nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2014‒11‒17
25 papers chosen by



  1. Liquidity Premia, Price-Rent Dynamics, and Business Cycles By Miao, Jianjun; Wang, Pengfei; Zha, Tao
  2. Labor Market Reforms and Current Account Imbalances – Beggar-thy-neighbor Policies in a Currency Union? By Ansgar Belke; Timo Baas
  3. Sectoral Labor Market Effects of Fiscal Spending By Wesselbaum, Dennis
  4. Buying First or Selling First? Buyer-Seller Decisions and Housing Market Volatility By Plamen Nenov; Espen Moen
  5. Towards a quantitative theory of automatic stabilizers: the role of demographics By Alexandre Janiaka; Paulo Santos Monteiro
  6. Tax Evasion, Tax Policies and the Role Played by Financial Markets. By Mitra, Shalini
  7. Monetary and Fiscal Policy in Times of Crises: A New Keynesian Perspective in Continuous Time By Bernd Hayo; Britta Niehof
  8. Optimal monetary policy in the presence of human capital depreciation during unemployment By Laureys, Lien
  9. Online Appendix to "Financial Frictions, Internal Capital Markets, and the Organization of Production" By Pavel Sevcik
  10. Online Appendix to "Wealth and Labor Supply Heterogeneity" By Jose Mustre-del-Rio
  11. Population aging, migration spillovers, and the decline in interstate migration By Karahan, Fatih; Rhee, Serena
  12. Dinámica económica y coordinación de políticas fiscal – monetaria en América Latina: Evaluación a través de una DSGE By Valdivia, Daney; Pérez, Danyira
  13. Local Determinacy of Prices in an Overlapping Generations Model with Continuous Trading By d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle; Hupkes, Herman Jan
  14. The societal benefits of a financial transaction tax By Aleksander Berentsen; Samuel Huber; Alessandro Marchesiani
  15. The puzzle of job search and housing tenure. A reconciliation of theory and empirical evidence By Morescalchi, Andrea
  16. Regulatory Intensity, Crash Risk, and the Business Cycle By Xuan Tam; Eric Young; bo sun
  17. Optimal Dynamic Contracts in Financial Intermediation: With an Application to Venture Capital Financing By Igor Salitskiy
  18. Wage dynamics and labor market transitions: a reassessment through total income and “usual†wages By Canon, Maria E.; Pavan, Ronni
  19. International Financial Integration and Crisis Contagion By Devereux, Michael B.; Yu, Changhua
  20. Drifting Inflation Targets and Monetary Stagflation By Knotek, Edward S.; Khan, Shujaat
  21. Housing Dynamics: Theory Behind Empirics By Wang, Ping; Xie, Danyang
  22. The financial meltdown: a model with endogenous default probability By Ferrari, Massimo
  23. TFP, R&D AND SEMI ENDOGENOUS GROWTH IN RHOMOLO By Enrique Lopez Bazo; Fabio Manca
  24. Currency Manipulation By Weithing Zhang; Thomas Mertens; Tarek Hassan
  25. Parenting with Style: Altruism and Paternalism in Intergenerational Preference Transmission By Fabrizio Zilibotti; Matthias Doepke

  1. By: Miao, Jianjun (Boston University); Wang, Pengfei (Hong Kong University of Science and Technology); Zha, Tao (Federal Reserve Bank of Atlanta)
    Abstract: n the U.S. economy during the past 25 years, house prices exhibit fluctuations considerably larger than house rents, and these large fluctuations tend to move together with business cycles. We build a simple theoretical model to characterize these observations by showing the tight connection between price-rent fluctuation and the liquidity constraint faced by productive firms. After developing economic intuition for this result, we estimate a medium-scale dynamic general equilibrium model to assess the empirical importance of the role the price-rent fluctuation plays in the business cycle. According to our estimation, a shock that drives most of the price-rent fluctuation explains 30 percent of output fluctuation over a six-year horizon.
    Keywords: asset pricing; financial frictions; working capital; cutoff productivity; heterogeneous firms; endogenous TFP; house price; liquidity constraint
    JEL: E22 E32 E44
    Date: 2014–08–01
    URL: http://d.repec.org/n?u=RePEc:fip:fedawp:2014-15&r=dge
  2. By: Ansgar Belke; Timo Baas
    Abstract: Member countries of the European Monetary Union (EMU) initiated wide-ranging labor market reforms in the last decade. This process is ongoing as countries that are faced with serious labor market imbalances perceive reforms as the fastest way to restore competitiveness within a currency union. This fosters fears among observers about a beggarthy- neighbor policy that leaves non-reforming countries with a loss in competitiveness and an increase in foreign debt. Using a two-country, two-sector search and matching DSGE model, we analyze the impact of labor market reforms on the transmission of macroeconomic shocks in both, non-reforming and reforming countries. By analyzing the impact of reforms on foreign debt, we contribute to the debate on whether labor market reforms increase or reduce current account imbalances.
    Keywords: Current account deficit, labor market reforms, DSGE models, search and matching labor market
    JEL: E24 E32 J64 F32
    Date: 2014–09
    URL: http://d.repec.org/n?u=RePEc:rmn:wpaper:201407&r=dge
  3. By: Wesselbaum, Dennis
    Abstract: This paper studies sectoral effects of fiscal spending. We estimate a New Keynesian model with search and matching frictions and two sectors. Fiscal spending is either wasteful (consumption) or productivity enhancing (investment). Using U.S. data we find significant differences across sectors. Further, we show that government investment rather than consumption shocks are driver of fluctuations in sectoral and aggregate outputs and labor market variables. Finally, government investment shocks are much more effective in stimulating the economy than spending shocks. However, this comes at the cost of a very persistent increase in debt.
    Keywords: Government Consumption, Government Investment, Search and Matching, Sectoral Effects.
    JEL: C1 C11 E32 E62 H5 H50
    Date: 2014–09–09
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:58761&r=dge
  4. By: Plamen Nenov (Norwegian Business School (BI)); Espen Moen (Norwegian Business School-BI)
    Abstract: Housing transactions by existing homeowners take two steps, a purchase of a new property and sale of the old housing unit. These two decisions are not independent, and their sequence may depend on the state of the housing market. This paper shows how the sequence of buyer-seller decisions depends on, and in turn, affects housing market conditions in an equilibrium search-and-matching model of the housing market. Under a simple payoff condition, we show that the decisions to "buy first" or "sell first" among existing homeowners are strategic complements - homeowners prefer to "buy first" whenever there are more buyers than sellers in the market. This behavior leads to multiple steady state equilibria and to dynamic equilibria featuring low frequency self-fulfilling fluctuations in house prices and time on the market. The model is broadly consistent with stylized facts about the housing market.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:sed014:471&r=dge
  5. By: Alexandre Janiaka; Paulo Santos Monteiro
    Abstract: Employment volatility is larger for young and old workers than for prime aged. At the same time, in economies with high tax rates, the share of total hours supplied by the young/old workers is smaller. These two observations imply a negative correlation between government size (measured by the share of taxes in total output) and aggregate output volatility. This paper assesses in a calibrated heterogenous agent, overlapping generations model the quantitative importance of these two facts to account for the empirical relation between government size and macroeconomic stability. The baseline calibration accounts correctly for the quantitative relation between output volatility and government size observed in the data.
    Keywords: Automatic Stabilizers; Distortionary Taxes; Demographics
    JEL: E32 E62 H30 J10 J21
    Date: 2014–10
    URL: http://d.repec.org/n?u=RePEc:yor:yorken:14/23&r=dge
  6. By: Mitra, Shalini
    Abstract: In a dynamic general equilibrium model with credit constraints and heterogeneous firms I show that both tax policies and domestic financial market development (FD) can lead to lower informality. Tax policies are more effective in reducing informality since they directly increase the cost of informal production but they have limits, trade-offs and costly general equilibrium effects. FD lowers formal borrowing costs which increases the marginal benefit of hiring in the formal sector. Wage rate increases driving down informal production. Formal output, employment, tax revenue and welfare all increase with FD and counter or offset the negative effects of tax policies.
    Keywords: Informal sector, tax policies, heterogenous firms, financial frictions
    JEL: D5 D52 H26 O17
    Date: 2014–09
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:58977&r=dge
  7. By: Bernd Hayo (University of Marburg); Britta Niehof (University of Marburg)
    Abstract: To analyse the interdependence between monetary and fiscal policy during a financial crisis, we develop an open-economy DSGE model with monetary and fiscal policy as well as financial markets in a continuous-time framework based on stochastic differential equations. Monetary policy is modelled using both a standard and a modified Taylor rule and fiscal policy is modelled as either expansionary or austere. In addition, we differentiate between open economies and monetary union members. We find evidence that the modified Taylor rule notably reduces the likelihood that the financial market crisis affects the real economy. But if we assume that households are averse with respect to outstanding government debt, we find that a combination of expansionary monetary policy and austere fiscal policy provides better stabilisation of both domestic and foreign economies in terms of both output and inflation. In the case of a monetary union, we find that stabilisation of output in the country where the financial shock originates is no longer as easy and, in terms of prices, there is now deflation in the country where the crisis originated and a positive inflation rate in the other country.
    Keywords: New Keynesian Models, Financial Crisis, Dynamic Stochastic General Equilibrium Models, Continuous Time Model, Fiscal Policy, Monetary Policy
    JEL: C63 E44 E47 E52 E62 F41
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:mar:magkse:201455&r=dge
  8. By: Laureys, Lien (Bank of England)
    Abstract: When workers are exposed to human capital depreciation during periods of unemployment, hiring affects the unemployment pool’s composition in terms of skills, and hence the economy’s production potential. Introducing human capital depreciation during unemployment into an otherwise standard New Keynesian model with search frictions in the labour market leads to the finding that the flexible-price allocation is no longer constrained-efficient even when the standard Hosios condition holds. This is because it generates a composition externality in job creation: firms ignore how their hiring decisions affect the extent to which the unemployed workers’ skills erode, and hence the output that can be produced by new matches. Consequently, it might be desirable from a social point of view for monetary policy to deviate from strict inflation targeting. But quantitative analysis shows that although optimal price inflation is no longer zero, strict inflation targeting stays close to the optimal policy.
    Keywords: skill erosion; monetary policy; unemployment
    JEL: E24 E52 J64
    Date: 2014–10–24
    URL: http://d.repec.org/n?u=RePEc:boe:boeewp:0514&r=dge
  9. By: Pavel Sevcik (Universite du Quebec a Montreal)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:append:12-245&r=dge
  10. By: Jose Mustre-del-Rio (Federal Reserve Bank of Kansas City)
    Abstract: Online appendix for the Review of Economic Dynamics article
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:append:12-158&r=dge
  11. By: Karahan, Fatih (Federal Reserve Bank of New York); Rhee, Serena
    Abstract: Interstate migration in the United States has declined by 50 percent since the mid-1980s. This paper studies the role of the aging population in this long-run decline. We argue that demographic changes trigger a general equilibrium effect in the labor market, which affects the migration rate of all workers. We document that an increase in the share of middle-aged workers (those ages 40 to 60) in the working-age population in one state causes a large fall in the migration rate of all workers in that state, regardless of their age. To understand this finding, we develop an equilibrium search model of many locations populated by workers whose moving costs differ. Firms prefer hiring local workers with high moving costs as they command lower wages due to their lower outside option. An increase in the share of middle-aged workers causes firms to recruit more from the local labor market instead of hiring from other locations, which increases the local job-finding rate and reduces everyone’s migration rate (“migration spilloversâ€). Our model reproduces remarkably well several cross-sectional facts between population flows and the age structure of the labor force. Our quantitative analysis suggests that population aging accounts for about half of the observed decline, of which 75 percent is attributable to the general equilibrium effect.
    Keywords: interstate migration; labor mobility; population aging
    JEL: D83 J11 J24 J61 R12 R23
    Date: 2014–11–01
    URL: http://d.repec.org/n?u=RePEc:fip:fednsr:699&r=dge
  12. By: Valdivia, Daney; Pérez, Danyira
    Abstract: The recent sovereign debt and subprime crises affected the world economy and highlighted the role and importance of policy coordination against adverse scenarios (price, demand, supply and external shocks, etc.). This paper asses the effectiveness of fiscal and monetary policy coordination, for a set of Latin American countries (Bolivia, Brazil, Chile, Colombia, Peru, Uruguay, Venezuela) during the periods 2007-2008 and 2009-2010, through the application of dynamic stochastic general equilibrium model specified in parameters for each economy and comparable in structure to each other. The results show that a combined shock of fiscal and monetary policy have important effects when faced with an adverse situation, especially in preserving price stability and economic growth in the short and long run, as opposed to individual shocks, which in some cases be offset by not pursuing a common goal. In the first case, an active monetary policy, helped by fiscal intervention was more effective in maintaining macroeconomic stability, and in the second case the determinant was fiscal policy. Additionally, the framework proposed would contribute to an adoption and evaluation of fiscal and monetary policies through various instruments.
    Keywords: policy coordination, dynamic stochastic general equilibrium, macroeconomic stability.
    JEL: E32 E61 E63 O40
    Date: 2013–10–29
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:51562&r=dge
  13. By: d'Albis, Hippolyte; Augeraud-Véron, Emmanuelle; Hupkes, Herman Jan
    Abstract: We characterize the determinacy properties of the intertemporal equilibrium for a continuous-time, pure-exchange, overlapping generations economy with logarithmic preferences. Using recent advances in the theory of functional differential equations, we show that the equilibrium is locally unique and that prices converge to a balanced growth path and are determined.
    Keywords: Overlapping generations models â‹… Local dynamics â‹… Existence â‹… Determinacy â‹… Functional differential equations
    JEL: C6
    Date: 2014–10–07
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59126&r=dge
  14. By: Aleksander Berentsen; Samuel Huber; Alessandro Marchesiani
    Abstract: We investigate the positive and normative implications of a tax on financial market transactions in a dynamic general equilibrium model, where agents face idiosyncratic liquidity shocks and financial trading is essential. Our main finding is that agents' portfolio choices display a pecuniary externality which results in too much trading. We calibrate the model to U.S. data and find an optimal tax rate of 2.5 percent. Imposing this tax reduces trading in financial markets by 30 percent.
    Keywords: Tobin tax, financial transaction tax, OTC trading
    JEL: E44 E50 G18
    Date: 2014–10
    URL: http://d.repec.org/n?u=RePEc:zur:econwp:176&r=dge
  15. By: Morescalchi, Andrea
    Abstract: Oswald's thesis posits that workers who own their own home should have longer unemployment spells due to restricted mobility, but repeatedly the reverse is found. We contribute to shed light on this puzzle in two key ways. First, we show that the thesis holds when stated in terms of search intensity instead of unemployment. In a job search model with moving costs we show that unemployed homeowners search less than renters. We confirm this result empirically using UK LFS data. Second, we provide evidence that homeowners select search methods associated with shorter unemployment spells, suggesting that they search more effciently.
    Keywords: job search, search methods, housing tenure, homeownership, Oswald effect.
    JEL: J61 J64 R21 R23 R29
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59079&r=dge
  16. By: Xuan Tam (Cambridge University); Eric Young (University of Virginia); bo sun (GSM, Peking University)
    Abstract: Regulatory investigations affect information in financial markets through two channels: (i) investigations detect financial manipulation and reveal hidden negative information;(ii) regulatory investigations impose adverse consequences for executives involved in manipulation and deter managerial incentives to manipulate ex ante. Moreover, regulatory intensity varies over time, depending on the aggregate state of the economy. We propose a model to study the implications of cyclical regulatory intensity for stock market dynamics, and show that countercyclicality in financial regulation can lead to countercyclicality in crash risk in the stock markets. We also provide evidence that a strong relation between stock crash risk and the business cycle exists in the data. In addition, our model illustrates a unifying mechanism that contributes to a number of stylized facts including gradual booms and sudden crashes in the financial markets, increased crash risk, and countercyclical stock volatility.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:sed014:416&r=dge
  17. By: Igor Salitskiy (Stanford University)
    Abstract: This paper extends the costly state verification model from Townsend (1979) to a dynamic and hierarchical setting with an investor, a financial intermediary, and an entrepreneur. Such a hierarchy is natural in a setting where the intermediary has special monitoring skills. This setting yields a theory of seniority and dynamic control: it explains why investors are usually given the highest priority on projects' assets, financial intermediaries have middle priority and entrepreneurs have the lowest priority; it also explains why more cash flow and control rights are allocated to financial intermediaries if a project's performance is bad and to entrepreneurs if it is good. I show that the optimal contracts can be replicated with debt and equity. If the project requires a series of investments until it can be sold to outsiders, the entrepreneur sells preferred stock (a combination of debt and equity) each time additional financing is needed. If the project generates a series of positive payoffs, the entrepreneur sells a combination of short-term and long-term debt.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:sed014:355&r=dge
  18. By: Canon, Maria E. (Federal Reserve Bank of St. Louis); Pavan, Ronni (University of London)
    Abstract: We present a simple on-the-job search model in which workers can receive shocks to their employer-specific c productivity match. Because the firm-specific match can vary, wages may increase or decrease over time at each employer. Therefore, for some workers, job-to-job transitions are a way to escape job situations that worsened over time. The contribution of our paper relies on our novel approach to identifying the presence of the shock to the match specific productivity. The presence two independent measures of workers compensation in our dataset of is crucial for our identification strategy. In the first measure, workers are asked about the usual wage they earn with a certain employer. In the second measure, workers are asked about their total amount of labor earnings during the previous year. While the first measure records the wages at a given point in time, the second measure records the sum of all wages within one year. We calibrate our model using both measures of workers compensation and data on employment transitions. The results show that 59% of the observed wage cuts following job-to- job transitions are due to deterioration of the firm-specific component of wages before workers switch employers.
    Keywords: wage dynamics; earnings dynamics; job mobility.
    JEL: J3 J6
    Date: 2014–10–30
    URL: http://d.repec.org/n?u=RePEc:fip:fedlwp:2014-032&r=dge
  19. By: Devereux, Michael B. (Unniversity of British Columbia); Yu, Changhua (University of International Business and Economics)
    Abstract: International financial integration helps to diversify risk but also may increase the transmission of crises across countries. We provide a quantitative analysis of this trade-off in a two-country general equilibrium model with endogenous portfolio choice and collateral constraints. Collateral constraints bind occasionally, depending upon the state of the economy and levels of inherited debt. The analysis allows for different degrees of financial integration, moving from financial autarky to bond market integration and equity market integration. Financial integration leads to a significant increase in global leverage, doubles the probability of balance sheet crises for any one country, and dramatically increases the degree of ‘contagion’ across countries. Outside of crises, the impact of financial integration on macro aggregates is relatively small. But the impact of a crisis with integrated international financial markets is much less severe than that under financial market autarky. Thus, a tradeoff emerges between the probability of crises and the severity of crises. Financial integration can raise or lower welfare, depending on the scale of macroeconomic risk. In particular, in a low risk environment, the increased leverage resulting from financial integration can reduce welfare of investors.
    JEL: D52 F36 F44 G11 G15
    Date: 2014–09–01
    URL: http://d.repec.org/n?u=RePEc:fip:feddgw:197&r=dge
  20. By: Knotek, Edward S. (Federal Reserve Bank of Cleveland); Khan, Shujaat (Johns Hopkins University)
    Abstract: This paper revisits the phenomenon of stagflation. Using a standard New Keynesian dynamic, stochastic general equilibrium model, we show that stagflation from monetary policy alone is a very common occurrence when the economy is subject to both deviations from the policy rule and a drifting inflation target. Once the inflation target is fixed, the incidence of stagflation in the baseline model is essentially eliminated. In contrast with several other recent papers that have focused on the connection between monetary policy and stagflation, we show that while high uncertainty about monetary policy actions can be conducive to the occurrence of stagflation, imperfect information more generally is not a requisite channel to generate stagflation.
    Keywords: stagflation; inflation; time-varying inflation target; onetary policy; rules; imperfect nformation
    JEL: E31 E52
    Date: 2014–11–03
    URL: http://d.repec.org/n?u=RePEc:fip:fedcwp:1426&r=dge
  21. By: Wang, Ping; Xie, Danyang
    Abstract: We construct a dynamic general equilibrium model of housing, incorporating some key features that bridge time and space. We model explicitly the evolution of housing structures/household durables and the separate role played by land, fully accounting for households’ locational choice decisions. Housing services derive positive utility, but are decayed away from the city center. Our model enables a full characterization of the dynamic paths of housing as well as housing and land prices. The model is particularly designed to be calibrated to fit some important stylized facts, including faster growth of housing structure/household durables than housing, faster growth of land prices than housing prices, a locationally steeper land rent gradient than the housing price gradient, and relatively flatter housing quantity and price gradients in larger cities with flatter population gradients. The calibrated model is then used to quantitatively assess the dynamic and spatial consequences of demand and supply shifts. We find that nonhomotheticity in forms of income-elastic spending on housing/household durables and minimum structure requirement in housing production are essential ingredients.
    Keywords: Macro Housing, Locational Choice, Dynamic Spatial Equilibrium
    JEL: D90 E20 O41 R13
    Date: 2014–09–29
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59057&r=dge
  22. By: Ferrari, Massimo
    Abstract: Abstract Starting from some of the most recent literature developed after the world financial crisis, it has been developed a model with heterogeneous agents and an active interbank market, characterized by an endogenous default probability. The key feature of the analysis is that the probability of default evolves endogenously and is taken into account by banks in their investment decisions. In each period banks, that are heterogeneous, decide to invest only a part, or even none, of their surplus funds on loans to other financial institutions, if the probability of default is high enough, preferring to use that funds to purchase riskless assets. This decision effects the total supply of credit to firms and, through it, the total level of investments, output and employment. Abstract When a financial crisis occurs, banks reduce their supply of interbank funds replicating, to some extent, the behaviour of the interbank market during the last crisis. Through the definition of an endogenous default probability and the analysis of how it effects the credit supply, it is possible to understand the connections between the behaviour of financial markets and the real economy. The model, at last, is calibrated in order to test the response of the system to exogenous shocks and to conventional and unconventional economic policies.
    Keywords: macroeconomics, macrofinance, endogenous default, crisis, default, policies, DSGE, heterogeneous agents
    JEL: E10 E3 E44 E52 G01 G21
    Date: 2014–01
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:59419&r=dge
  23. By: Enrique Lopez Bazo (European Commission – JRC - IPTS); Fabio Manca (European Commission – JRC - IPTS)
    Abstract: This paper describes the semi-endogenous growth approach used in the dynamic spatial general equilibrium model RHOMOLO. We illustrate here how regional R&D expenditures can be used to explain Total Factor Productivity differentials across regions and how shocks to the former end up affecting regional economic performances and economic convergence. As to do so, the current contribution provides econometric estimates of the relationship between regional productivity and R&D intensity by applying the technology catch-up model proposed by Benhabib and Spiegel (2005) to the EU-regional context. We then use the estimated elasticities within the DSCGE framework while also building a simple simulation example to illustrate the potential of the model in capturing the heterogeneous income effects produced a shock to regional R&D expenditures.
    Keywords: TFP, R&D, CGE model, regional policy
    JEL: C51 C68 O47 R12
    Date: 2014–10
    URL: http://d.repec.org/n?u=RePEc:ipt:iptwpa:jrc80872&r=dge
  24. By: Weithing Zhang (University of Chicago); Thomas Mertens (New York University); Tarek Hassan (The University of Chicago)
    Abstract: Many central banks manage the stochastic behavior of their currencies' exchange rates by imposing pegs relative to a target currency. We study the effects of such currency manipulation in a multi-country model of exchange rate determination with endogenous capital accumulation. We find that the imposition of an exchange rate peg relative to a given target currency increases the volatility of consumption in the target country and decreases the volatility of the target currency's exchange rate relative to all other currencies in the world. In addition, currency pegs affect the formation of capital across sectors and countries. For example, an economically smaller country (such as Saudi Arabia) pegging its currency to an economically large country (such at the U.S.) decreases capital accumulation in the larger country and increases its real and nominal interest rate
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:sed014:401&r=dge
  25. By: Fabrizio Zilibotti (University of Zurich); Matthias Doepke (Northwestern University)
    Abstract: We construct a theory of intergenerational preference transmission that rationalizes the choice between alternative parenting styles (related to Baumrind 1967). Parents maximize an objective function that combines Beckerian and paternalistic altruism towards children. They can affect their children’s choices via two channels: either by influencing their preferences or by imposing direct restrictions on their choice sets. Different parenting styles (authoritarian, authoritative, and permissive) emerge as equilibrium outcomes, and are affected both by parental preferences and by the socioeconomic environment. We consider two applications: patience and risk aversion. We argue that parenting styles may be important for explaining why different groups or societies develop different attitudes towards human capital formation, entrepreneurship, and innovation.
    Date: 2014
    URL: http://d.repec.org/n?u=RePEc:red:sed014:343&r=dge

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