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on Dynamic General Equilibrium |
| By: | Hanno Lustig; Stijn Van Nieuwerburgh |
| Abstract: | To explain the low-frequency variation in US equity and debt returns in the 20th century, we solve an equilibrium model in which households face housing collateral constraints. An increase in the ratio of housing to human wealth loosens these borrowing constraintsthus allowing for more risk sharing. The rate of return that households require for holding equity decreases as a result. Feeding the historical time series of US housing collateral into the model replicates four features of long-run asset returns. (1) It produces a fifteen percent equity premium during the 1930s and a slow decline of the equity premium from eleven percent in the 1960s to four percent in 2003. (2) It generates large unexpected capital gains for equity holders, especially in the 1990s. (3) The risk-free rate and the housing collateral ratio are strongly positively correlated at low frequencies. (4) The model mimics the slow decline in the volatility of stock returns and the riskless interest rate. |
| JEL: | G12 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12766&r=dge |
| By: | Gary D. Hansen |
| URL: | http://d.repec.org/n?u=RePEc:cla:uclaol:416&r=dge |
| By: | Robert J. Barro |
| Abstract: | Satisfactory calculations of the welfare cost of aggregate consumption uncertainty require a framework that replicates major features of asset prices and returns, such as the high equity premium and low risk-free rate. A Lucas-tree model with rare but large disasters is such a framework. In a baseline simulation, the welfare cost of disaster risk is large -- society would be willing to lower real GDP by about 20% each year to eliminate all disaster risk, including wars. In contrast, the welfare cost from usual economic fluctuations is much smaller, though still important -- corresponding to lowering GDP by around 1.5% each year. |
| JEL: | E21 E44 G12 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:12763&r=dge |
| By: | Christopher A. Pissarides |
| Abstract: | I examine the dynamic evolutions of unemployment, hours of work and the service sharesince the war in the United States and Europe. The theoretical model brings together allthree and emphasizes technological growth. Computations show that the very lowunemployment in Europe in the 1960s was due to the high productivity growth associatedwith technological catch-up. Productivity also played a role in the dynamics of hours buta full explanation for the fast rise of service employment and the big fall in aggregatehours needs further research. Taxation has played a role but results are mixed. |
| Keywords: | Unemployment, hours of work, service employment, structural change, laborproductivity taxation |
| JEL: | E24 J21 J22 J64 O14 |
| Date: | 2006–10 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0757&r=dge |
| By: | Mariano Bosch |
| Abstract: | Recessions and policy interventions in labour markets in developing countries arecharacterized not only by changes in the unemployment rate, but also by changes in theproportion of formal or protected jobs. This reallocation between formal and informal jobs islarge and occurs mainly because the job finding rate of formal jobs reacts substantially morethan the job finding rate of informal jobs. This paper presents a search and matching model tocapture this fact. I assume that firms operate the within firm margin of formality, choosing tolegalize only those matches that are good enough to compensate the costs of formality. In thisframework, recessions or stricter regulations in the labour market trigger two effects. Asexpected, they lower the incentives to post vacancies (meeting effect), but also affect thefirms' hiring standards, favouring informal contracts (offer effect). This new channel shedslight on how the actions of policy makers alter the outcomes in an economy with informaljobs. For instance, attempts to protect employment by increasing .ring costs will reallocateworkers to informal jobs, where job separation is high. They are also likely to increaseunemployment. |
| Keywords: | Informal economy, search models, labour markets, regulations. |
| JEL: | J64 H26 O17 |
| Date: | 2006–11 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0761&r=dge |
| By: | Gary D. Hansen |
| URL: | http://d.repec.org/n?u=RePEc:cla:uclaol:417&r=dge |
| By: | Rachel Ngai; Roberto M. Samaniego |
| Abstract: | We develop a multi-sector general equilibrium model in which productivity growth is drivenby the production of sector-specific knowledge. In the model, we find that long rundifferences in total factor productivity growth across sectors are independent of theparameters of the knowledge production function except for one, which we term the fertilityof knowledge. Differences in R&D intensity are also independent of most other parameters.The fertility of knowledge in the capital sector is central to the growth properties of the modeleconomy. |
| Keywords: | Endogenous technical change, multisector growth, fertility of knowledge, totalfactor productivity, R&D intensity, investment-specific technical change |
| JEL: | D24 D92 O31 O41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp0762&r=dge |
| By: | Troy Matheson (Reserve Bank of New Zealand) |
| Abstract: | We describe a simple extension of the Monacelli (2005) small open economy model that incorporates a non-tradable good, habit persistence and price indexation. The empirical fit of eight different specifications of this model is then tested in a Bayesian framework using data for three small open economies: Australia, Canada, and New Zealand. The results show that the model with a non-tradable good fits the data better than the one-good model across all specifications considered. In contrast to Rabanal and Rubio-Ramarez (2005), we find that adding price indexation to either the one- or two-good model deteriorates overall empirical fit. |
| JEL: | C51 E52 F41 |
| Date: | 2006–12 |
| URL: | http://d.repec.org/n?u=RePEc:nzb:nzbdps:2006/11&r=dge |