbert J. Dockner (University of Vienna, Austria); Florian O.O. Wagener (CeNDEF, Universiteit van Amsterdam)
    Abstract: Many economic problems can be formulated as dynamic games in which strategically interacting agents choose actions that determine the current and future levels of a single capital stock. We study necessary conditions that allow us to characterize Markov perfect Nash equilibria (MPNE) for these games. These conditions result in an auxiliary system of ordinary differential equations that helps us to explore stability, continuity and differentiability of MPNE. The techniques are used to derive detailed properties of MPNE for several games including the exploitation of a finite resource, the voluntary investment in a public capital stock, and the inter-temporal consumption of a reproductive asset.
    Keywords: Capital accumulation games; Markov equilibria; Resource games; Differential games
    JEL: C73 D92 Q22
    Date: 2006–06–22
  6. By: Mauro Bambi
    Abstract: In this paper, a continuous time AK model is fully analyzed under the time-to-build assumption. Existence and uniqueness of a balance growth path, as well as oscillatory convergence are proved. Moreover, the role of transversality conditions and capital depreciation are highlighted. Numerical simulations are also provided for different choices of the time-to-build delay.
    Keywords: AK Model; Time-to-Build; D-Subdivision method
    JEL: E00 E3 O40
    Date: 2006
  7. By: Daniela del Boca; Robert M. Sauer
    Abstract: In this paper, we formulate a dynamic utility maximization model of female labor force participation and fertility choices and estimate approximate decision rules using data on married women in Italy, Spain and France. The pattern of estimated state dependence e?ects across countries is consistent with aggregate patterns in part-time employment and child care availability, suggesting that labor market rigidities and lack of child care options are important sources of state dependence. Simulations of the model reveal that Italian and Spanish women would substantially increase their participation rates were they to face the French institutional environment.
    Keywords: Female Employment, Fertility, Child Care, Institutions, Decision Rules
    JEL: J2 C3 D1
    Date: 2006–08

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