nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2010‒05‒22
thirteen papers chosen by
Christian Zimmermann
University of Connecticut

  1. Continuous-Time Overlapping Generations Models By d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle
  2. The unemployment volatility puzzle: the role of the underground economy By Lisi, Gaetano
  3. Modeling News-Driven International Business Cycles By Beaudry, Paul; Dupaigne, Martial; Portier, Franck
  4. Disinflation Shocks in the Eurozone: a DSGE Perspective By Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
  5. Does Cointegration Matter? An Analysis in a RBC Perspective By Bisio Laura; Faccini Andrea
  6. Minimum Distance Estimation and Testing of DSGE Models from Structural VARs By Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
  7. Reforming the Pay-As-You-Go Pension System: Who Votes for it ? When? By Casamatta, Georges; Gondim, Joao Luis
  8. Trade and Migration with Renewable Natural Resources: Out-of-Steady-State Dynamics By López, Ramón; Schiff, Maurice
  9. The Spirit of Capitalism as Key to Solving for an Explicit Ramsey Saddle Path By Khelifi, Aymen Atef
  10. Mortality Decline and Aggregate Wealth Accumulation By Bommier, Antoine
  11. Forecast Combination Based on Multiple Encompassing Tests in a Macroeconomic DSGE System By Costantini, Mauro; Gunter, Ulrich; Kunst, Robert M.
  12. Rational Expectations and the Puzzling No-Effect of the Minimum Wage By Pinoli, Sara
  13. Optimal Monetary Stabilization Policy By Michael Woodford

  1. By: d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle
    Abstract: Age structured populations are studied in economics through overlapping generations models. These models allow for a realistic characterization of life-cycle behaviors and display intertemporal equilibrium that are not necessarily efficient. This article uses the latest developments in continuous time overlapping generations models to show the influence of the vintage structure of the population on the volatility of intertemporal prices. Permanent cycles can be found on the neighborhood of steady-states while the transitional dynamics are generically governed by short run fluctuations.
    Keywords: overlapping generations, continuous time, life-cycle
    Date: 2009–06–03
  2. By: Lisi, Gaetano
    Abstract: Relying on the non-negligible role played by the underground economy in the labour market fluctuations, this paper extends the standard matching model à la Mortensen-Pissarides by introducing an underground sector along with an endogenous sector choice for both entrepreneurs and workers. These modifications improve the quantitative properties of the standard matching model, thus providing a possible explanation for the unemployment volatility puzzle.
    Keywords: unemployment and vacancies volatility; productivity and job destruction shocks; underground economy; shadow economy; hidden economy; matching models.
    JEL: E32 J63 J64 J24 E26 L26 J23
    Date: 2010–05–13
  3. By: Beaudry, Paul; Dupaigne, Martial; Portier, Franck
    Abstract: This paper reexamines the question of how to explain business cycle co-movements within and between countries. First, we present two simple theoretically flexible price models to illustrate how and why news shocks can generate robust positive co-movements in economic activity across countries. We also discuss under what conditions the multi-sector version of the model generates appropriate business cycle patterns within countries. Second, we develop a quantitative two-country multi-sector model that is capable of replicating many international business cycle facts. The model is a two-country extension of the closed economy model of Beaudry and Portier [2004], in which there are limited possibilities to reallocate factors between investment and consumption good sectors.
    Keywords: business cycles, expectations, international fluctuations
    JEL: E32 F41
    Date: 2009–11
  4. By: Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
    Date: 2009–09
  5. By: Bisio Laura; Faccini Andrea
    Abstract: The aim of this paper is to verify if a proper SVEC representation of a standard Real Business Cycle model exists even when the capital stock series is omitted. The argument is relevant as the common unavailability of su¢ ciently long medium-frequency capital series prevent researchers from including capital in the widespread structural VAR (SVAR) representations of DSGE models - which is supposed to be the cause of the SVAR biased estimates. Indeed, a large debate about the truncation and small sample bias a¤ecting the SVAR performance in approximating DSGE models has been recently rising. In our view, it might be the case of a smaller degree of estimates distorsions when the RBC dynamics is approximated through a SVEC model as the information provided by the cointegrating relations among some variables might compensate the exclusion of the capital stock series from the empirical representation of the model.
    Keywords: RBC, SVAR, SVEC model, cointegration
    JEL: E27 E32 C32 C52
    Date: 2010–05
  6. By: Fève, Patrick; Matheron, Julien; Sahuc, Jean-Guillaume
    Date: 2009–12
  7. By: Casamatta, Georges; Gondim, Joao Luis
    Abstract: We assess the political support for parametric reforms of the Pay-As-You-Go pension system following a downward fertility shock. Using a continuous time overlapping generations model, we argue that reforms that consist in cutting pension benefits or increasing the retirement age are likely to receive a strong political support. An increase in the contribution rate has, on the contrary, fewer chances to be approved by the majority of the voters. This framework also allows to identify the costs and benefits of postponing each type of reform and to determine how the timing of the dierent reforms affects their political support.
    Keywords: Pay-As-You-Go, parametric reforms, fertility shock
    Date: 2009–10
  8. By: López, Ramón (University of Maryland at College Park); Schiff, Maurice (World Bank)
    Abstract: Commodity price increases associated with the entry of China, India and other countries into the world economy has led to increased pressure on common-property renewable natural resources (NR). The problem is particularly worrisome for economies that obtain a large share of their income from the exploitation of NR in the production of an exportable commodity. This paper contributes to the analysis by examining the issue in the framework of a general equilibrium dynamic model and by solving for both the steady state and the transition dynamics. We show that i) a resource-rich, capital-poor economy is more likely to be subject to a "natural resource curse" and complete (irreversible) NR depletion; ii) the latter's likelihood rises with the relative commodity price and labor inflow; iii) a labor inflow under internal equilibrium results in a higher steady-state capital-labor ratio and manufacturing output, and unchanged NR and commodity output; iv) import and export taxes result in a larger steady-state NR and commodity output and a smaller capital stock and manufacturing output, and may prevent complete NR depletion; and v) the latter may also be prevented through capital inflows (foreign aid) and labor outflow (openness by the North), improved regulation, technical change and a production tax.
    Keywords: renewable natural resources, depletion, transition dynamics, steady state, trade, migration, capital flows
    JEL: F22 O13 O15 Q17 Q27
    Date: 2010–05
  9. By: Khelifi, Aymen Atef
    Abstract: This paper presents a version of the Ramsey-Cass-Koopmans model (1965) with an explicit equation for the saddle path, starting from a utility function describing preferences for consumption and savings. Such a maximizing criterion including the flow of saving formalizes the concept of Max Weber’s spirit of capitalism and makes the model similar to the one of ZOU (1994), except that his specification includes the capital stock instead. Not only does the presented model preserve the long-run implications on growth of countries, it also features an interesting application of the Pontryagin’s Maximum principle, with further interpretation and results to analyze.
    Keywords: Ramsey-Cass-Koopmans model; saddle path; Saving proportion; optimal growth
    JEL: O41 D91 O4
    Date: 2010–03
  10. By: Bommier, Antoine
    Abstract: The paper discusses the impact of longevity extension on aggregate wealth accumulation, accounting for changes in individual behaviors as well as changes in population age structure. It departs from the standard literature by adopting a formulation of individual preferences that accounts for temporal risk aversion. Human impatience is then closely related to mortality rates and aggregate wealth accumulation appears to be much more sensitive to demographic factors than with the traditional approach. Illustrations are provided using historical mortality data from different countries.
    Keywords: longevity, life cycle savings, wealth accumulation
    JEL: D91 E21 J1
    Date: 2009–06–16
  11. By: Costantini, Mauro (Department of Economics, University of Vienna, Vienna, Austria); Gunter, Ulrich (Department of Economics, University of Vienna, Vienna, Austria); Kunst, Robert M. (Department of Economics and Finance, Institute for Advanced Studies, Vienna, Austria and Department of Economics, University of Vienna, Vienna, Austria)
    Abstract: We use data generated by a macroeconomic DSGE model to study the relative benefits of forecast combinations based on forecast-encompassing tests relative to simple uniformly weighted forecast averages across rival models. Assumed rival models are four linear autoregressive specifications, one of them a more sophisticated factor-augmented vector autoregression (FAVAR). The forecaster is assumed not to know the true data-generating DSGE model. The results critically depend on the prediction horizon. While one-step prediction hardly supports test-based combinations, the test-based procedure attains a clear lead at prediction horizons greater than two.
    Keywords: Combining forecasts, encompassing tests, model selection, time series, DSGE model
    JEL: C15 C32 C53
    Date: 2010–05
  12. By: Pinoli, Sara (Uppsala University)
    Abstract: This paper argues that expectations are an important element that needs to be included into the analysis of the effects of the minimum wage on employment. We show in a standard matching model that the observed employment effect is higher the lower is the likelihood associated with the minimum wage variation. On the other side, there is a significant anticipation effect, ignored in the literature. This property is able to explain the controversial results found in the empirical studies. When the policy is anticipated, the effect at the time of the actual variation is small and potentially hard to identify. The model is tested on Spanish data, taking advantage of the unexpected change in the minimum wage following the election of Zapatero in 2004.
    Keywords: minimum wage, expectations, heterogeneous matches
    JEL: D21 J23 J38
    Date: 2010–05
  13. By: Michael Woodford (Columbia University - Department of Economics)
    Abstract: This chapter reviews the theory of optimal monetary stabilization policy in New Keynesian models, with particular emphasis on developments since the treatment of this topic in Woodford (2003). The primary emphasis of the chapter is on methods of analysis that are useful in this area, rather than on final conclusions about the ideal conduct of policy (that are obviously model-dependent, and hence dependent on the stand that one might take on many issues that remain controversial), and on general themes that have been found to be important under a range of possible model specifications. With regard to methodology, some of the central themes of this review will be the application of the method of Ramsey policy analysis to the problem of the optimal conduct of monetary policy, and the connection that can be established between utility maximization and linear-quadratic policy problems of the sort often considered in the central banking literature. With regard to the structure of a desirable decision framework for monetary policy deliberations, some of the central themes will be the importance of commitment for a superior stabilization outcome, and more generally, the importance of advance signals about the future conduct of policy; the advantages of history-dependent policies over purely forward-looking approaches; and the usefulness of a target criterion as a way of characterizing a central bank's policy commitment.
    Date: 2010

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