|
on Dynamic General Equilibrium |
| By: | Sanjay K. Chugh (Boston College) |
| Abstract: | I characterize cyclical fluctuations in the cross-sectional dispersion of firm-level productivity in the U.S. manufacturing sector. Using the estimated dispersion, or "risk," stochastic process as an input to a baseline DSGE financial accelerator model, I assess how well the model reproduces aggregate cyclical movements in the financial conditions of U.S. non-financial firms. In the model, risk shocks calibrated to micro data induce large and empirically-relevant fluctuations in leverage, a nancial measure typically thought to be closely associated with real activity. In terms of aggregate quantities, however, pure risk shocks account for only a small share of GDP fluctuations in the model, less than one percent. Instead, it is standard aggregate productivity shocks that explain virtually all of the model's real fluctuations. These results reveal a dichotomy at the core of a popular class of DSGE financial frictions models: risk shocks induce large financial fiuctuations, but have little effect on aggregate quantity fluctuations. |
| Keywords: | leverage, second-moment shocks, time-varying volatility, credit frictions, financial accelerator, business cycles |
| JEL: | E10 E20 E32 E44 |
| Date: | 2013–03–02 |
| URL: | http://d.repec.org/n?u=RePEc:boc:bocoec:844&r=dge |
| By: | Hollmayr, Josef; Matthes, Christian |
| Abstract: | The recent crisis in the United States has often been associated with substantial amounts of policy uncertainty. In this paper we ask how uncertainty about fiscal policy affects the impact of fiscal policy changes on the economy when the government tries to counteract a deep recession. The agents in our model act as econometricians by estimating the policy rules for the different fiscal policy instruments, which include distortionary tax rates. Comparing the outcomes in our model to those under full-information rational expectations, we find that assuming that agents are not instantaneously aware of the new fiscal policy regime (or policy rule) in place leads to substantially more volatility in the short run and persistent differences in average outcomes. -- |
| Keywords: | DSGE,Fiscal Policy,Learning |
| JEL: | E32 D83 E62 |
| Date: | 2013 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:512013&r=dge |
| By: | Kevin E. Beaubrun-Diant; Fabien Tripier |
| Abstract: | The present paper contributes to the body of knowledge on search frictions in credit markets by demonstrating their ability to explain why the net interest margins of banks behave countercyclically. During periods of expansion, a fall in the net interest margin proceeds from two mechanisms: (i) lenders accept that they must finance entrepreneurs that have lower productivity and (ii) the liquidity of the credit market rises, which simplifies access to loans for entrepreneurs and thereby reinforces their threat point when bargaining the interest rate of the loan. |
| Keywords: | Search Friction;Matching Model;Nash Bargaining;Bank Interest Margin |
| JEL: | C78 E32 E44 G21 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2013-41&r=dge |
| By: | Sara Formai (Bank of Italy) |
| Abstract: | This paper develops a general equilibrium model of international trade with heterogeneous firms and imperfect credit markets. To finance the costs for product innovation and domestic and foreign market entry, firms must raise external capital. The model underscores the importance of considering a general equilibrium setting in order to characterize fully the misallocations of resources that stem from the existence of credit frictions. These have important implications for firms' entry decisions in the different markets and for the welfare effects of imperfect financial institutions. Allowing for liquidity-constrained firms and imperfect credit markets alters, and in some cases reverses, some of the main results from the literature on heterogeneous firms. In particular, the model predicts that trade liberalization does not necessarily lead to an increase in average productivity and consumers' welfare. |
| Keywords: | consumer welfare, credit frictions, heterogeneous firms, market entry, trade liberalization |
| JEL: | F12 F36 G20 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_940_13&r=dge |
| By: | Wenbiao Cai; B. Ravikumar; Raymond G. Riezman |
| Abstract: | This paper deals with a classic development question: how can the process of economic development – transition from stagnation in a traditional technology to industrialization and prosperity with a modern technology – be accelerated? Lewis (1954) and Rostow (1956) argue that the pace of industrialization is limited by the rate of capital formation which in turn is limited by the savings rate of workers close to subsistence. We argue that access to capital goods in the world market can be quantitatively important in speeding up the transition. We develop a parsimonious open-economy model where traditional and modern technologies coexist (a dual economy in the sense of Lewis (1954)). We show that a decline in the world price of capital goods in an open economy increases the rate of capital formation and speeds up the pace of industrialization relative to a closed economy that lacks access to cheaper capital goods. In the long run, the investment rate in the open economy is twice as high as in the closed economy and the per capita income is 23 percent higher. |
| JEL: | O11 F43 O14 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:win:winwop:2013-02&r=dge |
| By: | Roland Meeks (Essex University); Benjamin Nelson (Bank of England); Piergiorgio Alessandri (Bank of Italy) |
| Abstract: | We develop a macroeconomic model in which commercial banks can offload risky loans onto a ‘shadow’ banking sector and financial intermediaries trade in securitized assets. We analyze the responses of aggregate activity, credit supply and credit spreads to business cycle and financial shocks. We find that interactions and spillover effects between financial institutions affect credit dynamics, that high leverage in the shadow banking system heightens the economy’s vulnerability to aggregate disturbances, and that following a financial shock, a stabilization policy aimed solely at the securitization markets is relatively ineffective. |
| Keywords: | shadow banks, securitization, financial accelerator |
| JEL: | E32 E44 E58 G23 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_939_13&r=dge |
| By: | Karmakar, Sudipto |
| Abstract: | This paper develops a dynamic stochastic general equilibrium model to examine the impact of macroprudential regulation on bank’s financial decisions and the implications for the real sector. I explicitly incorporate costs and benefits of capital requirements. I model an occasionally binding capital constraint and approximate it using an asymmetric non linear penalty function. This friction means that the banks refrain from valuable lending. At the same time, countercyclical buffers provide structural stability to the financial system. I show that higher capital requirements can dampen the business cycle fluctuations. I also show that stronger regulation can induce banks to hold buffers and hence mitigate an economic downturn as well. Increasing the capital requirements do not seem to have an adverse effect on the welfare. Lastly, I also show that switching to a countercyclical capital requirement regime can help reduce fluctuations and raise welfare. |
| Keywords: | Capital Buffers, Prudential Regulation, Basel Core Banking Principles |
| JEL: | G01 G21 G28 |
| Date: | 2013–05–31 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:52172&r=dge |
| By: | Alberto Locarno (Banca d’Italia); Alessandro Notarpietro; Massimiliano Pisani (Bank of Italy) |
| Abstract: | This paper briefly reviews the literature on fiscal multipliers and then presents results for the Italian economy obtained by simulating a dynamic general equilibrium model that allows for the possibility (a) that the zero lower bound may be binding and (b) that the initial public debt-to-GDP ratio may affect the financing conditions of the public and private sectors (sovereign risk channel). The results are the following. First, the public consumption multiplier is in general less than 1. Second, it goes above 1 only under extremely strong assumptions, namely the constancy of the monetary policy rate for an exceptionally long period (at least five years) and there is full time-coincidence between the fiscal and the monetary stimuli. Third, when the sovereign risk channel is active the government spending multiplier is much lower. Finally, in all cases tax multipliers are lower than government consumption multipliers. |
| Keywords: | Fiscal multiplier, monetary policy, zero lower bound, sovereign risk. |
| JEL: | E32 E52 E62 |
| Date: | 2013–11 |
| URL: | http://d.repec.org/n?u=RePEc:bdi:wptemi:td_943_13&r=dge |
| By: | Álvarez, Inmaculada (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.); Barbero, Javier (Departamento de Análisis Económico (Teoría e Historia Económica). Universidad Autónoma de Madrid.) |
| Abstract: | We propose a framework to analyze convergence between regions, incorporating the public sector and technological knowledge spillovers in the context of a Neoclassical Growth Model. Secondly, we apply novel estimation methods pertaining to the spatial econometrics literature introducing a spatial autoregressive panel data model based on instrumental variables estimation. Additionally, we introduce marginal effects associated with changing explanatory variables. Our model makes it possible to analyze, in terms of convergence, the results obtained in Spanish regions with the policies implemented during the period 1980-2007. The results support the idea that investments in physical, private and public capital, as well as in education have a positive effect on regional development and cohesion. Therefore, we can conclude that it is possible to obtain better results for regional convergence with higher rates of public investment. We also obtain interesting results that confirm the existence of spillover effects in economic growth and public policies, identifying their magnitude and significance. |
| Keywords: | speed of convergence; growth models; public policies. |
| JEL: | E13 H54 O41 |
| Date: | 2013–12 |
| URL: | http://d.repec.org/n?u=RePEc:uam:wpaper:201307&r=dge |