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on Dynamic General Equilibrium |
| By: | Keuschnigg, Christian |
| Abstract: | The gains in life expectancy are expected to double the dependency ratio and increase population by 10% in Switzerland until 2050. To quantify the effects on pensions, taxes and social contributions, we use an overlapping generations model with five margins of labor supply: labor market participation, hours worked, job search, retirement, and on-the-job training. A passive fiscal strategy would be very costly. A comprehensive reform, including an increase in the effective retirement age to 68 years, may limit the tax increases to 4 percentage points of value added tax and reduce the decline of per capita income to less than 6%. |
| Keywords: | Aging, pensions, taxation, labor market effects, growth |
| JEL: | D58 D91 H55 J26 J64 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:usg:econwp:2016:01&r=dge |
| By: | Andrea Caggese |
| Abstract: | I provide new empirical evidence on a negative relation between financial frictions and productivity growth over firms’ life cycle. I show that a model of firm dynamics with incremental innovation cannot explain such evidence. However also including radical innovation, which is very risky but potentially very productive, allows for joint replication of several stylized facts about the dynamics of young and old firms and of the differences in productivity growth in industries with different degrees of financing frictions. These frictions matter because they act as a barrier to entry that reduces competition and the risk taking of young firms. |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:865&r=dge |
| By: | Beker, Pablo (Department of Economics University of Warwick); Emilio Espino (Universidad Torcuato Di Tella) |
| Abstract: | We evaluate the ability of the Lucas [25] tree and the Alvarez-Jermann [3] models, both with homogeneous as well as heterogeneous beliefs, to generate a time series of excess returns that displays both short-term momentum and long-term reversal, i.e., positive autocorrelation in the short-run and negative autocorrelation in the long-run. Our analysis is based on a methodological contribution that consists in (i) a recursive characterisation of the set of constrained Pareto optimal allocations in economies with limited enforceability and belief heterogeneity and (ii) an alternative decentralisation of these allocations as competitive equilibria with endogenous borrowing constraints. We calibrate the model to U.S. data as in Alvarez and Jermann [4]. We find that only the Alvarez-Jermann model with heterogeneous beliefs delivers autocorrelations that not only have the correct sign but are also of magnitude similar to the US data. Keywords: Heterogeneous beliefs, Endogenously Incomplete Markets, Financial Markets |
| Keywords: | Anomalies ; Limited Enforceability ; Constrained Pareto Optimality ; Recursive Methods |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:warwec:1096&r=dge |
| By: | Andrea Caggese; Ander Pérez Orive |
| Abstract: | Empirical studies examining the 2007-2009 Great Recession suggest that financial shocks to households and firms are both important to explain output and employment fluctuations. Motivated by this evidence, we develop a model with financial and labor market frictions in which heterogeneous households face unemployment risk, and heterogeneous firms face costly bankruptcy and finance themselves partly with nominally fixed long-term debt. We show that shocks that cause household deleveraging and credit shocks to firms interact to greatly amplify the effects of financial shocks on output and employment, even when these same shocks separately have moderate effects. |
| Keywords: | financial shocks, amplification, precautionary savings, unemployment risk, Borrowing constraints, firm bankruptcy risk |
| JEL: | E21 E24 G33 |
| Date: | 2015–07 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:866&r=dge |
| By: | Galip Kemal Ozhan |
| Abstract: | This paper studies the role of the financial sector in affecting domestic resource allocation and cross-border capital flows. I develop a quantitative, two-country, macroeconomic model in which banks face endogenous and occasionally binding leverage constraints. Banks lend funds to be invested in tradable or non-tradable sector capital and there is international financial integration in the market for bank liabilities. I focus on news about economic fundamentals as the key source of fluctuations. Specifically, in the case of positive news on the valuation of non-traded sector capital that turn out to be incorrect at a later date, the model generates an asymmetric, belief-driven boom-bust cycle that reproduces key features of the recent Eurozone crisis. Bank balance sheets amplify and propagate fluctuations through three channels when leverage constraints bind: First, amplified wealth effects induce jumps in import-demand (demand channel). Second, changes in the value of non-tradable sector assets alter bank lending to tradable sector firms (intra-national spillover channel). Third, domestic and foreign households re-adjust their savings in domestic banks, and capital flows further amplify fluctuations (international spillover channel). A common central bankâs unconventional policies of private asset purchases and liquidity facilities in response to unfulfilled expectations are successful at ameliorating the economic downturn. |
| JEL: | E44 F32 F41 G15 |
| Date: | 2015–12–30 |
| URL: | http://d.repec.org/n?u=RePEc:jmp:jm2015:poz71&r=dge |
| By: | Fernald, John G. (Federal Reserve Bank of San Francisco); Wang, J. Christina (Federal Reserve Bank of Boston) |
| Abstract: | Historically, U.S. labor productivity (output per hour) and total factor productivity (TFP) rose in booms and fell in recessions. Different models of business cycles explain this procyclicality differently. Traditional Keynesian models relied on "factor hoarding," that is, variations in how intensively labor and capital were utilized over the business cycle. Real business cycle (RBC) models instead posit that procyclical technology shocks drive the business cycle. Since the mid-1980s, however, the procyclicality of productivity has waned. TFP has been roughly acyclical with respect to inputs, whereas labor productivity has become significantly countercyclical. The slow pace of productivity growth after 2010, when the post-Great- Recession recovery gained a firm footing, is broadly consistent with these patterns. In this paper, the authors seek to understand empirically the forces behind the changing cyclicality of productivity. |
| Keywords: | procyclical productivity; labor hoarding; business cycles; growth-accounting; DSGE models |
| JEL: | E22 E23 E32 O47 |
| Date: | 2015–10–01 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedbcq:2015_006&r=dge |
| By: | Rangan Gupta; Patrick T. Kanda; Mampho P. Modise; Alessia Paccagnini |
| Abstract: | Inflation forecasts are a key ingredient for monetary policy-making – especially in an inflation targeting country such as South Africa. Generally, a typical Dynamic Stochastic General Equilibrium (DSGE) only includes a core set of variables. As such, other variables, for example alternative measures of inflation that might be of interest to policy-makers, do not feature in the model. Given this, we implement a closed-economy New Keynesian DSGE model-based procedure which includes variables that do not explicitly appear in the model. We estimate such a model using an in-sample covering 1971Q2 to 1999Q4 and generate recursive forecasts over 2000Q1 to 2011Q4. The hybrid DSGE performs extremely well in forecasting inflation variables (both core and nonmodelled) in comparison with forecasts reported by other models such as AR(1). In addition, based on ex-ante forecasts over the period 2012Q1–2013Q4, we find that the DSGE model performs better than the AR(1) counterpart in forecasting actual GDP deflator inflation. |
| Keywords: | DSGE model; Inflation; Core variables; Noncore variables |
| JEL: | C11 C32 C53 E27 E47 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:ucn:oapubs:10197/7351&r=dge |
| By: | Ashantha Ranasinghe; Diego Restuccia |
| Abstract: | Using cross-country micro establishment-level data we document that crime and lack of access to finance are two major obstacles to business operation in poor and developing countries. Using an otherwise standard model of production heterogeneity that integrates institutional differences in the degree of financial development and the rule of law, we quantify the effects of these institutions on aggregate outcomes and economic development. The model accounts for the patterns across establishments in access to finance and crime as obstacles to their operation. Weaker financial development and rule of law have substantial negative effects on aggregate output, reducing output per capita by more than 50 percent. Weak rule of law institutions substantially amplify the negative impact of financial frictions. While financial markets are crucial for development, an essential precondition to reap the gains from financial liberalization is that property rights are secure. |
| Keywords: | misallocation, establishments, financial frictions, rule of law, crime, micro data. |
| JEL: | O1 O4 |
| Date: | 2016–01–04 |
| URL: | http://d.repec.org/n?u=RePEc:tor:tecipa:tecipa-554&r=dge |
| By: | Kokonas, Nikos (Department of Economics, University of Bath); Polemarchakis, Herakles (Department of Economics, University of Warwick) |
| Abstract: | In a stochastic economy of overlapping generations subject to uninsurable risks, competitive allocations need not be constrained optimal. This is the case even in the presence of long-lived assets and no short sales. |
| Keywords: | long-lived assets ; optimality JEL classification numbers: D52 ; D61 |
| Date: | 2015 |
| URL: | http://d.repec.org/n?u=RePEc:wrk:wcreta:13&r=dge |
| By: | Nezih Guner; Andrii Parkhomenko; Gustavo Ventura |
| Abstract: | We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our findings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% – more than half of the observed gap between the U.S. and Italy. We find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S. |
| Keywords: | managers, management practices, distortions, size, skill investments, productivity differences |
| JEL: | E23 E24 J24 M11 O43 O47 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:bge:wpaper:861&r=dge |