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on Dynamic General Equilibrium |
| By: | Shouyong Shi (Pennsylvania State University); Gaston Chaumont (Pennsylvania State University) |
| Abstract: | To study equilibrium interactions between wealth accumulation and labor market search, this paper constructs a model where individuals can accumulate non-contingent assets under a borrowing limit, all workers can search for jobs, and search is directed. On-the-job search generates a wage ladder, which affects inequalities in earnings, wealth and consumption. Employed workers have incentive to save as a precaution for exogenous separation into unemployment. In the reverse direction, wealth and earnings affect search decisions by changing the optimal tradeoff between the wage and the matching probability. The calibrated model reveals that wealth significantly reduces a worker's transition rates from unemployment to employment and from one job to another. Moreover, search frictions increase wealth inequality significantly by increasing the mass of wealthy individuals and lengthening the right tail of the wealth distribution. However, the effect of wealth on job search widens frictional wage dispersion by only a small amount. In addition, on-the-job search is important for frictional wage dispersion. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:128&r=dge |
| By: | Russell Wong (Federal Reserve Bank of Richmond); Cathy Zhang (Purdue University); Guillaume Rocheteau (University of California, Irvine) |
| Abstract: | This paper develops a dynamic model of lending relationships and monetary policy. Entrepreneurs can finance idiosyncratic investment opportunities through external finance -- by forming lending relationships with banks -- or internal finance -- by accumulating partially liquid assets. We study the dynamic response of lending rates, inflation, and investment to a banking crisis that severs lending relationships. We characterize optimal monetary policy in the aftermath of a crisis and show it involves a positive nominal interest rate that trades off the need to reduce the cost of self insurance by unbanked entrepreneurs and the need to promote the creation of lending relationships with banks. We calibrate the model to the U.S. economy and study quantitatively the optimal policy problem in and out of steady state, with and without commitment by the policymaker. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:152&r=dge |
| By: | Mirko Djukic; Tibor Hledik; Jiri Polansky; Ljubica Trajcev; Jan Vlcek |
| Abstract: | We amend a DSGE model of a small open economy by adding financial euroization in order to capture the main channels of the monetary transmission mechanism in match the Serbian data. In contrast to the standard DSGE workhorse, the model encompasses commercial banks and foreign-exchange-denominated deposits and loans. Given these features, the model is well suited to evaluating effects of the nominal exchange rate on the financial wealth and consumption of households. The model structure, including optimization problems and first-order conditions, is provided in the paper. The model properties are tested to match the stylized facts of dollarized economies. Specifically, the model is calibrated to the Serbian data, and a model-consistent multivariate filter is used to identify unobserved trends and gaps. |
| Keywords: | DSGE model, financial dollarization |
| JEL: | E44 F41 F47 |
| Date: | 2017–06 |
| URL: | http://d.repec.org/n?u=RePEc:cnb:wpaper:2017/02&r=dge |
| By: | Todd Walker (Indiana University) |
| Abstract: | In the context of a dynamic model with incomplete information, we isolate a novel mechanism of shock propagation that results in waves of optimism and pessimism along a Rational Expectations equilibrium. We term the mechanism confounding dynamics because it arises from agents’ optimal signal extraction efforts on variables whose dynamics—as opposed to superimposed noise—prevents full revelation of information. Employing methods in the space of analytic functions, we are able to obtain analytical characterizations of the equilibria that generalize the celebrated Hansen-Sargent optimal prediction formula. We apply our results to a canonical real business cycle model and derive the analytic solution for output, consumption and capital. We show that, in response to a permanent positive productivity shock, confounding dynamics generate expansions and recessions that would not be present under complete information. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:141&r=dge |
| By: | Miho Sunaga (Graduate School of Economics, Osaka University) |
| Abstract: | I introduce nancial market friction into a neoclassical growth model. I consider a moral hazard problem between bankers and workers in the macroeconomic model. Using the model, this study analyzes how capital adequacy requirements for banks affect the economy. I show that strengthening capital adequacy requirements is desirable for an economy whose nancial market has not developed sufficiently. Regulatory authorities should pull up the minimum capital adequacy ratio in a country whose nancial market has not developed sufficiently. Moreover, there is no need to change the minimum cap- ital adequacy ratio in a country whose nancial market has developed sufficiently even if the economy experiences a recession. |
| Keywords: | Capital adequacy requirements; Economic Growth; Financial Intermedi- aries; Macro-prudential policies |
| JEL: | E44 G21 G28 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:osk:wpaper:1721&r=dge |
| By: | Seppo Honkapohja (Bank of Finland); Kaushik Mitra (University of Birmingham); George Evans (University of Oregon) |
| Abstract: | Persistent stagnation and fiscal policy are examined in a New Keynesian model with adaptive learning determining expectations. We impose inflation and consumption lower bounds, which can be relevant when agents are pessimistic. The inflation target is locally but not globally stable under learning. Pessimistic initial expectations may sink the economy into steady-state stagnation with deflation. The deflation rate can be near zero for discount factors near one or if credit frictions are present. Following a severe pessimistic expectations shock a large temporary fiscal stimulus is needed to avoid or emerge from stagnation. A modest stimulus is sufficient if implemented early. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:160&r=dge |
| By: | Steve Raymond (UNC); Lukas Schmid (Duke University); Anastasios Karantounias (Federal Reserve Bank of Atlanta); Mariano Croce (University of North Carolina at Chapel H) |
| Abstract: | In times when elevated government debt raises concerns about dimmer global growth prospects, we ask: How can the government provide incentives for innovation in a fiscally sustainable way? We address this question by examining the Ramsey problem of finding optimal tax and subsidy schemes in a model in which growth is endogenously sustained by risky innovation. We characterize the shadow value of growth and entry in the innovation sector. We find that a profit tax is required to replicate the first-best in order to balance the positive spillovers of innovative activity. At the second-best, the profit tax is designed to optimally respond to growth shocks above and beyond what is prescribed by the standard tax-smoothing incentives in economies with exogenous growth. The interplay of risk and innovation opens a new margin for optimal taxation. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:109&r=dge |
| By: | Gerke, Rafael; Giesen, Sebastian; Kienzler, Daniel; Tenhofen, Jörn |
| Abstract: | We analyze the macroeconomic implications of a transient interest-rate peg in combination with a QE program in a non-linear medium-scale DSGE model. In this context, we re-examine what has become known as the reversal puzzle (Carlstrom, Fuerst and Paustian, 2015) and provide an analytical explanation for its appearance. We show that the puzzle is intimately related with agents' expectations. If, for instance, agents do not anticipate the peg, the reversal does not appear. The same is true if agents' inflation expectations are influenced by a monetary authority which follows a price-level-targeting rule instead of a standard Taylor rule. In this case, sign reversals do not occur even for very long durations of pegged nominal interest rates. |
| Keywords: | Unconventional Monetary Policy,Interest-Rate Peg,Perfect Foresight,Reversal Puzzle,Price-Level Targeting |
| JEL: | E32 E44 E52 E61 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:212017&r=dge |
| By: | Gerke, Rafael; Hauzenberger, Klemens |
| Abstract: | The neo-Fisherian view does not consider a negative interest rate gap a prerequisite for boosting inflation. Instead, a negative interest rate gap is said to lower inflation. We discuss this counterintuitive response - known as the Fisher paradox - in a prototypical new-Keynesian model. We draw the following conclusions. First, with a temporarily pegged nominal rate during a liquidity trap (given an otherwise standard Taylor rule) the model generally produces multiple equilibrium paths: some of these paths are consistent with the neo-Fisherian view, others are not. Second, the unique optimal monetary policy at the lower bound on interest rates, which can be implemented in the model with interest rate rules and state-contingent forward guidance, does not result in a paradox. Third, if the assumption of perfect foresight or rational expectations is relaxed, the model produces an equilibrium that is not consistent with the neo-Fisherian view. |
| Keywords: | Neo-Fisherian,Interest Rates,Inflation,Multiple Equilibria,Rational Expectations |
| JEL: | E31 E43 E52 |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:bubdps:202017&r=dge |
| By: | Erwan Quintin (University of Wisconsin Madison); Dean Corbae (University of Wisconsin); Pedro Amaral (Federal Reserve Bank of Cleveland) |
| Abstract: | The existing literature on financial development focuses mostly on the causal impact of the quantity of financial intermediation on economic development. This paper, instead, focuses on the role of the financial sector in creating securities that cater to the needs of heterogeneous investors. To that end, we describe a dynamic extension of Allen and Gale ((1989) optimal security design model in which producers can tranche the stochastic cash flows they generate at a cost. Lower tranching costs in that environment lead to capital deepening and raise aggregate output. The implications of lower tranching costs for TFP, on the other hand, are fundamentally ambiguous. In other words, our model predicts that increased financial sophistication/complexity - a securitization boom, e.g. - can have adverse consequences on aggregate productivity as it is conventionally measured. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:118&r=dge |
| By: | Corsetti, Giancarlo (Cambridge University); Mavroeidi, Eleonora (Bank of England); Thwaites, Gregory (Bank of England); Wolf, Martin (University of Bonn) |
| Abstract: | We study how small open economies can escape from deflation and unemployment in a situation where the world economy is permanently depressed. Building on the framework of Eggertsson et al (2016), we show that the transition to full employment and at-target inflation requires real and nominal depreciation of the exchange rate. However, because of adverse income and valuation effects from real depreciation, the escape can be beggar thy self, raising employment but actually lowering welfare. We show that as long as the economy remains financially open, domestic asset supply policies or reducing the effective lower bound on policy rates may be ineffective or even counterproductive. However, closing domestic capital markets does not necessarily enhance the monetary authorities’ ability to rescue the economy from stagnation. |
| Keywords: | Small open economy; secular stagnation; capital controls; optimal policy; zero lower bound |
| JEL: | E62 F41 |
| Date: | 2017–07–17 |
| URL: | http://d.repec.org/n?u=RePEc:boe:boeewp:0666&r=dge |
| By: | Nancy L Stokey (Department of Economics) |
| Abstract: | This paper develops a model in which heterogeneous firms invest in technology to increase their profits, and heterogeneous workers invest in human capital to increase their earnings. Production functions are log supermodular in technology and human capital, so the competitive equilibrium features positively assortative matching between firms and workers. Continued investment in technology is profitable only because human capital is growing, and continued investment in human capital is worthwhile only because technology is growing. Both investment technologies have stochastic components, and the balanced growth path has stationary, nondegenerate distributions of technology and human capital, with both growing at a common, constant rate. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:199&r=dge |
| By: | Radek Stefanski (University of St Andrews) |
| Abstract: | Monetary velocity declines as economies grow. We argue that this is due to the process of structural transformation - the shift of workers from agricultural to non-agricultural production associated with rising income. A calibrated, two-sector model of structural transformation with monetary and non-monetary trade accurately generates the long run monetary velocity of the US between 1869 and 2013 as well as the velocity of a panel of 92 countries between 1980 and 2010. Three lessons arise from our analysis: 1) Developments in agriculture, rather than non-agriculture, are key in driving monetary velocity; 2) Inflationary policies are disproportionately more costly in richer than in poorer countries; and 3) Nominal prices and inflation rates are not ‘always and everywhere a monetary phenomenon’: the composition of output influences money demand and hence the secular trends of price levels. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:168&r=dge |
| By: | Martin Seneca (Bank of England) |
| Abstract: | Risk shocks give rise to cost-push effects in the canonical New Keynesian model if they are large relative to the distance between the nominal interest rate and its zero lower bound (ZLB). Therefore, stochastic volatility introduces occasional trade-offs for monetary policy between inflation and output gap stabilisation. The trade-off inducing effects operate through expectational responses to the interaction between perceived shock volatility and the ZLB. At the same time, a given monetary policy stance becomes less effective when risk is high. Optimal monetary policy calls for potentially sharp reductions in the interest rate when risk is elevated, even if this risk never materialises. If the underlying level of risk is high, inflation will settle potentially materially below target in a risky steady state even under optimal monetary policy. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:107&r=dge |
| By: | Elisa Giannone (University of Chicago) |
| Abstract: | Poorer US cities were catching up with richer ones at an annual rate of roughly 1.4% between 1940 and 1980. However, wage convergence across US cities went from 1.4% a year between 1940 and 1980 to 0% a year between 1980 and 2010. This paper quantifies the contributions of skill-biased technical change (SBTC) and agglomeration economies to the end of cross-cities wage convergence within the US between 1980 and 2010. I develop and estimate a dynamic spatial equilibrium model that looks at the causes of the decline in spatial wage convergence. The model choice is motivated by novel empirical regularities regarding the evolution of the skill premium and migration patterns over time and across space. The model successfully matches the quantitative features of the decline in US regional wage convergence, as well as other stylized facts on US economic growth. Moreover, the model also reproduces the convergence and the divergence in the skill ratio across US cities and other features on quantities, such as the secular decline in within US migration after 1980. Finally, the counterfactual analysis suggests that SBTC explains the approximately the 80% of the decline of regional convergence between 1980 and 2010 among high skill workers. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:190&r=dge |
| By: | Kenza Benhima; Céline Poilly |
| Abstract: | We assess theoretically and empirically the consequences of demand misperceptions. In a New Keynesian model with dispersed information, agents receive noisy signals about both supply and demand. Firms and consumers have an asymmetric access to information, so aggregate misperceptions of demand by the supply side can drive economic fluctuations. The model's predictions are used to identify empirically fundamental and noise shocks on supply and demand. We exploit survey nowcast errors on both GDP growth and inflation, fundamental and noise shocks aff ecting the errors with opposite signs. We show that demand-related noise shocks have a negative eff ect on output and contribute substantially to business cycles. Additionally, monetary policy plays a key role in the transmission of demand noise. |
| Keywords: | Business cycles, information frictions, noise shocks, SVARs with sign restrictions |
| JEL: | E32 D82 C32 E31 |
| Date: | 2017–05 |
| URL: | http://d.repec.org/n?u=RePEc:lau:crdeep:17.08&r=dge |
| By: | David Wiczer (FRB St. Louis); Amanda Michaud (Indiana University) |
| Abstract: | Using retrospective data, we introduce evidence that occupational exposure significantly affects disability risk. Incorporating this into a general equilibrium model, social disability insurance (SDI) affects welfare through (i) the classic, risk-sharing channel and (ii) a new channel of occupational reallocation. Both channels can increase welfare, but at the optimal SDI they are at odds. Welfare gains from additional risk-sharing are reduced by overly incentivizing workers to choose risky occupations. In a calibration, optimal SDI increases welfare by 2.6% relative to actuarially fair insurance, mostly due to risk sharing. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:111&r=dge |
| By: | Simon Mongey (NYU) |
| Abstract: | Canonical macroeconomic models of pricing under nominal rigidities assume markets consist of atomistic firms. Most US retail markets are dominated by a few large firms. To bridge this gap, I extend an equilibrium menu cost model to allow for a continuum of sectors with two large firms in each sector. Compared to a model with monopolistically competitive markets, and calibrated to the same good-level data on price adjustment, the duopoly model generates output responses to monetary shocks that are more than twice as large. Firm-level prices respond equally to idiosyncratic shocks, but less to aggregate shocks in the calibrated duopoly model. Under duopoly, the response of low priced firms to an increase in money is dampened: a falling real price at its competitor weakens both the incentive to increase prices, and price conditional on adjustment. The dynamic duopoly model also implies (i) large first order welfare losses from nominal rigidities, (ii) lower menu costs, (iii) a U-shaped relationship between market concentration and price flexibility, forwhich I find strong evidence in the data, (iv) a source of downward bias in markup estimates attained from inverting a static oligopoly model. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:184&r=dge |
| By: | Tom Krebs; Pravin Krishna; William F. Maloney |
| Abstract: | This paper presents a framework for the quantitative analysis of individual income dynamics, mobility and welfare, with ex-ante identical individuals facing a stochastic income process and market incompleteness implying that they are unable to insure against persistent shocks to income. We show how the parameters of the income process can be estimated using repeated cross-sectional data with a short panel dimension, and use a simple consumption-saving model for quantitative analysis of mobility and welfare. Our empirical application, using data on individual incomes from Mexico, provides striking results. Most of measured income mobility is driven by measurement error or transitory income shocks and therefore (almost) welfare-neutral. Only a small part of measured income mobility is due to either welfare-reducing income risk or welfare-enhancing catching-up of low-income individuals with high-income individuals, both of which, nevertheless, have economically significant effects on social welfare. Strikingly, roughly half of the mobility that cannot be attributed to measurement error or transitory income shocks is driven by welfare-reducing persistent income shocks. Decomposing mobility into its fundamental components is thus crucial from the standpoint of welfare evaluation. |
| JEL: | F0 J0 J6 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23578&r=dge |
| By: | Luca Fornaro (CREI and Universitat Pompeu Fabra) |
| Abstract: | A recent literature has suggested that macroprudential policies can act as second-best stabilization tools when monetary policy is constrained by the zero lower bound. In this paper we show that, once their international dimension is taken into account, macroprudential policies can backfire. We provide a tractable multi-country framework of an imperfectly financially integrated world, in which equilibrium interest rates are low and monetary policy is occasionally constrained by the zero lower bound. Idiosyncratic shocks generate capital flows and asymmetric liquidity traps across countries. Due to a domestic aggregate demand externality, it is optimal for governments to implement countercyclical macroprudential policies, taxing borrowing in good times, as a precaution against the risk of a future liquidity trap triggered by a negative shock. The key insight of the paper is that this policy is inefficient from a global perspective, because it depresses global rates and deepens the recession in the countries currently stuck in a liquidity trap. This international aggregate demand externality points toward the need for international cooperation in the design of financial market interventions. Indeed, under the cooperative optimal financial policy countries internalize the fact that a stronger demand for borrowing and consumption from countries at full employment sustains global rates, reducing the recession in liquidity trap economies. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:139&r=dge |
| By: | Ngotran, Duong |
| Abstract: | We build a dynamic monetary model with two types of electronic money: reserves for transactions between bankers and zero-maturity deposits for transactions in the non-bank private sector. Using this model, we discuss about unconventional monetary policy during the Great Recession. Committing to keep the federal funds rate at the zero lower bound for a long time is very effective in the short run, but it creates deflation and lowers output in the long run. At the time of raising interest on reserves, if the central bank also commits to target the growth of money supply in responding to inflation, both output and inflation paths will be smooth. In short, “raise rate and raise money supply” is a good way to get out of the zero lower bound. |
| Keywords: | reserves; interest on reserves; zero lower bound; quantitative easing; money supply |
| JEL: | E4 E40 |
| Date: | 2017–07–10 |
| URL: | http://d.repec.org/n?u=RePEc:pra:mprapa:80207&r=dge |
| By: | Jessica Wachter (University of Pennsylvania); Mete Kilic (The Wharton School, University of Pennsylvania) |
| Abstract: | What is the driving force behind the cyclical behavior of unemployment and vacancies? What is the relation between job-creation incentives of firms and stock market valuations? We answer these questions in a model with time-varying risk, modeled as a small and variable probability of an economic disaster. A high probability implies greater risk and lower future growth, lowering the incentives of firms to invest in hiring. During periods of high risk, stock market valuations are low and unemployment rises. The model thus explains volatility in equity and labor markets, and the relation between the two. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:129&r=dge |
| By: | Stella Xiuhua Huangfu (University of Sydney); Hongfei Sun (Queen's University); Chenggang Zhou (University of Waterloo); Mei Dong (University of Melbourne) |
| Abstract: | We study the behavior and economic impact of oligopolistic banks in a tractable macro environment with solid micro-foundations for money and banking. Our model has three key features: (i) banks as oligopolists; (ii) liquidity constraint for banks that arises from mismatched timing of payments; and (iii) search frictions in credit, labor and goods markets. Our main ndings are: First, both bank prot and welfare react non-monotonically to the number of banks in equilibrium. Strategic interaction among banks may improve welfare as in standard Cournot competition. Nevertheless, competition among oligopolistic banks does not always improve welfare. As the number of banks rises, each bank has stronger marginal incentives to issue loans, yet each receives a smaller share of the aggregate demand deposit used to make loans. When the number is su¢ ciently high, banks become liquidity constrained in that the amount they lend is limited by the amount of deposits they can gather. In this case, welfare is dampened as banks are forced to reduce lending, which leads to fewer rms getting funded, higher unemployment, and thus ultimately lower output. Second, with entry to the banking sector, there may exist at most three equilibria of the following types: one is stable and Pareto dominates, another is unstable and ranks second in welfare, and the third is stable yet Pareto inferior. The number of banks is the lowest in the equilibrium that Pareto dominates. Finally, ination can change the nature of the equilibrium. Low ination promotes a unique good equilibrium, high ination cultivates a unique bad equilibrium, but medium ination can induce all three equilibria of the aforementioned types. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:191&r=dge |
| By: | Juan Carlos Conesa; Timothy J. Kehoe |
| Abstract: | In the early 1970s, hours worked per working-age person in Spain were higher than in the United States. Starting in 1975, however, hours worked in Spain fell by 40 percent. We find that 80 percent of the decline in hours worked can be accounted for by the evolution of taxes in an otherwise standard neoclassical growth model. Although taxes play a crucial role, we cannot argue that taxes drive all of the movements in hours worked. In particular, the model underpredicts the large decrease in hours in 1975–1986 and the large increase in hours in 1994–2007. The lack of productivity growth in Spain during 1994–2015 has little impact on the model’s prediction for hours worked. |
| JEL: | C68 E13 E24 H31 |
| Date: | 2017–07 |
| URL: | http://d.repec.org/n?u=RePEc:nbr:nberwo:23592&r=dge |
| By: | Leonardo Melosi (Federal Reserve Bank of Chicago); Francesco Bianchi (Duke University) |
| Abstract: | We study the problem of coordination between the monetary and the fiscal authorities at the zero lower bound. Lack of coordination between the monetary and fiscal authorities can lead to an explosive dynamics of inflation and large output losses. Policy makers can achieve the goal of mitigating the recession without giving up on long-run macroeconomic stability by committing to inflate away only the portion of debt resulting from an unusually large recession. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:110&r=dge |
| By: | Olga Timoshenko (The George Washington University); Daniel Dias (Board of Governors of the Federal Reserv); Paulo Bastos (The World Bank) |
| Abstract: | We document new facts about the evolution of firm performance and prices in international markets, and propose a theory of firm dynamics emphasizing the interaction between learning about demand and quality choice to explain the observed patterns. Using data from the Portuguese manufacturing sector, we find that: (1) firms with longer spells of activity in export destinations tend to ship larger quantities at lower prices; (2) older exporters tend to use more expensive inputs; (3) revenue growth within destinations (conditional on initial size) tends to decline with market experience; and (4) input prices and quantities tend to increase with revenue growth within firms. We develop a model of endogenous input and output quality choices in a learning environment that is able to account for these patterns. Counterfactual simulations reveal that minimum quality standards on traded goods reduce welfare by lowering entry in export markets and reallocating resources from old and large towards young and small firms. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:179&r=dge |
| By: | Petr Sedlacek (Bonn University); Benjamin Pugsley (Federal Reserve Bank of NY); Vincent Sterk (University College London) |
| Abstract: | There are vast differences in the growth patterns of firms: high-growth, young businesses, or “gazelles†, account for the vast majority of employment growth at incumbent firms. Using a large administrative panel data set for the United States, we provide evidence that ex-ante differences in the growth potential of firms account for most of the size heterogeneity across firms of a given age. First, we estimate a reduced-form employment process, allowing for heterogeneity in steady-state levels and deriving parameter identification from the autocovariance function of employment. Next, we estimate a general equilibrium firm dynamics model and explore the implications for firm selection and the macro effects of firm-level distortions. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:196&r=dge |
| By: | Wenli Li (Federal Reserve Bank of Philadelphia); Fang Yang (Louisiana State University); Michael Dotsey (Federal Reserve Bank of Philadelphia) |
| Abstract: | In this paper, we study the consequences of the demographic changes in China and the U.S. on the two nation’s output growth, capital accumulation, labor supply, and welfare in various economic environments including closed economies, economies with perfect capital mobility and no trade barriers, and economies with imperfect capital mobility and /or trader barriers. Our focus on only two of the largest economies in the world, China and U.S., allow us to more realistically capture each economy and make use of micro data that exhibits unique and interesting patterns such as having savings rate in China. |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:154&r=dge |
| By: | Per Krusell (Stockholm University); Jonna Olsson (IIES, Stockholm University); Timo Boppart (IIES, Stockholm University) |
| Abstract: | Evidence on hours worked per capita from historical time series as well as from a large cross-section of countries at different income levels strongly suggests that the income effect of increased labor productivity exceeds the substitution effect. To the extent that productivity keeps growing in the future, we should then expect people to want to work less and less. Given that labor-force participation is associated with natural indivisibilities, our perspective must furthermore imply that a smaller and smaller fraction of the population will be working. So who will then withdraw from the labor force, and when? This paper examines these questions in a frictionless setting where consumers/workers at any point in time differ in wealth and in productivity. It also addresses the normative issue: who should (given some welfare weights) work in the future? |
| Date: | 2017 |
| URL: | http://d.repec.org/n?u=RePEc:red:sed017:157&r=dge |