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on Dynamic General Equilibrium |
| By: | Jesús Fernández-Villaverde; Oren Levintal |
| Abstract: | This paper compares different solution methods for computing the equilibrium of dynamic stochastic general equilibrium (DSGE) models with rare disasters along the line of those proposed by Rietz (1988), Barro (2006}, Gabaix (2012), and Gourio (2012). DSGE models with rare disasters require solution methods that can handle the large non-linearities triggered by low-probability, high-impact events with sufficient accuracy and speed. We solve a standard New Keynesian model with Epstein-Zin preferences and time-varying disaster risk with perturbation, Taylor projection, and Smolyak collocation. Our main finding is that Taylor projection delivers the best accuracy/speed tradeoff among the tested solutions. We also document that even third-order perturbations may generate solutions that suffer from accuracy problems and that Smolyak collocation can be costly in terms of run time and memory requirements. |
| JEL: | C63 C68 E32 E37 E44 G12 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21997&r=dge |
| By: | Luciano, Fanti; Luca, Gori; Cristiana, Mammana; Elisabetta, Michetti |
| Abstract: | The aim of this article is to study the local and global dynamics of a general equilibrium closed economy with overlapping generations and inherited tastes (aspirations). It shows that the interaction between the intensity of aspirations and the elasticity of substitution of effective consumption, affects the qualitative and quantitative long-term dynamics of the model. In addition, periodic cycles and complex features emerge. It remarkably extends the literature on endogenous fluctuations showing that: 1) in an OLG model with aspirations there exists a super-critical Neimark-Sacker bifurcation, 2) endogenous fluctuations occur even when the elasticity of substitution of effective consumption is smaller than one, thus reconciling the existence of economic cycles with empirical estimates, and 3) the interaction between aspirations and inter-temporal preferences affects the steady-state equilibrium and dynamic outcomes. |
| Keywords: | Aspirations; Nonlinear dynamics; Overlapping generations; Bifurcations; Business cycles |
| JEL: | C61 C62 C68 E32 J22 O41 |
| Date: | 2016–03–08 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69906&r=dge |
| By: | Funke, Michael; Mihaylovski, Petar; Zhu, Haibin |
| Abstract: | The paper sheds light on the interplay between monetary policy, the commercial banking sector and the shadow banking sector in mainland China by means of a nonlinear stochastic general equilibrium (DSGE) model with occasionally binding constraints. In particular, we analyze the impacts of interest rate liberalization on monetary policy transmission as well as the dynamics of the parallel shadow banking sector. Comparison of various interest rate liberalization scenarios reveals that monetary policy results in increased feed-through to the lending and investment under complete liberalization. Furthermore, tighter regulation of interest rates in the commercial banking sector in China leads to an increase in loans provided by the shadow banking sector. |
| Keywords: | DSGE model, monetary policy, financial market reform, shadow banking, China |
| JEL: | E32 E42 E52 E58 |
| Date: | 2015–03–09 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofitp:urn:nbn:fi:bof-201503181118&r=dge |
| By: | Jensen, Henrik; Ravn, Søren Hove; Santoro, Emiliano |
| Abstract: | The skewness of the US business cycle has become increasingly negative over the last decades. This finding can be explained by the concurrent increases in the loan-to-value ratios of both households and firms. To demonstrate this point, we devise a DSGE model with collateralized borrowing and occasionally non-binding credit constraints. Easier credit access increases the likelihood that constraints become slack in the face of expansionary shocks, while contractionary shocks are further amplified due to tighter constraints. As a result, busts gradually become deeper than booms. Based on the differential impact that occasionally non-binding constraints exert on the shape of expansions and contractions, we are also able to reconcile a more negatively skewed business cycle with a moderation in its volatility. Finally, our model can account for an intrinsic feature of economic downturns preceded by private credit build-ups: Financially driven expansions lead to deeper contractions, as compared to equally-sized non-financial expansions. |
| Keywords: | Business Cycles; credit constraints; Deleveraging; Skewness |
| JEL: | E32 E44 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11166&r=dge |
| By: | F. Langot; A. Pizzo |
| Abstract: | In this paper we develop a balanced growth model with labor supply and search and matching frictions in the labor market, to study the impact of economic policy variables on the two margins which constitute the (total) labor input: the extensive margin (the rate of employment) and the intensive margin (the hours worked per worker). We show that the dynamics of taxes primarily have an impact on hours worked, while labor market institutions have a significant influence on the rate of employment. However, our findings emphasize that there is an interaction between the two margins. The model is tested on four countries (US, France, Germany and the UK), which have experienced different tax and labor market dynamics since the sixties. Using this structural approach, we can then perform counterfactual experiments about the evolution of the policy variables, and compare the implications of policy changes in terms of production as well as average welfare. |
| Keywords: | Taxes, labor market institutions, hours, employment, labor market search. |
| JEL: | E20 E60 J22 J60 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:bfr:banfra:584&r=dge |
| By: | Accolley, Delali |
| Abstract: | I developed a dynamic deterministic general equilibrium model accounting for human capital accumulation through both home education and schooling. The model is characterized by an altruistic link between households of succeeding generations in the sense parents, caring about their children’s welfare, freely impart them some knowledge at home in addition to helping them financially when they are schooling. The education regime is private and features distinguishing my model from related works are: (1) young households are economically active and work part-time while schooling, (2) allocating time to schooling or labor entails disutility, (3) tuition is proportional to the time allocated to schooling. I calibrated the model to some balanced growth facts observed between 1981 and 2013 in the Province of Quebec. The model is then used to investigate the contribution of human capital to economic growth. To do that, I simulate it assuming in turn a permanent rise in the tuition rate and the household’s ability to learn. Each of these two shocks reveals a positive correlation between education, human capital, and output. The predictions of the model are then used to shed a light on the student crisis Quebec witnessed in 2012 following our former Liberal government’s decision to increase tuition. I predict that raising tuition will neither harm education nor negatively impact on students’ ability to pay. |
| Keywords: | Education, economic growth, human capital, overlapping generations |
| JEL: | J24 O4 |
| Date: | 2015–01–25 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:69972&r=dge |
| By: | Silvo, Aino |
| Abstract: | I analyse the dynamics of a New Keynesian DSGE model where the financing of investments is affected by a moral hazard problem. I solve for jointly Ramsey-optimal monetary and macroprudential policies. I find that when a financial friction is present in addition to the standard nominal friction, the optimal policy can replicate the first-best if the social planner can conduct both monetary and macroprudential policy to control both inflation and the level of investments. Using monetary policy alone is not enough to fully stabilise the economy: it leads to a policy trade-off between stabilising inflation and the output gap. When policy follows simple rules instead, the source of fluctuations is highly relevant for the choice of the appropriate policy mix. |
| Keywords: | monetary policy, macroprudential policy, financial frictions |
| JEL: | E32 E44 E52 G28 |
| Date: | 2016–02–10 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:urn:nbn:fi:bof-201602101026&r=dge |
| By: | Roberto Chang; Andrés Velasco |
| Abstract: | We analyze conventional and unconventional monetary policies in a dynamic small open-economy model with financial frictions. In the model, financial intermediaries or banks borrow from the world market and lend to domestic households. Banks can borrow abroad up to a multiple of their equity; in turn, there is a limit to how much bank equity households can hold. An economy-wide credit constraint and an endogenous interest rate spread emerge from this combination of external and domestic frictions. The resulting financial imperfections amplify the domestic effects of exogenous shocks and make those effects more persistent. In response to external balance shocks, fixed exchange rates are contractionary and flexible exchange rates expansionary (although less so in the presence of currency mismatches); the opposite is true in response to increases in the world interest rate. Unconventional policies, including central bank direct credit, discount lending, and equity injections to banks, have real effects only if financial constraints bind. Because of bank leverage, central bank discount lending and equity injections are more effective than direct credit. Sterilized foreign exchange intervention is equivalent to lending directly to domestic agents. Unconventional policies are feasible only to the extent that the central bank holds a sufficient amount of international reserves. |
| JEL: | E52 E58 F41 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21955&r=dge |
| By: | Eerola, Essi; Määttänen, Niku |
| Abstract: | We study the interaction of matching and credit frictions in the housing market. In the model, risk-averse households may save or borrow in order to smooth consumption over time and finance owner housing. Prospective sellers and buyers meet randomly and bargain over the price. We analyze how borrowing constraints influence house price determination in the presence of matching frictions. We also show that credit frictions greatly magnify the effects of matching frictions. For instance, in the presence of matching frictions, a moderate tightening of the borrowing constraint increases idiosyncratic price dispersion and the average time-on-the-market substantially. |
| Keywords: | housing, borrowing constraint, matching |
| JEL: | E21 R21 C78 |
| Date: | 2015–10–05 |
| URL: | http://d.repec.org/n?u=RePEc:bof:bofrdp:urn:nbn:fi:bof-201510061415&r=dge |
| By: | Bold, Tessa; Broer, Tobias |
| Abstract: | The limited commitment model is popular for the analysis of village risk-sharing as it captures both the observed partial character of insurance and the presumption that incomes are well observed but formal contracts absent in rural communities. We study dynamic limited commitment when individuals can form new, smaller coalitions after reneging in a larger group, which makes group size an endogenous outcome of the model. This is important for theoretical consistency, but also because we show that enforcement constraints, which typically bind only in case of positive income shocks, counterfactually imply a stronger response of consumption to income increases than to income losses in village-size insurance groups. In small groups, in contrast, the response of consumption to income increases and declines is symmetric. The results show how equilibrium group sizes are much smaller than the typical village, bringing the predicted consumption process in line with the data. We thus argue that allowing for endogenous group formation in the dynamic limited commitment model strongly improves its predictive power for analyzing risk-sharing in village economies. |
| Keywords: | Dynamic Limited Commitment; Informal Insurance; Renegotiation-Proofness; Risk-Sharing; Village Economies |
| JEL: | D11 D12 D52 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:11143&r=dge |
| By: | Greg Kaplan; Benjamin Moll; Giovanni L. Violante |
| Abstract: | We revisit the transmission mechanism of monetary policy for household consumption in a Heterogeneous Agent New Keynesian (HANK) model. The model yields empirically realistic distributions of household wealth and marginal propensities to consume because of two key features: multiple assets with different degrees of liquidity and an idiosyncratic income process with leptokurtic income changes. In this environment, the indirect effects of an unexpected cut in interest rates, which operate through a general equilibrium increase in labor demand, far outweigh direct effects such as intertemporal substitution. This finding is in stark contrast to small- and medium-scale Representative Agent New Keynesian (RANK) economies, where intertemporal substitution drives virtually all of the transmission from interest rates to consumption. |
| JEL: | E0 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21897&r=dge |
| By: | Petr Sedlacek (University of Bonn) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:14-249&r=dge |
| By: | Tetsuo Ono (Graduate School of Economics, Osaka University); Yuki Uchida (Graduate School of Economics, Osaka University) |
| Abstract: | This study presents an overlapping generations model to capture the nature of the competition between generations regarding two redistribution policies, public education and public pensions. From a political economy viewpoint, we investigate the effects of population aging on these policies and economic growth. We show that greater longevity results in a higher pension-to-GDP ratio. However, an increase in longevity produces an initial increase followed by a decrease in the public education- to-GDP ratio. This, in turn, results in a hump-shaped pattern of the growth rate. |
| Keywords: | economic growth; population aging; public education; public pen-sions |
| JEL: | D78 E24 H55 |
| Date: | 2014–12 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1437r2&r=dge |
| By: | Robert Kollmann |
| Abstract: | This paper analyzes the effects of output volatility shocks and of risk appetite shocks on the dynamics of consumption, trade flows and the real exchange rate, in a two-country world with recursive preferences and complete financial markets. When the risk aversion coefficient exceeds the inverse of the intertemporal substitution elasticity, then an exogenous rise in a country’s output volatility triggers a wealth transfer to that country, in equilibrium; this raises its consumption, lowers its trade balance and appreciates its real exchange rate. The effects of risk appetite shocks resemble those of volatility shocks. In a recursive preferences-complete markets framework, volatility and risk appetite shocks account for a noticeable share of the fluctuations of net exports, net foreign assets and the real exchange rate. These shocks help to explain the high empirical volatility of the real exchange rate and the disconnect between relative consumption growth and the real exchange rate. |
| Keywords: | external balance; exchange rate; volatility; risk appetite; consumption-real exchange rate anmaly |
| JEL: | F31 F32 F36 F41 F43 |
| Date: | 2015–11 |
| URL: | http://d.repec.org/n?u=RePEc:eca:wpaper:2013/220899&r=dge |
| By: | Julien Albertini; Jean Olivier Hairault; ; |
| Abstract: | This paper develops a multi-sectorial search and matching model with endogenous occupational choice in a context of structural change. Our objective is to shed light on the way labor market institutions aect aggregate employment, job polarization and inequalities observed in the US and in European countries. We consider the cases of the US, France and Germany that are representative of alternative institutional settings, having the potential to induce divergent time-paths in the evolution of labor market outcomes during the process of technological transition. In the US and in Germany, we nd employment gains from technological change and job polarization, whereas, in France, the technological change reduces aggregate employment in a context of job polarization. In the US, an half of these employment gains are due to the technological change, and the other half to the changes in the LMI, the contribution of the rise in share of skilled worker being negligible. In France, the change in LMI aects new job opportunities in manual jobs: the reallocation of routine workers towards manual jobs is obstructed for want of job creations of manual services. Hence, without technological change, the fall in French employment would have been cut by 70%. The model also predicts that, without the increase in skilled labor supply, the fall in French employment would have doubled. The improvement in educational attainment dampened the unfavorable consequences of technological change. we show that Germany transforms this structural change in employment gains, only after the labor reforms implemented after the middle of the 90s. |
| Keywords: | Search and matching, job polarization, reallocation, labor market institutions |
| JEL: | E24 J62 J64 O33 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2016-014&r=dge |
| By: | Davide Melcangi (University College London (UCL); Centre for Macroeconomics (CFM)) |
| Abstract: | Can the macroeconomic effects of credit supply shocks be large even in an economy in which the share of credit-constrained firms is small? I address this question using a model with firm heterogeneity, in which the interaction between real and financial frictions gives rise to precautionary cash holdings. Using UK firm-level balance sheet data, I show that firms hoarded cash relative to their assets during the last recession, and cash-intensive firms cut their workforces by less. A quantitative version of the model, disciplined by these data, generates similar dynamics in response to a tightening of firms' credit conditions. The simulated economy experiences a sizeable fall in aggregate employment and prolonged substitution from capital to cash. Most of the aggregate dynamics are driven by unconstrained firms, pre-emptively responding to changes in credit conditions, in anticipation of future idiosyncratic productivity shocks. The model's ability to generate predictions in line with the data crucially relies on this precautionary channel. |
| Keywords: | financial frictions, precautionary savings, employment, heterogeneous firms |
| JEL: | E44 L25 G10 G32 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cfm:wpaper:1610&r=dge |
| By: | Juergen Jung (Towson University); Chung Tran (Australian National University) |
| Abstract: | Online appendix for the Review of Economic Dynamics article |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:red:append:14-51&r=dge |
| By: | Diego Anzoategui; Diego Comin; Mark Gertler; Joseba Martinez |
| Abstract: | We examine the hypothesis that the slowdown in productivity following the Great Recession was in significant part an endogenous response to the contraction in demand that induced the downturn. We first present some descriptive evidence in support of our approach. We then augment a workhorse New Keynesian DSGE model with an endogenous TFP mechanism that allows for both costly development and adoption of new technologies. We estimate the model and use it to assess the sources of the productivity slowdown. We find that a significant fraction of the post-Great Recession fall in productivity was an endogenous phenomenon. The endogenous productivity mechanism also helps account for the slowdown in productivity prior to the Great Recession, though for this period shocks to the effectiveness of R&D expenditures are critical. Overall, the results are consistent with the view that demand factors have played a role in the slowdown of capacity growth since the onset of the recent crisis. More generally, they provide insight into why recoveries from financial crises may be so slow. |
| JEL: | E3 O3 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:22005&r=dge |
| By: | Hirano, Tomohiro; Yanagawa, Noriyuki |
| Abstract: | This paper analyzes the existence and the effects of bubbles in an endogenous growth model with financial frictions and heterogeneous investments. Bubbles are likely to emerge when the degree of pledgeability is in the middle range, implying that improving the financial market might increase the potential for asset bubbles. Moreover, when the degree of pledgeability is relatively low, bubbles boost long-run growth; when it is relatively high, bubbles lower growth. Furthermore, we examine the effects of a bubble burst, and show that the effects depend on the degree of pledgeability, i.e., the quality of the financial system. Finally, we conduct a full welfare analysis of asset bubbles. |
| Keywords: | Asset Bubbles, Endogenous Growth, Financial Frictions |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:hit:remfce:36&r=dge |
| By: | Buss, Adrian; Dumas, Bernard; Uppal, Raman; Vilkov, Grigory |
| Abstract: | In a production economy with trade in financial markets motivated by the desire to share labor-income risk and to speculate, we show that speculation increases volatility of asset returns and investment growth, increases the equity risk premium, and reduces welfare. Regulatory measures, such as constraints on stock positions, borrowing constraints, and the Tobin tax have similar effects on financial and macroeconomic variables. Borrowing limits and a financial transaction tax improve welfare because they substantially reduce speculative trading without impairing excessively risk-sharing trades. |
| Keywords: | Tobin tax,borrowing constraints,short-sale constraints,stock market volatility,incomplete markets,differences of opinion |
| JEL: | G01 G18 G12 E44 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:safewp:124&r=dge |
| By: | Chugh, Sanjay K.; Lechthaler, Wolfgang; Merkl, Christian |
| Abstract: | This paper characterizes long-run and short-run optimal fiscal policy in the labor selection framework. In a calibrated non-Ramsey decentralized equilibrium, labor market volatility is inefficient. Keeping fixed the structural parameters, the Ramsey government achieves efficient labor market volatility; doing so requires labor-income tax volatility that is orders of magnitude larger than the tax-smoothing results based on Walrasian labor markets, but a few times smaller than the results based on search and matching markets. We analytically characterize selection-modelconsistent wedges and inefficiencies in order to understand optimal tax volatility. |
| Keywords: | labor market frictions,hiring costs,efficiency,optimal taxation,labor wedge,zero intertemporal distortions |
| JEL: | E24 E32 E50 E62 E63 J20 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:ifwkwp:2030&r=dge |
| By: | Mariacristina De Nardi; Giulio Fella; Gonzalo Paz Pardo |
| Abstract: | Earnings dynamics are richer than those typically used in macro models. This paper provides multiple contributions. First, it proposes a non-parametric way to model rich earnings dynamics that is easy to use in structural models. Second, it constructs a large, synthetic, data set that matches the earnings dynamics of the U.S. tax earnings. Third, it estimates our non-parametric earnings processes using two data sets: the Panel Study of Income Dynamics and our synthetic tax data. Fourth, it compares the implications of our earnings processes to those of a standard AR(1) in a life cycle structural model of savings and consumption. |
| JEL: | D14 D31 E21 J31 |
| Date: | 2016–01 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:21917&r=dge |
| By: | Joao Paulo Pessoa |
| Abstract: | How does welfare change in the short- and long-run in high wage countries when integrating with low wage economies like China? Even if consumers benefit from lower prices, there can be significant welfare losses from increases in unemployment and lower wages. I construct a dynamic multi-sector-country Ricardian trade model that incorporates both search frictions and labor mobility frictions. I then structurally estimate this model using cross-country sector-level data and quantify both the potential losses to workers and benefits to consumers arising from China's integration into the global economy. I find that overall welfare increases in northern economies, both in the transition period and in the new steady state equilibrium. In import competing sectors, however, workers bear a costly transition, experiencing lower wages and a rise in unemployment. I validate the micro implications of the model using employer-employee panel data. |
| Keywords: | trade, unemployment, earnings, China |
| JEL: | F16 J62 J64 |
| Date: | 2016–03 |
| URL: | http://d.repec.org/n?u=RePEc:cep:cepdps:dp1411&r=dge |
| By: | Paczos, Wojtek; Shakhnov, Kirill |
| Abstract: | We propose a novel theory to explain why sovereigns borrow on both domestic and international markets and why defaults are mostly selective (on either domestic or foreign investors). Domestic debt issuance can only smooth tax distortion shocks, whereas foreign debt can also smooth productivity shocks. If the correlation of these shocks is sufficiently low, the sovereign borrows on both markets to avoid excess consumption volatility. Defaults on both types of investors arise in equilibrium due to market incompleteness and the government's limited commitment. The model matches business cycle moments and frequencies of different types of defaults in emerging economies and we show our hypothesis is confirmed by the data. We also find that secondary markets are not a sufficient condition to avoid sovereign defaults. The outcome of the trade in bonds on secondary markets depends on how well each group of investors can coordinate their actions. |
| Keywords: | Sovereign Debt, Selective Default, Debt Composition, Secondary Markets |
| JEL: | E43 F34 G15 H63 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:eui:euiwps:eco2016/04&r=dge |
| By: | Grzegorz R. Dlugoszek; ; ; |
| Abstract: | Abstract: This paper first develops a new approach, which is based on the Nelson-Siegel term structure factor-augmented model, to compute the VaR of bond portfolios. We then applied the model to examine whether information contained on macroeconomic variables and financial shocks can help to explain the variations of VaR. A principal component analysis is used to incorporate the information contained in different variables. The empirical result shows that, including macroeconomic variables and financial shocks in the Nelson-Siegel term structure factor model, we can observe an obvious tendency towards better VaR forecasting performance. Moreover, the impact of incorporating financial shocks seems to be stronger than that of incorporating macroeconomic variables. |
| Keywords: | Nelson-Siegel factor model; Value-at-risk; Encompassing test; Backtesting; Conditional predictive ability |
| JEL: | E44 F41 G11 |
| Date: | 2016–02 |
| URL: | http://d.repec.org/n?u=RePEc:hum:wpaper:sfb649dp2016-009&r=dge |
| By: | Jonathan Lain |
| Abstract: | In this paper, we build a search-match model to help explain differences in the outcomes of women and men in urban African labour markets. First, we use longitudinal data from a panel collected in four of Ghana's largest cities to establish a set of stylised facts relating to the size of different sectors in the economy, the earnings gaps that persist within those sectors, and transitions between different jobs. We then construct a model, which allows for individual heterogeneity and participation in both self- and wage-employment, as well as discrimination against female workers in the wage sector. By numerically solving and simulating this model, we show that wage sector discrimination leads to average earnings gaps in all sectors of the economy, even if the underlying ability distribution is the same for both sexes. This result arises because discrimination creates extra frictions for women, making it harder for them to select jobs according to comparative advantage. We also conduct a series of experiments to examine how women and men may be affected differently by government policy, and consider the robustness of our results to alternative assumptions about individual heterogeneity. |
| Keywords: | Search Models; Discrimination; Comparative Advantage; Self-Employment; Informal Sectors |
| JEL: | J60 J71 |
| Date: | 2016 |
| URL: | http://d.repec.org/n?u=RePEc:csa:wpaper:2016-02&r=dge |
| By: | Ken Urai (Graduate School of Economics, Osaka University); Hiromi Murakami (Graduate School of Economics, Osaka University) |
| Abstract: | The axiomatic characterization of price or market equilibrium is one of the most important problems in the general equilibrium theory. There does not seem to exist, however, so many papers on the axiomatic characterization problem of monetary equilibrium. The overlapping-generations model with a double in nity of commodities and agents is one of the most fundamental frameworks for introducing money into an economic model, although a simple game-theoretic or welfare characterization on the role of money under competitive mechanism is widely known to be difficult. In this paper, we show that the informational efficiency axiomatic characterization as in Hurwicz (1960), Mount and Reiter (1974) and Sonnenschein (1974) is possible for the price-money competitive mechanism for overlapping- generations economies among the class of all allocation mechanisms with messages. In particular, the category theoretic universal mapping characterization in Sonnenschein (1974) is generalized and applied to the overlapping-generations framework through our monetary version of Debreu-Scarf's core limit theorem of Urai and Murakami (2015). Our argument is also closely related to the replica characterization approaches of Walrasian social choice mechanism like Thomson (1988) and Nagahisa (1994), and provides a comprehensive perspective on them. |
| Keywords: | Axiomatic Characterization, Resource Allocation Mechanism, Informational Efficiency, Monetary Equilibrium, Overlapping-Generations Model, Replica Core Equivalence, Universal Mapping Property |
| JEL: | C60 C71 D51 D82 E00 |
| Date: | 2015–12 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1531r&r=dge |