|
on Dynamic General Equilibrium |
|
Issue of 2015‒10‒10
thirty-six papers chosen by Christian Zimmermann Federal Reserve Bank of St. Louis |
| By: | J. David Lopez-Salido (Federal Reserve Board); Francisco Vazquez-Grande (Federal Reserve Board); Pierlauro Lopez (Banque de France) |
| Abstract: | We incorporate risk premia variation arising from Campbell-Cochrane habit formation in a standard DSGE framework. We show how the simultaneous presence of consumption and labor habits can produce a separation between quantity and risk premia dynamics, and hence unite nonlinear habits and a production economy without compromising the ability of the model to fit macroeconomic variables. We can then use economic theory rather than a reduced-form approach to restrict several cashflow processes endogenously and study their pricing. First, nominal price rigidities explain an endogenous difference between aggregate consumption and market dividends and between real and nominal bonds that can rationalize two major asset pricing puzzles - an initially downward-sloping term structure of equity and an upward-sloping term structure of interest rates. Second, the model is able to explain the capital market's reaction to a monetary policy shock documented by the extant literature. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:980&r=all |
| By: | Jean-Christophe Poutineau (CREM - Centre de Recherche en Economie et Management - CNRS - Université de Caen Basse-Normandie - UR1 - Université de Rennes 1); Gauthier Vermandel (LEDa - Laboratoire d'Economie de Dauphine - Université Paris IX - Paris Dauphine) |
| Abstract: | This paper evaluates the role of nancial intermediaries, such as banks, on the extensive margin of activity. We build a DSGE model that combines the endogenous determination of the number of rms operating on the goods market with nancial frictions through a financial accelerator mechanism. We more particularly account for the fact that the creation of a new activity partly requires loans to finance spendings during the setting period. This model is estimated on US data between 1993Q1 to 2012Q3. We get three main results. First, financial frictions play a key role in determining the number of new firms. Second, in contrast with real macroeconomic shocks (where investment in existing production lines and the creation of new firms move in the opposite direction), financial shocks have a cumulative effect on the two margins of activity, amplifying macroeconomic fluctuations. Third, the critical role of financial factors is mainly observed in the period corresponding to the creation of new firms. In the long run, the variance of the effective entry share is almost explained by supply shocks. |
| Keywords: | Extensive Margin, Financial Frictions, Financial Accelerator, DSGE model, Bayesian estimation |
| Date: | 2015–09–25 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:halshs-01205497&r=all |
| By: | Carrillo-Tudela, Carlos (University of Essex); Kaas, Leo (University of Konstanz) |
| Abstract: | We analyze the effects of adverse selection on worker turnover and wage dynamics in a frictional labor market. We consider a model of on-the-job search where firms offer promotion wage contracts to workers of different abilities, which is unknown to firms at the hiring stage. With sufficiently strong information frictions, low-wage firms offer separating contracts and hire all types of workers in equilibrium, whereas high-wage firms offer pooling contracts, promoting high-ability workers only. Low-ability workers have higher turnover rates and are more often employed in low-wage firms. The model replicates the negative relationship between job-to-job transitions and wages observed in the U.S. labor market. |
| Keywords: | adverse selection, on-the-job search, worker mobility, wage dynamics |
| JEL: | D82 J63 J64 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9367&r=all |
| By: | Nakamoto, Yasuhiro |
| Abstract: | We introduce the heterogeneities of EIS (elasticities of intertemporal substitution) into the Ramsey version of macrodynamic model with a finite number of agents. The assumption that the degrees of EIS differ among agents means that our economy has various growth rate of private consumption. Then, our contributions are as follows. First, we analytically characterize the steady-state levels of individual capital. Second, we analytically examine the role of heterogeneous EIS for the wealth inequality. Finally, we give numerical examples to see the complicated dynamic motion and the steady-state characterization of wealth inequality. |
| Keywords: | Heterogeneous agents, Elasticity of intertemporal substitution, Convergence speed, Wealth distribution |
| JEL: | C00 E13 E20 |
| Date: | 2015–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:67026&r=all |
| By: | Haakon Kavli and NIcola Viegi |
| Abstract: | The paper presents a two-country real business cycle model with a financial sector that intermediates portfolio flows. It is changes in demand for nancial assets from foreign investors relative to domestic investors that gives rise to portfolio flows. The simulations show that portfolio flows to emerging markets respond negatively to global risk in line with findings from the empirical literature. The transmission channel that links portfolio flows to credit in emerging markets is the financial intermediary's demand for deposit liabilities (demand for savings).One can avoid the transmission by absorbing the shock before it affects the intermediary's demand for savings. The results show that financial shocks (eg: risk) can be absorbed by optimal changes in the supply of risk free assets. Real shocks (eg: income) can be absorbed by keeping the supply of financial assets fixed and instead allowing the prices to adjust to demand. Macroprudential regulation that limits the total risk exposure of the financial sector increases the volatility of portfolio flows, but reduces the volatility of consumption and labour and therefore increases welfare. Volatility in the composition of the balance sheet (portfolio flows), does not necessarily increase volatility in the aggregate size of the balance sheet (savings). The model uses a risk-constraint on bank balance sheets as a tool to ensure less-than-perfect elasticity of demand for financial assets. The elasticity of demand is important because it determines the size and direction of portfolio flows. |
| Keywords: | Portfolio Flows, RBC model, Financial Intermediaries, macroprudential regulation |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:550&r=all |
| By: | Marlène Isoré; Urszula Szczerbowicz |
| Abstract: | This paper analyzes the effects of a change in a small but time-varying “disaster risk” à la Gourio (2012) in a New Keynesian model. Real business cycle models featuring disaster risk have been successful in replicating observed moments of equity premia, yet their macroeconomic responses are highly sensitive to the chosen value of the elasticity of intertemporal substitution (EIS). In particular, we show here that an increase in the probability of disaster causes a recession only when imposing an EIS larger than unity, which may be arbitrarily large. Nevertheless, we also find that incorporating sticky prices allows to conciliate recessionary effects of the disaster risk with a plausible value of the EIS. The disaster risk shock causes endogenous shifts in preferences which provide a rationale for discount factor first- (Christiano et al., 2011) and second- (Basu and Bundick, 2014) moment shocks. |
| Keywords: | disaster risk;rare events;uncertainty;asset pricing;DSGE models;new Keynesian models;business cycles |
| JEL: | D81 D90 E20 E31 E32 E44 G12 Q54 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cii:cepidt:2015-16&r=all |
| By: | Damien Cubizol (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France) |
| Abstract: | This paper addresses the allocation puzzle of capital flows and privatization in emerging countries in transition. It demonstrates that the allocation of household savings to State-Owned Enterprises (SOEs), and not to the increasing share of private firms, solves both the allocation puzzle of capital flows and the drop in consumption in China. The contribution is to explain these two elements in a dynamic general equilibrium model with TFP growth that differentiates FDI and financial capital. In addition to other frictions, public banks and SOEs have the crucial role in capital misallocation by misdirecting household savings. It modifies firms’ labor and capital intensiveness, creates shifts in savings accumulation, and households satisfy the large cheap labor demand coupled with low returns on their savings. With a calibration adapted to the Chinese case and deterministic shocks, the model also matches to a large extent the data for a variety of stylized facts over the last 30 years. |
| Keywords: | Financial capital flows, FDI, China's transition, privatization, global imbalances, consumption, credit and capital markets frictions, TFP growth |
| JEL: | E20 F21 F32 P30 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1517&r=all |
| By: | Finocchiaro, Daria (Research Department, Central Bank of Sweden); Lombardo, Giovanni (Bank for International Settlements); Mendicino, Caterina (European Central Bank); Weil, Philippe (Université Libre de Bruxelles) |
| Abstract: | This paper revisits the equilibrium and welfare effects of long-run inflation in the presence of distortionary taxes and financial constraints. Expected inflation interacts with corporate taxation through the deductibility of i) capital expenditures at historical value and ii) interest payments on debt. Through the first channel, inflation increases firms’ taxable profits and further distorts their investment decisions. Through the second, expected inflation affects the effective real interest rate negatively, relaxes firms’ financial constraints and stimulates investment. We show that, in the presence of collateralized debt, the second effect dominates. Therefore, in contrast to earlier literature, we find that when the tax code creates an advantage of debt financing, a positive rate of long-run inflation is beneficial in terms of welfare as it mitigates the financial distortion and spurs capital accumulation. |
| Keywords: | optimalmonetary policy; Friedman rule; credit frictions; tax benefits of debt |
| JEL: | E31 E43 E44 E52 G32 |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0311&r=all |
| By: | Boel, Paola (Research Department, Central Bank of Sweden); Waller, Christopher J. (Federal Reserve Bank of St. Louis) |
| Abstract: | We construct a monetary economy in which agents face aggregate demand shocks and hetero- geneous idiosyncratic preference shocks. We show that, even when the Friedman rule is the best interest rate policy the central bank can implement, not all agents are satiated at the zero lower bound and therefore there is scope for central bank policies of liquidity provision. Indeed, we find that quantitative easing can be welfare improving even at the zero lower bound. This is because such policy temporarily relaxes the liquidity constraint of impatient agents, without harming the patient ones. Moreover, due to a pricing externality, quantitative easing may also have beneficial general equilibrium effects for the patient agents even if they are unconstrained in their holdings of real balances. Last, our model suggests that it can be optimal for the central bank to buy private debt claims instead of government debt. |
| Keywords: | Money; Heterogeneity; Stabilization Policy; Zero Lower Bound; Quantitative Easing |
| JEL: | E40 E50 |
| Date: | 2015–09–01 |
| URL: | http://d.repec.org/n?u=RePEc:hhs:rbnkwp:0310&r=all |
| By: | Francesco Zanetti; Masashige Hamano |
| Abstract: | Abstract This paper introduces endogenous products entry and exit based on creation and destruction of product variety in a general equilibrium model. Recessionary technology shocks induce exit of unprofitable products on impact, allocating resources towards more productive production lines. However, during the recovery phase less productive production lines survive destruction, counteracting the original increase in productivity. The analysis shows that recoveries hinge on lower product destruction rather than higher product creation. Endogenous product destruction is critical to evaluate the effect of permanent policies of entry deregulation and subsidies aimed to stimulate the economy. |
| Keywords: | Firm heterogeneity, endogenous product destruction, business cycles. |
| JEL: | D24 E23 E32 L11 L60 |
| Date: | 2015–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:oxf:wpaper:759&r=all |
| By: | Tim Landvoigt (UT Austin); Stijn Van Nieuwerburgh (NYU Stern School of Business); Vadim Elenev (NYU Stern) |
| Abstract: | We develop a new model of the mortgage market where both borrowers and lenders can default. Risk tolerant savers (risk takers) act as intermediaries between risk averse depositors and impatient borrowers. The government provides mortgage guarantees and deposit insurance. Underpriced government guarantees lead to risky mortgage origination and excessive financial sector leverage. Mortgage crises frequently turn into financial crises and government bailouts due to the fragility of the intermediaries' balance sheets. Increasing the price of the mortgage guarantee crowds in the private sector, reduces financial fragility, leads to less and safer mortgage lending, lowers house prices, raises mortgage rates and risk-free interest rates. It also makes all agents in the economy strictly better off. The welfare gains are particularly large for the risk takers so that the private market solution increases wealth inequality. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:977&r=all |
| By: | Hylton Hollander |
| Abstract: | This paper studies the effectiveness of countercyclical capital requirements and contingent convertible capital (CoCos) in limiting financial instability, and its associated influence on the real economy. To do this, I augment both features into a standard real business cycle framework with an equity market and a banking sector. The model is calibrated to real U.S. data and used for simulations. The findings suggest that CoCos effectively re-capitalize the banking sector and foster the objectives of countercyclical capital requirements (i.e., Basel III). Under financial shocks, CoCos provide an effective automatic stabilization effect on the financial cycle and the real economy. Conversely, a countercyclical capital adequacy rule dominates CoCos in the stabilization of real shocks. |
| Keywords: | Contingent convertible debt, bank capital, bank regulation, Basel |
| JEL: | G28 G38 E44 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:rza:wpaper:549&r=all |
| By: | Zaki Wahhaj |
| Abstract: | The practice of early marriage for women is prevalent in developing countries around the world today, and is believed to cause significant disruption in their accumulation of human capital. This paper develops an overlapping generations model of the marriage market to explain how the practice may be sustained in the absence of any intrinsic preference for young brides. We assume there is a desirable female attribute, relevant for the gains from marriage, that is only noisily observed before a marriage is contracted. We show that, in equilibrium, its prevalence declines with time spent on the marriage market and, thus, age can signal poorer quality and, consistent with the available evidence, require higher marriage payments. Model simulations for the case of Bangladesh show that (i) an intervention that raises the opportunity cost of marriage for adolescent girls can make it more and more attractive for future cohorts to postpone marriage such that its long-term impact on marriage and subsequent life choices may well exceed the impact on the first cohort which is exposed to it; (iii) a small-scale randomised control trial of the same intervention would significantly under-estimate its efficacy by failing to capture equilibrium effects. |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1520&r=all |
| By: | Bharat Diwakar; Gilad Sorek |
| Abstract: | This work highlights principle differences in the predictions of R&D-based growth theory derived from the infinite horizon framework and the Overlapping Generations (OLG) framework of finitely living agents. In particular we show that the counterfactual positive effect of population growth on output growth presented in the second and third generation R&D-based growth models is eliminated in the corresponding OLG framework with finitely living agents. These differences arise because of the limiting effect of labor income on saving that presents only in the OLG framework. Our results indicate that the counterfactual relations between population and output growth rates presented in current R&D-based growth models are driven by their specific demographic structure. |
| Keywords: | R&D, Growth; Population; Overlapping Generations |
| JEL: | O31 O40 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:abn:wpaper:auwp2015-14&r=all |
| By: | Tobias Broer (Stockholm University); Per Krusell (Stockholm University); Niels-Jakob Hansen; Erik Oberg (Stockholm University) |
| Abstract: | The success of the New Keynesian framework stems from its ability to match the aggregate responses to innovations in monetary policy and total factor productivity (TFP). Specifically, the model can account for negative responses of output to innovations in the policy rate and a negative response of employment to innovations in TFP. We reexamine the transmission channel of the textbook model and show that these successful results rely on the assumption that firm profits are redistributed to working households. We contrast the textbook model to a worker-capitalist model where profits are consumed by non-working capitalists. This modification renders employment and output unresponsive to monetary policy and employment unresponsive to TFP. The reason is that the income and substitution effects of changes in the wage level cancel when the worker receive income from wages alone. Given the empirically observed distribution of equity ownership and the VAR evidence on the business cycle behavior of profits, we argue that our results cast doubt on the transmission channel in the textbook model. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:941&r=all |
| By: | Andrea Bonilla Bolaños (Université de Lyon, Lyon, F-69007, France ; CNRS, GATE Lyon Saint-Etienne, Ecully, F-69130, France; Université Lyon 2, Lyon, F-69007, France) |
| Abstract: | This paper studies how the public provision of transportation infrastructure impact output convergence and trade integration in a two-country dynamic general equilibrium model in which the transportation cost between countries is endogenously determined by the stock of public infrastructure in both countries. Because of its particular conception, the so-called « Initiative for the Integration of Regional Infrastructure in South America (IIRSA) » serves as the case study. Data from Argentina and Brazil is thus used to solve the model. Two main results emerge. First, increasing public investment in infrastructure provides an impetus to commercial integration but does not necessarily generate output convergence. Second, the model shows that the only way for the two countries to achieve output convergence (in a winwin economic growth scenario) is to coordinate their increments on public infrastructure, as proposed by IIRSA. |
| Keywords: | catch up policy, convergence, economic integration, infrastructure integration, IIRSA, South America, steady state |
| JEL: | C61 F11 F42 O54 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:gat:wpaper:1521&r=all |
| By: | Torój, Andrzej (Warsaw School of Economics) |
| Abstract: | We develop a framework for assessing the welfare implications of the new European Union's (EU) Macroeconomic Imbalance Procedure (MIP) implemented in 2012, with a special focus on the current account (CA) constraint, real effective exchange rate (REER) constraint and nominal unit labour cost (ULC) constraint. For this purpose, we apply a New Keynesian 2-region, 2-sector DSGE model, using the second order Taylor approximation of the households' utility around the steady state as a measure of welfare. The compliance with the CA criterion is ensured by modifying the policymakers' loss function in line with Woodford's (2003) treatment of the zero lower bound of nominal interest rates. The introduction of MIP threshold on CA balance results in a welfare loss equivalent to steady-state decrease in consumption of 0.0274% after the euro adoption or 0.0152% before that. If we consider the 4% threshold on current plus capital account (rather than current account alone), this cost decreases to equivalent to 0.0117% steady-state consumption under the euro and approximately a half of that without the euro. The welfare cost for the converging economies is higher due to persistent, but equilibrium-consistent CA deficits, as well as REER appreciation. MIP can also be seen as a factor augmenting the cost of euro adoption. This working paper is an updated version of the working paper Excessive Imbalance Procedure in the EU: a Welfare Evaluation. |
| Keywords: | Macroeconomic Imbalance Procedure; EMU; DSGE; welfare; constrained optimum policy |
| JEL: | C54 D60 E42 F32 |
| Date: | 2015–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0022&r=all |
| By: | Eric van Wincoop (University of Virginia); Philippe Bacchetta (University of Lausanne) |
| Abstract: | This paper examines quantitatively the potential for monetary policy to avoid self-fulfilling sovereign debt crises. We combine a version of the slow-moving debt crisis model proposed by Lorenzoni and Werning (2014) with a standard New Keynesian model. We consider both conventional and unconventional monetary policy. With price rigidity, the real cost of debt can be reduced through lower real interest rates. On the other hand, deflation of long-term debt is less effective and requires higher inflation rates. In general, we show that crisis equilibria can only be avoided with steep inflation rates for a sustained period of time, the cost of which is likely to be much larger than government default. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:925&r=all |
| By: | HIRAGUCHI Ryoji |
| Abstract: | We investigate a simple continuous-time overlapping generations model with a neoclassical production function and technological progress. We demonstrate that the degree of wealth inequality is positively related to the difference between the real interest rate <i>r</i> and the growth rate of income per capita <i>g</i>, and if <i>g</i> falls, the <i>r-g</i> gap widens and inequality worsens. We also argue that a wealth tax reduces the wealth inequality. All of these results are consistent with the famous predictions advanced by Thomas Piketty in <i>Capital in the Twenty-First Century</i> (2014). We next investigate consumption tax and find that it enhances capital accumulation and reduces <i>r-g</i>, and thus wealth inequality. |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15117&r=all |
| By: | Ludo Visschers (The University of Edinburgh/Univ Carlos III Madrid); Roberto Pinheiro (University of Colorado) |
| Abstract: | Workers in less-secure jobs are often paid less than identical-looking workers in more secure jobs.We show that this lack of compensating differentials for unemployment risk can arise in equilibrium when all workers are identical and firms differ only in job security (i.e. the probability that the worker is not sent into unemployment). In a setting where workers search for new positions both on and off the job, the worker's marginal willingness to pay for job security is endogenous, increasing with the rent received by a worker in his job, and depending on the behavior of all firms in the labor market. We solve for the labor market equilibrium and find that wages increase with job security for at least all firms in the risky tail of the distribution of firm-level unemployment risk. Unemployment becomes persistent for low-wage and unemployed workers, a seeming pattern of 'unemployment scarring' created entirely by firm heterogeneity. Higher in the wage distribution, workers can take wage cuts to move to more stable employment. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:936&r=all |
| By: | Straub, Ludwig; Ulbricht, Robert |
| Abstract: | We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress of firms, giving rise to “belief traps”— a persistent cycle of uncertainty, pessimistic expectations, and financial constraints, through which a temporary shortage of funds can develop into a long-lasting funding problem for firms. At the macro-level, belief traps provide a rationale for the long-lasting recessions that typically entail financial crises. In our model, financial crises are characterized by high levels of credit misallocation, an increased cross-sectional dispersion of growth rates, endogenously increased pessimism, uncertainty and disagreement among investors, highly volatile asset prices, and high risk premia. A calibration of our model to U.S. micro data on investor beliefs matches the slow recovery after the 08/09 crisis remarkably well. |
| Keywords: | Belief traps, credit crunches, dispersed information, endogenous uncertainty, internal persistence of financial shocks, resource misallocation |
| JEL: | D83 E32 E44 |
| Date: | 2015–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:tse:wpaper:29800&r=all |
| By: | Spiros Bougheas (University of Nottingham); Carl Davidson (Michigan State University); Richard Upward (University of Nottingham); Peter Wright (University of Sheffield) |
| Abstract: | We develop a dynamic, stochastic, multi-sectoral, equilibrium model that allows for worker turnover, job turnover and career mobility. This serves to bridge the literatures on job reallocation and career progression. Our model makes a number of predictions: a positive correlation between job turnover rates and promotion rates; a positive correlation across sectors between mean real income and their corresponding variance; an inverse relationship between sector profitability and both the job turnover rate and income inequality. These predictions are supported empirically. |
| Keywords: | Worker turnover, job turnover, career mobility |
| JEL: | J62 J63 J24 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:cst:wpaper:14&r=all |
| By: | Yashiv, Eran (Tel Aviv University) |
| Abstract: | U.S. CPS gross flows data indicate that in recessions firms actually increase their hiring rates from the pools of the unemployed and out of the labor force. Why so? The paper provides an explanation by studying the optimal recruiting behavior of the representative firm. This behavior is a function of the value of jobs, i.e., the expected present value of the marginal worker to the firm. Job values are estimated to be counter-cyclical in U.S. data, the underlying reason being the dynamic behavior of the labor share of GDP. The counter-cyclicality of hiring rates and job values, which may appear counter-intuitive, is shown to be consistent with well-known business cycle facts, such as pro-cyclical employment and pro-cyclical vacancy and job-finding rates (as well as job to job flows). The analysis emphasizes the difference between current labor productivity and the forward-looking concept of job value. The paper explains the high volatility of firm recruiting behavior, as well as the reduction in labor market fluidity in the U.S. over time, using the same framework. |
| Keywords: | firm recruitment, job values, business cycles, vacancies, hiring, labor market frictions, volatility, labor market fluidity |
| JEL: | E24 E32 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9364&r=all |
| By: | Paula Andrea Beltrán-Saavedra |
| Abstract: | La caída en el precio internacional del petróleo tiene implicaciones importantes en el ciclo económico en las economías exportadoras de petróleo. De hecho, la literatura de ciclos económicos en economías emergentes presenta como hechos estilizados el comportamiento contracíclico de las tasas de interés y la vulnerabilidad ante choques en los precios de los commodities. Este documento presenta un modelo de equilibrio general, dinámico y estocástico (DSGE) para una economía pequeña, abierta y exportadora de petróleo para analizar el efecto de la caída del precio del petróleo. El canal a través del cual un choque negativo en el precio del crudo impacta el ciclo es un mecanismo de acelerador financiero que, endógenamente, genera un aumento en la prima de financiamiento que enfrenta la economía. Este mecanismo se deriva de un problema microfundamentado donde el sector petrolero se financia mediante intermediarios financieros internacionales. Varias extensiones del modelo se calibran para Colombia. Ante una caída en el precio del petróleo, se encuentra un aumento en el diferencial de tasas de interés, una depreciación de la tasa de cambio real y una caída en el producto. Las dinámicas simuladas del modelo calibrado para Colombia logran un ajuste adecuado para el producto y la prima de riesgo. |
| Keywords: | Modelos de ciclos de negocios, Economías emergentes, Fricciones financieras, Commodities, Choques de petróleo. |
| JEL: | E32 E44 F41 H68 Q43 |
| Date: | 2015–08–27 |
| URL: | http://d.repec.org/n?u=RePEc:col:000094:013619&r=all |
| By: | Minchul Yum (Ohio State University) |
| Abstract: | A large literature has documented low intergenerational mobility in the U.S. over the last few decades, prompting a growing interest in understanding mechanisms underlying intergenerational mobility. In this paper, I construct a quantitative general equilibrium model that explores parental time investment in preschool-aged and younger children as a channel through which economic status can be transmitted intergenerationally. Altruistic parents differ in their own human capital and assets, and in the human capital of their children. They each decide how to split their time across investment in their child's human capital, market work, and leisure. My calibrated model reproduces several measures of intergenerational income mobility, as well as the lifecycle inequality seen in U.S. data. Decomposing its results, I find that the parental time investment channel accounts for nearly 50 percent of the observed persistence in intergenerational income. Despite their higher opportunity costs of time, more skilled parents choose to invest more time in their young children. This force significantly amplifies the intergenerational correlation of human capital. However, at the same time, I find that the parental time investment channel actually reduces the cross-sectional dispersion of human capital. This result is driven by dynastic smoothing of the marginal value of human capital; individuals insure their descendants' lifetime utilities through the parental investment channel by investing more time in less able children. Finally, policy experiments suggest that interventions targeted at the college decision have little effect on intergenerational mobility. By contrast, I find that those targeted at parental time investment decisions, such as a proportional subsidy for such investments, may be an effective way to increase intergenerational mobility as well as social welfare, since they disproportionately raise investment in the children from disadvantaged families. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:996&r=all |
| By: | Korniluk, Dominik (Warsaw School of Economics; Ministry of Finance in Poland) |
| Abstract: | Niniejsza praca stanowi przegląd literatury na temat polityki fiskalnej w dynamicznych modelach stochastyczej równowagi ogólnej (DSGE): realnego cyklu koniunkturalnego oraz nowokeynesowskich (nowej syntezy neoklasycznej). Celem artykułu jest określenie pożądanych cech modelu DSGE, który mógłby posłużyć znalezieniu odpowiedzi na pytanie o optymalny poziom i strukturę wydatków rządowych. Szczególną uwagę zwrócono na specyfikację wydatków rządowych w funkcji użyteczności gospodarstw domowych i funkcji produkcji oraz modelowanie ograniczenia budżetowego (w tym reguł fiskalnych) i zadłużenia rządu. Zaproponowane rozwiązania zostały poddane ocenie pod kątem prostoty i zgodności założeń oraz implikowanych predykcji z rzeczywistością. |
| Keywords: | modele DSGE; polityka fiskalna; przegląd literatury |
| JEL: | B22 E62 |
| Date: | 2015–08–26 |
| URL: | http://d.repec.org/n?u=RePEc:ris:mfplwp:0021&r=all |
| By: | HONGCHUN ZHAO |
| Abstract: | Lant Pritchett (2001) asked a famous question, “Where has all the education gone?†bringing the lack of correlation between the growth of measured education and the growth of income in developing countries to broad attention. This finding confirms that after WWII the human capital-output ratios tend to be higher in less developed countries than those in developed countries. I explain this pattern using a dynamic general equilibrium model which explicitly considers that workers with different types have different costs when choosing schooling years and employers are unable to directly observe workers’ types, and find that simulation results with public subsidies to schooling could well mimic the features of data. At last, I make a speculative but reasoned conjecture about the schooling years-output relation in 2040. |
| Keywords: | education, informational asymmetry, signaling model, general equilibrium, heterogeneity |
| JEL: | D82 E24 I25 O15 O47 |
| Date: | 2015–05–15 |
| URL: | http://d.repec.org/n?u=RePEc:pia:papers:00011/2015&r=all |
| By: | Sarolta Laczo (Bank of England and IAE-CSIC); Albert Marcet (IAE-CSIC, ICREA, UAB, MOVE, Barcelona GSE, and CEPR); Katharina Greulich (Swiss Re) |
| Abstract: | We study optimal fiscal policy in a model with agents who are heterogeneous in their labor productivity and wealth, and there is an upper bound on the capital tax rate each period. We focus on Pareto-improving plans. We show that the optimal tax reform is to cut labor taxes and leave capital taxes high in the short and medium run. Only in the very long run would capital taxes be zero. For our calibration labor taxes should be low for the first eleven to twenty-six years, while capital taxes should be at their maximum. This policy ensures that all agents benefit from the tax reform and that capital grows quickly after the reform. Therefore, the long-run optimal tax mix is the opposite of the short- and medium-run one. The initial labor tax cut is financed by deficits, which lead to a positive level of government debt in the long run, reversing the standard prediction that the government accumulates savings in models with optimal capital taxes. The welfare benefits from the tax reform are high and can be shifted entirely to capitalists or workers by varying the length of the transition. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:951&r=all |
| By: | Carrillo-Tudela, Carlos (University of Essex); Coles, Melvyn (University of Essex) |
| Abstract: | The focus of this chapter is to consider new developments in the search and matching literature where wages, quit turnover and unemployment are endogenously determined in economies with aggregate shocks. The aim of the discussion is not only to highlight possible market failures but also to explain how on-the-job search and employee turnover fundamentally affect our understanding of fluctuations in aggregate employment. |
| Keywords: | business cycles, employer-to-employer transitions, search |
| JEL: | J62 J63 J64 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:iza:izadps:dp9366&r=all |
| By: | MIYAGIWA Kaz; SATO Yasuhiro |
| Abstract: | This paper examines the efficacy of internal and external enforcement policy to combat illegal immigration. The model features search-theoretic unemployment and policy interdependency among multiple destination countries. With one destination country, internal and external enforcement policies have similar effects. With multiple destination countries, we consider prototypal geographical configurations. In one, all destinations are contiguous with the source country, while in the other, only one destination country is contiguous with the source country. In both cases, the equilibrium external enforcement policy level is lower than the joint optimum, calling for supranational authorities to implement immigration policy. In the absence of such policy, we consider the effect of delegating border control policy to one destination country and find that delegation of authorities to the largest country can improve each destination country's welfare relative to the Nash equilibrium level. |
| Date: | 2015–10 |
| URL: | http://d.repec.org/n?u=RePEc:eti:dpaper:15116&r=all |
| By: | Julien Prat (CREST); Boyan Jovanovic (New York University) |
| Abstract: | This paper shows that two-period cycles may arise endogenously when products are experience goods. Then firms invest in the quality of their output in order to establish a good reputation. Multiple equilibria arise because investment in reputation has a pecuniary external effect that works through the aggregate discount factor. Cycles are more likely to occur when information diffuses slowly and when agents are patient. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:971&r=all |
| By: | Mehdi Senouci (Université Paris Saclay, CentraleSupélec, Laboratoire Genie Industriel) |
| Abstract: | We present a new way to picture technological change in an otherwise standard Ramsey framework. Technological change takes the form of alterations of the production function itself, rather than changes in total factor productivity. These changes can take two directions that we dub respectively ‘complementation’ and ‘substitution’. Complementation results in a production function that is superior for lower values of capital, while substitution results in a production function that is superior for higher values of capital. Under the most general conditions, when the agent is initially at steady state, both options bring strictly positive utility gains to the agent. We analyze sequence of steady states with exogenous and endogenous direction of technological change. With exogenous growth, we prove that when the production functions are Cobb-Douglas or CES (with the same elasticity of substitution), output and consumption grow asymptotically at a common rate and the capital share tends to one under continual substitution; while continual complementation makes output and consumption converge to a common limit and the capital share tend to nil. With endogenous direction of technological change and under the most general conditions, the agent has a bias towards complementation which brings quicker gains than substitution. We assume that the production functions are Cobb-Douglas and that utility is logarithmic. Then, when the potential rate of complementation is strictly greater than the potential rate of substitution, the labor share oscillates around some endogenous long-run value, determined by the rates of complementation/substitution and by the impatience rate. This growth regime reproduces the Kaldor facts. |
| Keywords: | endogenous growth theory., capital-labor substitution,Economic growth, labor share |
| Date: | 2014–09 |
| URL: | http://d.repec.org/n?u=RePEc:hal:wpaper:hal-01206032&r=all |
| By: | Giammario Impullitti (University of Nottingham) |
| Abstract: | The US labour market has experienced a remarkable polarization in the 1980s and 1990s. At the same time, the US faced a fast technological catch-up as European countries and especially Japan drastically improved their global innovation and patenting activity. Is foreign technological convergence an important source of the recent evolution of the US wage and employment structure? To answer these questions, we set up a Schumpeterian model of endogenous technological progress with two asymmetric countries, heterogeneous workers, endogenous skill formation and occupational choice. Calibrating the model to match key facts of the US economy, we find that foreign technological catching-up observed between the late 1970s and early 1990s reproduces a non-negligible part of US wage polarization. Moreover, the model delivers predictions on the US wealth to income ratio consistent with empirical evidence in that period. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:976&r=all |
| By: | James Albrecht (Georgetown University) |
| Abstract: | We consider a dynamic version of the Burdett-Judd model that features consumer heterogeneity in a market for a semi-durable good. We demonstrate the existence of nonstationary equilibria in which "normal" periods of high prices are followed by a single period of "sales" prices. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:985&r=all |
| By: | Octavio Portolano Machado (PUC-Rio); Carlos Carvalho (PUC-Rio); Tiago Berriel (PUC-Rio) |
| Abstract: | When the policy rate is constrained by the zero lower bound (ZLB), inference about central bank behavior becomes more difficult. As a result, despite possible efforts to counteract this effect through more active communication, policy uncertainty tends to increase. In particular, uncertainty about the degree of commitment becomes key. We use standard New Keynesian models subject to the ZLB to quantify the uncertainty around interest rate forecasts provided in the FOMC's Summary of Economic Projections (SEP). The first step involves an assessment of the degree of Fed commitment to provide accommodation for extended periods of time. To that end, we calibrate versions of the models under different assumptions about the degree of policy commitment, and assess which specification provides the best fit to the so-called "SEP dots". We then use the best-fitting specification to construct uncertainty bands around SEP interest rate forecasts, obtained by simulating policy responses to economic developments going forward. Our results suggest that the degree of Fed commitment to low rates for an extended period of time decreased since 2013. The reduction followed a change in FOMC forward guidance, and intensified as Quantitative Easing tapering took place. Quantitatively, our median projection indicates that lift-off will occur in 2015Q2, but there is some risk that rates will remain at zero until the end of 2016. |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed015:903&r=all |
| By: | Katsuyuki Shibayama |
| Abstract: | This paper investigates multivariate Beverage-Nelson decomposition of the key macro aggregate data. Among others, most importantly we find (a) inflation seems to be dominated by its trend component, and, perhaps as a result of this, the short-term interest rate is also trend dominated; and (b) consumption also seems to be dominated by its trend component perhaps due to consumption smoothing as the permanent income hypothesis suggests. What is new here is that, although the difficulty of rejecting a unit root for these variables has been long recognized in the literature, we show indeed these unit root processes account for the large share of the variable fluctuations. This raises a concern about the convention that the non-stationary data is detrended in the standard DSGE type structural estimation, in the sense that a significant portion of data variation actually may come from the trend components. |
| Keywords: | Beveridge-Nelson Decomposition; DSGE; VECM; Detrending |
| JEL: | C32 E21 E31 E32 E52 |
| Date: | 2015–09 |
| URL: | http://d.repec.org/n?u=RePEc:ukc:ukcedp:1518&r=all |