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on Dynamic General Equilibrium |
| By: | Alexandre Janiak |
| Abstract: | I augment the standard large-firm matching model with a firm process of entry and exit. This extension requires the analysis of firm-level dynamics, which I present in this note. I also show the equivalence of the model with the one-worker firm model from Pissarides (2000). JEL: J63. |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:edj:ceauch:245&r=dge |
| By: | Enrique Martinez-Garcia; Jens Søndergaard |
| Abstract: | This paper re-examines the ability of sticky-price models to generate volatile and persistent real exchange rates. We use a DSGE framework with pricing-to-market akin to those in Chari, et al. (2002) and Steinsson (2008) to illustrate the link between real exchange rate dynamics and what the model assumes about physical capital. We show that adding capital accumulation to the model facilitates consumption smoothing and significantly impedes the model's ability to generate volatile real exchange rates. Our analysis, therefore, caveats the results in Steinsson (2008) who shows how real shocks in a sticky-price model without capital can replicate the observed real exchange rate dynamics. Finally, we find that the CKM (2002) persistence anomaly remains robust to several alternative capital specifications including set-ups with variable capital utilization and investment adjustment costs (see, e.g., Christiano, et al., 2005). In summary, the PPP puzzle is still very much alive and well. |
| Keywords: | Globalization ; Foreign exchange ; International finance ; Forecasting ; Mathematical models |
| Date: | 2008 |
| URL: | http://d.repec.org/n?u=RePEc:fip:feddgw:17&r=dge |
| By: | Said, Maher |
| Abstract: | We develop a model of a dynamic market with randomly arriving participants. Both buyers and sellers arrive probabilistically over time. The valuation of each buyer for each object is independently distributed and private information to each buyer. Equilibrium prices are determined by a sequence of second-price auctions. We examine the manner in which equilibrium behavior and payoffs are influenced by both current market conditions and anticipated future dynamics. |
| Keywords: | Dynamic markets; Random arrivals; Endogenous option value; Sequential auctions; Stochastic equivalence. |
| JEL: | D44 D83 C73 |
| Date: | 2008–08–05 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9868&r=dge |
| By: | Marzo, Massimiliano (Universita di Bologna); Zagaglia, Paolo (Dept. of Economics, Stockholm University) |
| Abstract: | Canzoneri and Diba (2004) show that the Taylor principle is not a panacea for equilibrium determinacy in a model where bonds and money provide liquidity services to households. We consider a cashless variant of their model with two types of government bonds. One bond provides transaction services, whereas the other is used only as a store of value. We show that the Taylor principle is still sacrosant. In general, the results of Leeper (1991) are confirmed. |
| Keywords: | Monetary Policy; Fiscal Policy; Government Bonds; Determinacy |
| JEL: | C68 E52 |
| Date: | 2008–08–11 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2008_0007&r=dge |
| By: | Óscar J. Arce (Banco de España); J. David López-Salido (Federal Reserve Board) |
| Abstract: | In this paper we use the notion of a housing bubble as an equilibrium in which some investors hold houses only for resale purposes and not for the expectation of a dividend, either in the form of rents or utility. We provide a life-cycle model where households face collateral constraints that tie their credit capacity to the value of their houses and examine the conditions under which housing bubbles can emerge. In such equilibria, the total housing stock is held by owners that extract utility from their homes, landlords that obtain rents, and investors. We show that an economy with tighter collateral constraints is more prone to bubbles which, in turn, tend to have a larger size but are less fragile in face of funddraining shocks. Our environment also allows for pure bubbles on useless assets. We find that multiple equilibria in which the economy moves endogenously from a pure bubble to a housing bubble regime and vice versa are possible. This suggests that high asset price volatility may be a natural consequence of asset shortages (or excess funding) that depress interest rates sufficiently so as to sustain an initial bubble. We also examine some welfare implications of the two types of bubbles and discuss some mechanisms to rule out equilibria with housing bubbles. |
| Keywords: | collateral constraints, buy-to-let investment, housing bubbles, switching bubbles, welfare |
| JEL: | G21 R21 R31 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:0815&r=dge |
| By: | Marzo, Massimiliano (Universita di Bologna;); Romagnoli , Silvia (Universita di Bologna); Zagaglia, Paolo (Dept. of Economics, Stockholm University) |
| Abstract: | We study the term structure implications of the fiscal theory of price level determination. We introduce the intertemporal budget constraint of the government in a general equilibrium model in continuous time. Fiscal policy is set according to a simple rule whereby taxes react proportionally to real debt. We show how to solve for the prices of real and nominal zero coupon bonds. |
| Keywords: | Bond Pricing; Fiscal Policy; Mathematical Methods |
| JEL: | D90 G12 |
| Date: | 2008–07–29 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:sunrpe:2008_0006&r=dge |
| By: | Manh Hung Nguyen (Toulouse School of Economics, LERNA-INRA); Phu Nguyen Van (THEMA-CNRS, Cergy-Pontoise University) |
| Abstract: | This paper analyzes the transitional dynamics in a model of economic growth with endogenous technological change and two alternative sources of energy: renewable and non-renewable resources. The conditions for the existence and saddle point property of the steady state are given. Finally, we present the estimation results on the data consisting of R&D energy, non-renewable energy consumption and renewable energy consumption. |
| Keywords: | Optimal growth, existence of equilibrium, transitional dynamics, energy, renewable resources, nonrenewable resources |
| JEL: | D51 E13 |
| Date: | 2008–07 |
| URL: | http://d.repec.org/n?u=RePEc:dpc:wpaper:2108&r=dge |
| By: | Growiec, Jakub |
| Abstract: | Balanced (exponential) growth cannot be generalized to a concept which would not require knife-edge conditions to be imposed on dynamic models. Already the assumption that a solution to a dynamical system (i.e. time path of an economy) satisfies a given functional regularity (e.g. quasi-arithmetic, logistic, etc.) imposes at least one knife-edge assumption on the considered model. Furthermore, it is always possible to find divergent and qualitative changes in dynamic behavior of the model – strong enough to invalidate its long-run predictions – if a certain parameter is infinitesimally manipulated. In this sense, dynamics of all growth models are fragile and "unstable". |
| Keywords: | knife-edge condition; balanced growth; regular growth; bifurcation; growth model; long run; long-run dynamics |
| JEL: | O41 O40 C62 |
| Date: | 2008–07–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9956&r=dge |
| By: | Bazhanov, Andrei |
| Abstract: | There is a large body of research devoted to our understanding of sustainable growth in resource based economies. Some of this research is inapplicable to the real economy. This is a result of inconsistency between the commonly used criteria and the initial state of the real economy. The inconsistency can lead to either inferior, unsustainable, or nonexistent optimal paths of consumption per capita if the criterion is not linked to the initial state. We demonstrate this in a model of the Dasgupta-Heal-Solow-Stiglitz variety with the constant consumption per capita as a benchmark criterion. Our results show that the inconsistency in this case can imply Pareto inferior paths of consumption per capita. |
| Keywords: | essential nonrenewable resource; sustainable extraction; criterion inconsistency; Hartwick Rule |
| JEL: | Q32 Q38 O13 |
| Date: | 2008–08–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:9914&r=dge |
| By: | Kenichi Akao (School of Social Sciences, Waseda University, and Institute of Economic Research, Kyoto University); Shunsuke Managi (Faculty of Business Administration, Yokohama National University) |
| Abstract: | The creation of an artificial market through a tradable permit system as a remedy against market failure is gaining popularity among analysts and policymakers. We show that in an intertemporal competitive economy, a tradable permit system may not achieve efficiency without setting appropriate permit interest rates (rewards for holding permits), and to find them, we must know in advance the path of efficient permit prices, which is difficult or impossible to obtain. We deal with this problem in two ways. First, we seek a special case in which the permit interest rates are given by a simple rule. Second, we propose a mechanism by which the permit interest rates are generated endogenously. The determinacy of an equilibrium under a tradable permit system is also examined. |
| Keywords: | Auction; artificial market, tradable permit system, general equilibrium, permit interest rate, permit bank, indeterminacy |
| JEL: | H23 K32 Q58 |
| Date: | 2008–08 |
| URL: | http://d.repec.org/n?u=RePEc:kyo:wpaper:658&r=dge |