nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2013‒11‒16
twenty-six papers chosen by
Christian Zimmermann
Federal Reserve Bank of St. Louis

  1. Financial Intermediation, House Prices, and the Distributive Effects of the U.S. Great Recession By Dominik Menno; Tommaso Oliviero
  2. A life-cycle model of unemployment and disability insurance By Sagiri Kitao
  3. Two-Way Capital Flows and Global Imbalances: A Neoclassical Approach By Zhiwei XU; Yi Wen; pengfei Wang
  4. Macroprudential policy instruments and economic imbalances in the euro area By Brzoza-Brzezina, Michał; Kolasa, Marcin; Makarski, Krzysztof
  5. Debt Relief for Poor Countries: Conditionality and Effectiveness By Almuth Scholl
  6. Public Education Spending, Sectoral Taxation and Growth By Marion Davin
  7. The Cyclical Behavior of Equilibrium Unemployment and Vacancies Across OECD Countries By Murat Tasci; Pedro Amaral
  8. Inequality Dynamics and the Politics of Redistribution By Tetsuo Ono
  9. Capital Tax Competition and Dynamic Optimal Taxation By Till Gross
  10. Financial exposure and the international transmission of financial shocks By Kamber, Gunes;; Thoenissen, Christoph
  11. Understanding Non-Inflationary Demand Driven Business Cycles By Franck Portier; Paul Beaudry
  12. Dissecting the dynamics of the US trade balance in an estimated equilibrium model By Jacob, Punnoose; Peersman, Gert
  13. Capital Structure and Investment Dynamics with Fire Sales By Douglas Gale; Piero Gottardi
  14. Optimal State-dependent Monetary Policy Rules By Christian Baker; Richard W. Evans
  15. House Prices, Heterogeneous Banks and Unconventional Monetary Policy Options By Andrew Lee Smith
  16. A penalty function approach to occasionally binding credit constraints By Michał Brzoza-Brzezina; Marcin Kolasa; Krzysztof Makarski
  17. Dynamic Optimal Taxation in Open Economies By Till Gross
  18. Financing Constraints, Firm Dynamics, and International Trade By Till Gross; Stéphane Verani
  19. The Delayed Effects of Monetary Shocks in a Two-sector New Keynesian Model By Munechika Katayama; Kwang Hwan Kim
  20. Immigrant Job Search Assimilation in Canada By Audra J. Bowlus; Masashi Miyairi; Chris Robinson
  21. Distortions in the Neoclassical Growth Model: A Cross Country Analysis By Pedro Miguel Soares Brinca
  22. The Great Recession: A Self-Fulfilling Global Panic By Eric van Wincoop; Philippe Bacchetta
  23. A Traffic Jam Theory of Recessions By Jennifer La'O
  24. Child Allowances, Educational Subsidies and Economic Growth By Chen, Hung-Ju
  25. Equilibrium Search and the Impact of Equal Opportunities for Women By Melvyn G Coles; Marco Francesconi
  26. Multiple Steady States under the Balanced Budget Rule- a Generalization By Fujio Takata

  1. By: Dominik Menno; Tommaso Oliviero
    Abstract: This paper quantifies the effects of credit spread and income shocks on aggregate house prices and households’ welfare. We address this issue within a stochastic dynamic general equilibrium model with heterogeneous households and occasionally binding collateral constraints. Credit spread shocks arise as innovations to the financial intermediation technology of stylized banks. We calibrate the model to the U.S. economy and simulate the Great Recession as a contemporaneous negative shock to financial intermediation and aggregate income. We find that (i) in the Great recession constrained agents (borrowers) lose more than unconstrained agents (savers) from the aggregate house prices drop; (ii) credit spread shocks have, by their nature, re-distributive effects and - when coupled with a negative income shock as in the Great Recession - give rise to larger (smaller) welfare losses for borrowers (savers); (iii) imposing an always binding collateral constraint, the non-linearity coming from the combination of the two shocks vanishes, and the re-distributive effects between agents’ types are smaller.
    Keywords: HousingWealth, Mortgage Debt, Borrowing Constraints, Heterogeneous Agents, Welfare, Aggregate Credit Risk
    JEL: E21 E32 E43 E44 I31
    Date: 2013
  2. By: Sagiri Kitao (Hunter College)
    Abstract: The paper builds a life-cycle model of heterogeneous agents with search frictions, in which individuals choose a sequence of saving and labor supply faced with uncertainty in longevity, employment, health status and medical expenditures. Unemployed individuals decide search intensity and whether to apply for disability insurance (DI) benefits if eligible. We investigate, first, the effects of cash and Medicare benefits of the DI system on the life-cycle pattern of employment. Without in-kind benefits through Medicare, the DI coverage could fall by 30%. Second, the impact of a change in labor market conditions and roles of the DI are studied. A rise in exogenous job separation rates or a fall in job finding rates by 20% each can lead to a drop in employment rate by 1.7 and 2.1 percentage points, respectively. A model without the DI could underestimate the effect on employment by more than 30%.
    Date: 2013
  3. By: Zhiwei XU (HKUST); Yi Wen (Federal Reserve Bank of St. Louis); pengfei Wang (Hong Kong University of Science and Technology)
    Abstract: Financial capital and fixed capital tend to flow in opposite directions between poor and rich countries. Why? What are the implications of such two-way capital flows for global trade imbalances and welfare in the long run? This paper introduces frictions into a standard two-country neoclassical growth model to explain the pattern of two-way capital flows between emerging economies (such as China) and the developed world (such as the United States). We show how underdeveloped credit markets in China can lead to abnormally high rate of returns to fixed capital but excessively low rate of returns to financial capital relative to the U.S., hence driving out household savings (financial capital) on the one hand while simultaneously attracting foreign direct investment (FDI) on the other. When calibrated to match China's high marginal product of capital and low real interest rate, the model is able to account for the observed rising trends of China's financial capital outflows and FDI inflows as well as its massive trade imbalances. Despite double heterogeneity in households and firms and a less than 100% capital depreciation rate, our two-country model is analytically tractable with closed form solutions at the micro level, which permits exact aggregation by the law of large numbers, so the general equilibrium of the model can be solved by standard log-linearization or higher order perturbation methods without the need of using numerical computation methods. Our model yield, among other things, three implications that stand in sharp contrast with the existing literature: (i) Global trade imbalances between emerging economies and the developed world are sustainable even in the steady state. (ii) There exists an immiserization effect of FDI---namely, FDI is beneficial for the sourcing country but harmful to the recipient country under financial frictions. (iii) Our quantitative results cast doubts on the conventional wisdom that the "saving glut" of emerging economies is responsible for the low world interest rate.
    Date: 2013
  4. By: Brzoza-Brzezina, Michał; Kolasa, Marcin; Makarski, Krzysztof
    Abstract: Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy tools - applied in a countercyclical fashion as known from the DSGE literature to the peripheral countries - could contribute to providing more macroeconomic stability in this region. To this end we build a two-economy macrofinancial DSGE model and simulate the effects of macroprudential tools under the assumption of asymmetric shocks hitting the core and the periphery. We find that a countercyclical application of macroprudential tools is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be set individually for each region. Area-wide policy is almost ineffective in this respect. JEL Classification: E32, E44, E58
    Keywords: DSGE with banking sector, euro-area imbalances, Macroprudential policy
    Date: 2013–09
  5. By: Almuth Scholl (Department of Economics, University of Konstanz, Germany)
    Abstract: This paper studies the effectiveness of debt relief to stimulate economic growth in the most heavily indebted poor countries. We develop a neoclassical framework with a conflict of interest between the altruistic donor and the recipient government and model conditionality as an imperfectly enforceable dynamic contract. Our findings suggest that incentive-compatible conditions substantially promote fiscal reform and investment in the short- and long-run. In contrast to the recent practice of fully canceling multilateral debt, optimal debt relief is characterized by a combination of outright grants and subsidized loans. Losing loans as a policy instrument reduces welfare considerably.
    Keywords: neoclassical growth, conditionality, limited enforceable dynamic contracts, foreign aid
    JEL: O11 F34 F35
    Date: 2013–10–29
  6. By: Marion Davin (Aix-Marseille University (Aix-Marseille School of Economics), CNRS & EHESS)
    Abstract: This paper examines the interplay between public education expenditure and economic growth in a two-sector model. We reveal that agents’ preferences for services, education and savings play a major role in the relationship between growth and public education expenditures, as long as production is taxed at a different rate in each sector.
    Keywords: Public education, Two-sector model, Sectoral taxes, Endogenous growth.
    JEL: E62 I25 O41
    Date: 2013–10
  7. By: Murat Tasci (Federal Reserve Bank of Cleveland); Pedro Amaral (Federal Reserve Bank of Cleveland)
    Abstract: We show that the inability of a standardly-calibrated stochastic labor search-and-matching model to account for the observed volatility of unemployment and vacancies extends beyond U.S. data to a set of OECD countries -- the volatility puzzle is ubiquitous. We also argue that using cross-country data is helpful in evaluating the relative merits of the model alternatives that have appeared in the literature. In illustrating this point, we take the solution proposed in Hagedorn and Manovskii (2008) and show that it continues to predict counterfactually low volatility in labor market variables for countries that exhibit sufficiently low persistence in their estimated productivity processes.
    Date: 2013
  8. By: Tetsuo Ono (Graduate School of Economics, Osaka University)
    Abstract: This paper analyzes the political economy of public education and lump-sum transfer in an overlapping-generation model of a two-class society in which the dy- namics of inequality is driven by the accumulation of human capital. The two redistributive policies are determined by voting, while private education which sup- plements public education is purchased individually. The model, which includes two-dimensional voting, demonstrates the following two types of stable steady-state equilibria which are in line with the evidence: a high-inequality equilibrium with government spending in favor of public education, and a low-inequality equilibrium with government spending in favor of lump-sum transfer.
    Keywords: Public education, political economy, inequality
    JEL: D72 D91 I24
    Date: 2013–10
  9. By: Till Gross (Department of Economics, Carleton University)
    Abstract: I analyze international tax competition in a framework of dynamic optimal taxation for strategically competing governments. The global capital stock is determined endogenously as in a neo-classical growth model. With perfect commitment and a complete tax system (where all factors of production can be taxed), governments set their capital taxes so that the net return is equal to the social marginal product of capital. Capital accumulation thus follows the modified golden rule. This is independent of relative country size, capital taxes in other countries, and the degree of capital mobility. In contrast, with an exogenous capital stock returns on capital are pure rents and a government's ability to capture them is limited through capital fight, triggering a race to the bottom. With an endogenous capital stock, capital is an intermediate good and taxes on it are not used to raise revenues, but to implement the optimal capital stock. Even in a non-cooperative game it is thus not individually rational for governments to engage in tax competition. I provide a general proof that if the modified golden rule holds in a closed economy, then it also does in an open economy.
    Keywords: Tax Competition, Open Economy, Capital Taxes, Capital Mobility, Ramsey Taxation, Optimal Dynamic Taxation
    JEL: F42 H21 H87 E6
    Date: 2013–10–21
  10. By: Kamber, Gunes;; Thoenissen, Christoph (Reserve Bank of New Zealand)
    Abstract: This paper analyzes the transmission mechanism of banking sector shocks in an international real business cycle model with heterogeneous bank sizes. We examine to what extent the financial exposure of the banking sector affects the transmission of foreign banking sector shocks. In our model, the more exposed domestic banks are to the foreign economy via lending to foreign firms, the greater are the spillovers from foreign financial shocks to the home economy. The model highlights the role of openness to trade and the dynamics of the terms of trade in the international transmission mechanism of banking sector shocks Spillovers from foreign banking sector shocks are greater the more open the home economy is to trade and the less the terms of trade respond to foreign shocks.
    JEL: E32 J6
    Date: 2013–01
  11. By: Franck Portier (Toulouse School of Economics); Paul Beaudry (University of British Columbia)
    Abstract: During the last thirty years, US business cycles have been characterized by coun- tercyclical technology shocks and very low inflation variability. While the first fact runs counter to an RBC view of fluctuation and calls for demand shocks as a source of fluctuations, the second fact is difficult to reconcile with a New Keynesian model in which demand shocks are accommodated. In this paper we show that non-inflationary demand driven business cycles can be easily explained if one moves away from the rep- resentative agent framework on which the New Keynesian model and the RBC model are based. We show how changes in demand induced by changes in perceptions about the future can cause business cycle type fluctuations when agents are not perfectly mobile across sectors. As we use an extremely simple framework, we discuss the gener- ality of the results and develop a modified New Keynesian model with non inflationary demand driven fluctuations. We also document the relevance of our main assumptions regarding labor market segmentation and incomplete insurance using PSID data over the period 1968-2007.
    Date: 2013
  12. By: Jacob, Punnoose; Peersman, Gert (Reserve Bank of New Zealand)
    Abstract: In an estimated two-country DSGE model, we find that shocks to the marginal efficiency of investment account for more than half of the forecast variance of cyclical fluctuations in the US trade balance. Both domestic and foreign marginal efficiency shocks generate a strong effect on the variability of the imbalance, through shifts in international relative absorption. On the other hand, shocks to uncovered interest parity and foreign export prices, which transmit mainly via the terms of trade and exchange rate, have a strong influence at short forecast-horizons, before the investment disturbances begin their dominance.
    JEL: C11 F41
    Date: 2013–01
  13. By: Douglas Gale; Piero Gottardi
    Abstract: We study a general equilibrium model in which firms choose their capital structure optimally, trading off the tax advantages of debt against the risk of costly default. The costs of default are endogenous: bankrupt firms are forced to liquidate their assets, resulting in a fire sale if there is insufficient liquidity in the market. When the corporate income tax rate is zero, the optimal capital structure is indeterminate, there are no fire sales, and the equilibrium is Pareto efficient. When the tax rate is positive, the optimal capital structure is uniquely determined, default occurs with positive probability, firms’ assets are liquidated at fire-sale prices, and the equilibrium is constrained inefficient. More precisely, firms’ investment is too low and, although the capital structure is chose optimally, in equilibrium too little debt is used. We also show that introducing more liquidity into the system can be counter-productive: although it reduces the severity of fire sales, it also reduces welfare.
    Keywords: Debt, equity, capital structure, default, market liquidity, constrained inefficient, incomplete markets
    JEL: D5 D6 G32 G33
    Date: 2013
  14. By: Christian Baker (Department of Economics, Brigham Young University); Richard W. Evans (Department of Economics, Brigham Young University)
    Abstract: This paper defines a monetary equilibrium and computes an optimal nonlinear, full-information, state-dependent monetary policy rule to which the monetary authority commits at the beginning of time. This type of optimal monetary policy represents a combination of the flexibility of discretion with the time consistency of commitment. The economic environment is a closed-economy general equilibrium model of incomplete markets with monopolistic competition, producer price stickiness, and a transaction cost motive for holding money. We prove existence and uniqueness of the competitive equilibrium given a monetary policy rule and prove existence of the optimal rule. We show that the optimal state-dependent monetary policy rule satisfies the standard results of the discretionary policy literature in that it keeps inflation and nominal interest rates low (Friedman rule) and reduces inefficient variance in prices. Lastly, we compare the optimal monetary policy rule to a limited-information Taylor rule. We find that the Taylor rule, based on observable macroeconomic variables, is able to closely approximate the economic outcomes of the model under the optimal full-information rule.
    Keywords: Optimal monetary policy, Money supply rules, Time consistency, Nonlinear solution methods
    JEL: E52 E42 E31 C68
    Date: 2013–10
  15. By: Andrew Lee Smith (Department of Economics, The University of Kansas)
    Abstract: Bank regulators acknowledge that large U.S. commercial banks allocate considerably more resources to originating and trading off-balance sheet assets than their smaller counter parts. In this paper: (i) I show the asset concentration in these large banks moves closely with home prices due to the collateralized nature of off-balance sheet assets. (ii) I then develop a general equilibrium capable of capturing this asset redistribution between heterogeneous banks. When home prices fall, endogenously tightening leverage constraints force the big productive banks to unload real-estate secured debt to small unproductive banks. The redistribution to less productive banks sets off an asset price spiral in the model - amplifying typical downturns into deep recessions. The model has predictions for the joint behavior of finance premiums, output, home prices and the share of assets held by large banks. (iii) I use a VAR to confirm the model's predictions for these variables are consistent with the data. (iv) Finally, I use this empirically verified model to examine the effectiveness of unconventional monetary policyin mitigating a recession generated by a drop in housing demand. Despite the fact that both equity injections into "Too Big to Fail" banks and asset purchases by the Fed such as "QE 1/2/3" mitigate the crisis, the nuances of the policies are important. A prolonged asset purchase program is preferable to a short-term equity injection.
    Keywords: Financial Crises, Financial Frictions, Housing, Unconventional Monetary Policy
    JEL: E32 E44 G01 G21
    Date: 2013–11
  16. By: Michał Brzoza-Brzezina (Narodowy Bank Polski and Warsaw School of Economics); Marcin Kolasa (Narodowy Bank Polski and Warsaw School of Economics); Krzysztof Makarski (Narodowy Bank Polski and Warsaw School of Economics)
    Abstract: Occasionally binding credit constraints (OBC) have recently been explored as a promising way of modeling financial frictions. However, given their highly non-linear nature, most of the literature has concentrated on small models that can be solved using global methods. In this paper, we investigate the workings of OBC introduced via a smooth penalty function. This allows us to move towards richer models that can be used for policy analysis. Our simulations show that in a deterministic setting the OBC approach delivers welcome features, like asymmetry and non-linearity in reaction to shocks. However, feasible local approximations, necessary to generate stochastic simulations, suffer from fatal shortcomings that make their practical application questionable.
    Keywords: financial frictions, DSGE models, occasionally binding constraints, penalty function
    JEL: E30 E44
    Date: 2013
  17. By: Till Gross (Department of Economics, Carleton University)
    Abstract: This paper analyzes optimal capital taxation in open economies with strategic interaction in a neo-classical growth model. With a territorial or source-based tax system, I show that optimal capital taxes in steady state are zero for a large open economy, thereby generalizing the result previously established only for the special cases of a closed and a small open economy. If the steady-state assumption is relaxed, optimal capital taxes are still zero when marginal utilities of private and public consumption are bounded, or when the utility function is quasi- linear in consumption. Moreover, in the latter case the solution is also time-consistent. For the residential or world-wide tax principle, however, countries are not able to tax all factors of production, so capital income taxes are generally non-zero except in the limiting cases of a closed or small open economy. Allowing for both residential and territorial taxes restores zero capital taxes.
    Keywords: Dynamic Optimal Taxation, Open Economy, Ramsey Taxation, Capital Taxes
    JEL: H21 E62
    Date: 2013–08–06
  18. By: Till Gross (Department of Economics, Carleton University); Stéphane Verani (Federal Reserve Board)
    Abstract: This paper studies the impact of financial constraints on exporter dynamics, and the role of financial intermediation in international trade. We propose a two-country general equilibrium model economy in which entrepreneurs and lenders engage in longterm credit relationships. Financial markets are endogenously incomplete because of private information, and financial constraints arise as a consequence of optimal financial contracts. In equilibrium, competitive financial intermediaries actively channel individuals' short-term deposits to fund a diversified portfolio of long-term risky firms. Young and small firms operate below their efficient level, and their financial constraint is relaxed as the entrepreneur's claim to future cash- flows increases. Consistent with empirical regularities, there is a substantial year-to-year transition in and out of export markets for smaller firms, and new exporters account only for a small share of total exports. Established ex-porters are less likely to exit export markets and tend to experience slower, albeit more stable growth.
    Keywords: private information, dynamic optimal contracts, exporter dynamics, financial intermediation
    JEL: F10 D82 L14
    Date: 2013–09–13
  19. By: Munechika Katayama; Kwang Hwan Kim
    Abstract: This paper studies a two-sector New Keynesian model that captures the hump-shaped response of non-durable and durable spending to a monetary shock when non-durable prices are sticky and durable goods are flexibly priced. Based on the estimated parameters, we show that habit formation and investment adjustment costs are not sucient to generate the gradual response of non-durable and durable spending in this setup. We find that nominal wage rigidity and non-separable preferences between consumption and labor are also necessary to delay the peak response of non-durable and durable spending in the estimated two-sector New Keynesian model.
    Keywords: Sticky Prices, Sticky Wages, Non-Separable Preferences, Two-sector New Keynesian Model
    JEL: E21 E30 E31 E32
  20. By: Audra J. Bowlus (University of Western Ontario); Masashi Miyairi (University of Western Ontario); Chris Robinson (University of Western Ontario)
    Abstract: Immigrant assimilation is a major issue in many countries. While most of the literature studies assimilation through a human capital framework, we examine the role of job search assimilation. To do so, we estimate an equilibrium search model of immigrants operating in the same labor market as natives, where newly arrived immigrants have lower job offer arrival rates than natives but can acquire the same arrival rates according to a stochastic process. Using Canadian panel data, we find substantial differences in job offer arrival and destruction rates between natives and immigrants that are able to account for three fifths of the observed earnings gap. The estimates imply that immigrants take, on average, 13 years to acquire the native search parameters. The job search assimilation process generates 18% earnings growth for immigrants in a 40 year period following migration.
    Keywords: None available
    Date: 2013
  21. By: Pedro Miguel Soares Brinca
    Abstract: This paper investigates the properties of distortions that manifest themselves as wedges in the equilibrium conditions of the neoclassical growth model across a sample of OECD countries for the 1970-2011 period. The quantitative relevance of each wedge and its robustness in generating fluctuations in macroeconomic aggregates is assessed. The efficiency wedge proves to be determinant in enabling models to replicate movements in output and investment, while the labor wedge is important to predict fluctuations in hours worked. Modeling distortions to the savings decision holds little quantitative or qualitative relevance. Also, investment seems to be the hardest aggregate to replicate, as prediction errors concerning output and hours worked are typically one order of magnitude smaller. These conclusions are statistically significant across the countries in the sample and are not limited to output drops. Finally, the geographical distance between countries and their degree of openness to trade are shown to contain information with regard to the wedges, stressing the importance of international mechanisms of transmission between distortions to the equilibrium conditions of the neoclassical growth model.
    JEL: E27 E30 E32 E37
    Date: 2013–11–02
  22. By: Eric van Wincoop (University of Virginia); Philippe Bacchetta (University of Lausanne)
    Abstract: While the 2008-2009 financial crisis originated in the United States, we witnessed steep declines in output, consumption and investment of similar magnitude around the globe. This synchronicity is surprising in the context of both existing theory and past business cycle experience. Theory implies that perfect co-movement can only happen when countries are perfectly integrated, in sharp contrast to the observed home bias in goods and financial markets. We develop a two-country model that allows for self-fulfilling business cycle panics and is consistent with high internationl co-movements and the worldwide increase in perceived uncertainty. We show that limited integration of goods and financial markets is sufficient for business cycle panics to be perfectly synchronized across countries. Moreover, a panic is more likely with tight credit, low interest rates, and unresponsive fiscal policy. We argue that the world was particularly vulnerable to such global panics in 2008.
    Date: 2013
  23. By: Jennifer La'O (University of Chicago)
    Abstract: I construct a dynamic economy in which agents are interconnected: the output produced by one agent is the consumption good of another. I show that this economy can generate recessions which resemble traffic jams. At the micro level, each individual agent waits for his own income to increase before he increases his spending. However, his spending behavior affects the income of another agent. Thus, the spending behavior of agents during recessions resembles the stop-and-go behavior of vehicles during traffic jams. Furthermore, these traffic jam recessions are not caused by large aggregate shocks. Instead, in certain parts of the parameter space, a small pertubation or individual shock is amplified as its impact cascades from one agent to another. These dynamics eventually result in a stable recessionary equilibrium in which aggregate output, consumption, and employment remain low for many periods. Thus, much like in traffic james, agents cannot identify any large exogenous shock that caused the recession. Finally, I provide conditions under which these traffic jam recessions are most likely to occur.
    Date: 2013
  24. By: Chen, Hung-Ju
    Abstract: This paper examines the effects on economic growth attributable to government policies of child allowances and educational subsidies. We show that multiple steady states may arise under these two policies, with club convergence occurring, and the initial condition being of relevance, if the tax rate is fairly high. Under a policy of child allowances, an increase in the tax rate is found to raise the quantity of children, but lower the quality of adults; however, under a policy of educational subsidies, with an increase in the tax rate, corresponding increases are found in both the quantity of children and the quality of adults. We also find that considering the ‘threshold’ effects of technological externalities, an economy can escape the poverty trap if the threshold is sufficiently low. For developed countries, introducing child allowances may improve or hurt the welfare while introducing educational subsidies is welfare improving.
    Keywords: Child allowances; Fertility; OLG, Skill.
    JEL: J13 J24 O11
    Date: 2013–11–07
  25. By: Melvyn G Coles; Marco Francesconi
    Abstract: This paper develops a new equilibrium model of two-sided search where agents have multiple attributes and general payoff functions. The model can be applied to several substantive issues. Here we use it to provide a novel understanding of the separate effects of equal opportunities for women in the labor market and improved contraception on female education, employment, and timing of first births after World War II. We find that the diffusion of the pill might have played an important role in explaining the observed rise in female education and employment since the 1960s. But without equal opportunities, these changes would have not occurred
    Date: 2013–11–11
  26. By: Fujio Takata (Graduate School of Economics, Kobe University)
    Abstract: When governments levy taxes on labour income on the basis of a balanced budget rule, this rule causes a nonlinear system.Thus, multiple steady states in an economy exist, which can cause multiple movement patterns in an economy. This article deals with the existence of these multiple steady states. Schmitt-GrohLe and Uribe (1997) discusses this issue, but does not necessarily show the clear existence of steady states. On a more general assumption of increasing marginal disutility of labour, however, we show that there can be two steady states in the economy, one with superior, the other with inferior economic performance.
    Keywords: Multiple steady states; Balanced budget rule; Labour income taxation; Divisible labour
    JEL: C62 E13 E21 E32 H24
    Date: 2013–10

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