nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2018‒02‒26
24 papers chosen by
Christian Zimmermann
Federal Reserve Bank of St. Louis

  1. Household's Balance Sheets and the Effect of Fiscal Policy By Javier Andres; Jose E. Bosca; Javier Ferri; Cristina Fuentes-Albero
  2. Banks, Sovereign Risk and Unconventional Monetary Policies By Auray Stéphane; Eyquem Aurélien; Mairesse Xiaofei
  3. A business-cycle model with a modified cash-in-advance feature, government sector and one-period nominal wage contracts: the case of Bulgaria By Vasilev, Aleksandar
  4. How Persistent Low Expected Returns Alter Optimal Life Cycle Saving, Investment, and Retirement Behavior By Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
  5. Financial Heterogeneity and the Investment Channel of Monetary Policy By Pablo Ottonello; Thomas Winberry
  6. Capital price bubbles and dynamic inefficiency By Gerhard Sorger
  7. How Do Foreclosures Exacerbate Housing Downturns? By Adam M. Guren; Timothy J. McQuade
  8. Debt Hangover in the Aftermath of the Great Recession By Auray Stéphane; Eyquem Aurélien; Gomme Paul
  9. The role of energy in a real-business-cycle model with an endogenous capital utilization rate and a government sector: the case of Bulgaria (1999-2016) By Vasilev, Aleksandar
  10. Turbulence and Unemployment in Matching Models By Baley, Isaac; Ljungqvist, Lars; Sargent, Thomas J
  11. Business Cycle, Great Recession and Part-time Jobs By Hyunju Kang; Jaevin Park; Hyunduk Suh
  12. Children, Time Allocation and Consumption Insurance By Blundell, Richard; Pistaferri, Luigi; Saporta-Eksten, Itay
  13. Asset Prices under Alternative Exchange Rate Regimes By Nicole Aregger
  14. Identical Twins? Destination-Based Cash-Flow Taxes Versus Consumption Taxes with Payroll Subsidies By Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
  15. Financial Vulnerability and Stabilization Policy in Commodity Exporting Emerging Economies By Jalali Naini, Ahmad Reza; Naderian, Mohammad Amin
  16. Pricing Assets in a Perpetual Youth Model By Roger Farmer
  17. Kaldor and Piketty’s Facts: The Rise of Monopoly Power in the United States By Gauti B. Eggertsson; Jacob A. Robbins; Ella Getz Wold
  18. Looking behind the financial cycle: the neglected role of demographics By Alessandro Ferrari
  19. Can Trend Inflation Solve the Delayed Overshooting Puzzle? By Cooke, Dudley; Kara, Engin
  20. A parametric social security system with skills heterogeneous agents By Thomaidou, Fotini
  21. Monetary policy operating procedures, lending frictions, and employment By Florian, David; Limnios, Chris; Walsh, Carl
  22. Extreme events and optimal monetary policy By Jinill, Kim; Ruge-Murcia, Francisco
  23. Are Consumers’ Spending Decisions in Line With an Euler Equation? By Lena Dräger; Giang Nghiem
  24. Optimal Debt Management in a Liquidity Trap By Hafedh Bouakez; Rigas Oikonomou; Romanos Priftis

  1. By: Javier Andres; Jose E. Bosca; Javier Ferri; Cristina Fuentes-Albero
    Abstract: Using the Panel Survey of Income Dynamics, we identify six household types as a function of their balance sheet composition. Since 1999, there has been a decline in the share of patient households and an increase in the share of impatient households with negative wealth. Using a DSGE model with search and matching frictions, we explore how changes in the distribution of households affect the transmission of government spending shocks. We show that the relative share of households in the left tail of the wealth distribution plays a key role in the aggregate marginal propensity to consume, the magnitude of the fiscal multipliers, and the distributional consequences of fiscal shocks. While the output and consumption multipliers are positively correlated with the share of households with negative wealth, the size of the employment multiplier is negatively correlated. For calibrations based on the empirical household weights after the Great Recession, our model delivers jobless fiscal expansions.
    Keywords: Fiscal policy ; Panel Survey of Income Dynamics ; Heterogeneity ; Household balance sheet ; Search and matching
    JEL: E21 E62
    Date: 2018–02–08
  2. By: Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)); Mairesse Xiaofei (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE))
    Abstract: We develop a two-country model with an explicitly microfounded interbank market and sovereign default risk. Both features interact and give rise to a debt-banks-credit loop by which sovereign default risk can have large contractionary effects on the economy. Calibrated to the Euro Area, the model performs well in matching key business cycle facts on real, ?nancial and ?scal time series. We then use the model to assess the effects of the Great Recession and quantify the potential effects of alternative unconventional policies on the dynamics of European economies. All the policies considered can bring sizable reductions in the welfare losses from the Great Recession, but policies targeted at sovereign bonds and interbank loans are more efficient than standard credit interventions.
    Keywords: recession, interbank market, sovereign default risk, monetary policy
    JEL: E32 E44 E58 F34
    Date: 2017–06–18
  3. By: Vasilev, Aleksandar
    Abstract: We augment an otherwise standard business cycle model with a richer government sector, and add a modified cash in advance considerations, and one-period-ahead nominal wage contracts. In particular, the cash in advance constraint of Cooley and Hansen (1989) is extended to include private investment and government consumption. This specification, together with the nominal wage rigidity, when calibrated to Bulgarian data after the introduction of the currency board (1999-2016), gives a role to money in propagating economic uctuations. In addition, the combinations of these ingredients allows the framework to reproduce better observed variability and correlations among model variables, and those characterizing the labor market in particular.
    Keywords: business cycles,modified cash-in-advance constraint,one-period nominal wage contracts
    JEL: E32
    Date: 2018
  4. By: Vanya Horneff; Raimond Maurer; Olivia S. Mitchell
    Abstract: This paper explores how an environment of persistent low returns influences saving, investing, and retirement behaviors, as compared to what in the past had been thought of as more “normal” financial conditions. Our calibrated lifecycle dynamic model with realistic tax, minimum distribution, and Social Security benefit rules produces results that agree with observed saving, work, and claiming age behavior of U.S. households. In particular, our model generates a large peak at the earliest claiming age at 62, as in the data. Also in line with the evidence, our baseline results show a smaller second peak at the (system-defined) Full Retirement Age of 66. In the context of a zero return environment, we show that workers will optimally devote more of their savings to non-retirement accounts and less to 401(k) accounts, since the relative appeal of investing in taxable versus tax-qualified retirement accounts is lower in a low return setting. Finally, we show that people claim Social Security benefits later in a low interest rate environment.
    JEL: D14 D78 D91 G11 G22 H55 J14 J26
    Date: 2018–02
  5. By: Pablo Ottonello; Thomas Winberry
    Abstract: We study the role of heterogeneity in firms' financial positions in determining the investment channel of monetary policy. Empirically, we show that firms with low leverage or high credit ratings are the most responsive to monetary policy shocks. We develop a heterogeneous firm New Keynesian model with default risk to interpret these facts and study their aggregate implications. In the model, firms with high default risk are less responsive to monetary shocks because their marginal cost of external finance is high. The aggregate effect of monetary policy therefore depends on the distribution of default risk across firms.
    JEL: D22 E22 E44 E52
    Date: 2018–01
  6. By: Gerhard Sorger
    Abstract: We demonstrate that the price of physical capital in standard neoclassical one-sector growth models can exceed its fundamental value, that is, a capital price bubble can exist. It is furthermore shown that the existence of a capital price bubble is in general unrelated to the dynamic ine?ciency of equilibrium. We illustrate these results in the contexts of the Ramsey-Cass-Koopmans model with ?nitely many in?nitely-lived dynasties of households, the Blanchard-Yaari model with in?nitely many overlapping generations of ?nitely-lived households, and the Solow-Swan model without microfoundation. Our ?ndings are in contrast to those derived by Tirole [17] and they are complementary to those from Kocherlakota [8] and Tirole [18].
    JEL: O41 G10
    Date: 2018–02
  7. By: Adam M. Guren (Boston University); Timothy J. McQuade (Stanford University)
    Abstract: We present a dynamic search model in which foreclosures exacerbate housing busts and delay the housing market;s recovery. By eroding lender equity, destroying the credit of potential buyers, and making buyers more selective, foreclosures freeze the market for non-foreclosures can cause price-default spirals that amplify an initial shock. To quantitatively asses these channels, the model is calibrated to the recent bust. The amplification is significant: ruined credit and choosey buyers account for 22.5 percent of the total decline in non-distressed prices and lender losses account for an additional 30 percent. We use our model to evaluate foreclosure mitigation policies and find that payment reduction is quite effective, but creating a single seller of foreclosures that holds them off the market until demand picks up is the most effective policy. Policies that slow down the pace of foreclosures can be counterproductive.
    Keywords: Housing Prices & Dynamics, Foreclosures, Search, Great Recession
    JEL: E30 R31
  8. By: Auray Stéphane (CREST-ENSAI ; ULCO); Eyquem Aurélien (ENSAI-CREST ; Université Lumière Lyon 2 ; CNRS (GATE)); Gomme Paul (Concordia University ; CIREQ)
    Abstract: Following the Great Recession, U.S. government debt levels exceeded 100% of output. We develop a macroeconomic model to evaluate the role of various shocks during and after the Great Recession; labor market shocks have the greatest impact on macroeconomic activity. We then evaluate the consequences of using alternative fiscal policy instruments to implement a fiscal austerity program to return the debt-output ratio to its pre-Great Recession level. Our welfare analysis reveals that there is not much difference between applying fiscal austerity through government spending, the labor income tax, or the consumption tax; using the capital income tax is welfare-reducing.
    Date: 2017–06–28
  9. By: Vasilev, Aleksandar
    Abstract: We introduce a pro-cyclical endogenous utilization rate of physical capital stock into a real-business-cycle model augmented with a detailed government sector. We calibrate the model to Bulgarian data for the period following the introduction of the currency board arrangement (1999-2016). We investigate the quantitative importance of the endogenous depreciation rate, and the capital utilitization mechanism working through the use of energy for cyclical fluctuations in Bulgaria. In particular, a positive shock to energy prices in the model works like a negative technological shock. Allowing for variations in factor utilization and the presence of energy as a factor of production improves the model performance against data, and in addition this extended setup dominates the standard RBC model framework with constant depreciation and a fixed utilization rate of physical capital, e.g., Vasilev (2009).
    Keywords: Business fluctuations,capital utilization rate,endogenous depreciation rate,energy prices,Bulgaria
    JEL: E32 E22 E37
    Date: 2018
  10. By: Baley, Isaac; Ljungqvist, Lars; Sargent, Thomas J
    Abstract: Ljungqvist and Sargent (1998, 2008) show that worse skill transition probabilities for workers who suffer involuntary layoffs (i.e., increases in turbulence) generate higher unemployment in a welfare state. den Haan, Haefke and Ramey (2005) challenge this finding by showing that if higher turbulence means that voluntary quits are also exposed to even a tiny risk of skill loss, then higher turbulence leads to lower unemployment within their matching model. We show (1) that there is no such brittleness of the positive turbulence-unemployment relationship in the matching model of Ljungqvist and Sargent (2007) even if we add such "quit turbulence", and (2) that if den Haan et al. had calibrated their productivity distribution to fit observed unemployment patterns that they miss, then they too would have found a positive turbulence-unemployment relationship in their model. Thus, we trace den Haan et al.'s finding to their assuming a narrower productivity distribution than Ljungqvist and Sargent had. Because den Haan et al. assume a distribution with such narrow support that it implies small returns to reallocating labor, even a small mobility cost shuts down voluntary separations. But that means that the imposition of a small layoff cost in tranquil times has counterfactually large unemployment suppression effects. When the parameterization is adjusted to fit historical observations on unemployment and layoff costs, a positive relationship between turbulence and unemployment reemerges.
    Keywords: layoff costs; layoffs; matching model; quits; skills; turbulence; unemployment
    JEL: E24 J63 J64
    Date: 2018–02
  11. By: Hyunju Kang (Korea Capital Market Institute); Jaevin Park (University of Mississippi); Hyunduk Suh (Inha University)
    Abstract: During the Great Recession, the U.S. economy witnessed a substantial rise in part-time employment for sustained periods. We extend the New Keynesian-unemployment model by Gali et al. (2012) to allow substitution between full-time and part-time labor and estimate the model's parameters using the Bayesian method. In our model, households and firms can optimally allocate full-time and part-time labor. Moreover, disturbances exist in part-time labor supply (household disutility in part-time labor) and part-time labor demand (firms' efficiency to utilize part-time labor). Although several shocks were found to cause the transition to part-time jobs during the recession, the most important factor was the part-time labor supply shock that increases part-time participation. The transition from full-time to part-time jobs, caused by part-time labor market shocks, mitigated the contraction in output during the recession. Part-time labor supply shock also explains a significant portion of slow recovery in gross wage during the recession, as the shock lowers part-time wage as well as the proportion of full-time workers in total employment.
    Keywords: Part-time labor, Great Recession, Unemployment, New Keynesian model
    JEL: E24 E47 E52
    Date: 2018–02
  12. By: Blundell, Richard (University College London); Pistaferri, Luigi (Stanford University); Saporta-Eksten, Itay (Tel Aviv University)
    Abstract: We consider the life cycle choices of a household that in each period decides how much to consume and how to allocate spouses' time to work, leisure, and childcare. In an environment with uncertainty, the allocation of goods and time over the life cycle also serves the purpose of smoothing marginal utility in response to shocks. We combine data on consumption, spouses' wages, hours of work, and time spent with children to estimate the sensitivity of consumption and time allocation to transitory and permanent wage shocks. These structural parameters describe the ability of household to self-insure in response to shocks. We find that behavioral responses to wage shocks depend on the presence of young children. We also find that labor supply cross-responses depend on three counteracting forces: complementarity of leisure time, substitutability of time in the production of child services, and added worker effects.
    Keywords: family labor supply, time use, consumption smoothing
    JEL: J22
    Date: 2017–12
  13. By: Nicole Aregger
    Abstract: Motivated by the potential contribution of China's unilateral peg to asset price in flation in the US before the financial crisis of 2007-2009, this paper studies the effect of alternative exchange rate regimes ( flexible versus fixed) on the response of asset prices to economic shocks. I use a two-country general equilibrium model with sticky prices and extend earlier work on this topic by making use of a newer method for analyzing portfolio choice in DSGE models. My findings suggest that asset price responses to shocks differ across regimes. In particular, under a fixed regime, which is operated by the foreign country, responses to shocks in the home country are stronger than under a flexible regime. For home asset prices, however, the amplification of shock responses tends to be small. Applied to the US and China, this implies that, under China's prevailing unilateral peg, the Fed's expansionary monetary policy before the crisis resulted in a slightly but not substantially stronger US asset price infl ation relative to the one that would have been observed under a floating USD/CNY exchange rate.
    Date: 2018–02
  14. By: Benjamin Carton; Emilio Fernández Corugedo; Benjamin L Hunt
    Abstract: The Global Integrated Monetary and Fiscal model (GIMF) is a multi-region, forward-looking, DSGE model developed by the Economic Modeling Division of the IMF for policy analysis and international economic research. This paper uses GIMF to illustrate when a destination-based cash-flow tax is equivalent to a combination of a consumption tax and a labor subsidy, as the latter combination have been advocated as proxies for the implementation of destination-based cash-flow taxes. The paper documents the conditions under which both types of taxes are identical and how the equivalence in terms of the real economy and tax revenue responses can be broken, namely after the introduction of finitely lived consumers that value government debt as net wealth (real economy) and the introduction of untaxed government expenditure (tax revenue).
    Date: 2017–12–14
  15. By: Jalali Naini, Ahmad Reza; Naderian, Mohammad Amin
    Abstract: This paper develops a new Keynesian DSGE model compatible with the structural characteristics of commodity exporting developing economies (financial vulnerability, relatively high pass-through rates, procyclical fiscal policy, and high terms of trade volatility) to compare the performance of alternative policy regimes, namely flexible domestic inflation targeting, flexible consumer price index inflation targeting, and the real exchange rate targeting. Evaluation of the above alternative policy regimes and relative stability of key macroeconomic variables are conducted through an optimal Ramsey policy method. The policy evaluation results based both on stabilization and welfare measures obtained for the case of Iran imply that for the developing commodity (oil) exporting economies stabilization with a broader inflation targeting framework in which the real exchange rate is also targeted is the superior policy regime. Optimality of the alternative policy regimes and their rank are sensitive to the degree of financial vulnerability. Financial vulnerability in this model explains why departure from floating exchange rate in an inflation targeting framework is the appropriate policy and not merely a “fear”. As the degree of financial development increases sufficiently, the standard flexible inflation targeting becomes the superior policy regime. A policy rule to weaken procyclicality of fiscal policy further enhances the welfare performance of this regime.
    Keywords: Financial vulnerability; inflation targeting; fear of floating; Ramsey method.
    JEL: E52
    Date: 2017–08–01
  16. By: Roger Farmer
    Abstract: This paper constructs a general equilibrium model where asset price fluctuations are caused by random shocks to beliefs about the future price level that reallocate consumption across generations. In this model, asset prices are volatile, and price-earnings ratios are persistent, even though there is no fundamental uncertainty and financial markets are sequentially complete. I show that the model can explain a substantial risk premium while generating smooth time series for consumption. In my model, asset price fluctuations are Pareto inefficient and there is a role for treasury or central bank intervention to stabilize asset price volatility.
    JEL: E0 G1
    Date: 2018–01
  17. By: Gauti B. Eggertsson; Jacob A. Robbins; Ella Getz Wold
    Abstract: The macroeconomic data of the last thirty years has overturned at least two of Kaldor’s famous stylized growth facts: constant interest rates, and a constant labor share. At the same time, the research of Piketty and others has introduced several new and surprising facts: an increase in the financial wealth-to-output ratio in the US, an increase in measured Tobin’s Q, and a divergence between the marginal and the average return on capital. In this paper, we argue that these trends can be explained by an increase in market power and pure profits in the US economy, i.e., the emergence of a non-zero-rent economy, along with forces that have led to a persistent long term decline in real interest rates. We make three parsimonious modifications to the standard neoclassical model to explain these trends. Using recent estimates of the increase in markups and the decrease in real interest rates, we show that our model can quantitatively match these new stylized macroeconomic facts.
    JEL: E3 E5 E6 O4
    Date: 2018–02
  18. By: Alessandro Ferrari (Bank of Italy)
    Abstract: Data demonstrate a correlation between demographic variables and financial cycle: an increase in the working-age population is associated with an expansion of the financial cycle, that is, credit growth and increased housing prices. To account for this stylized fact, this paper uses an OLG model with data on housing prices, life-cycle of income, and consumption. A transitory baby boom, which increases the working-age population, leads to higher housing prices and household borrowing.
    Keywords: financial cycle, demographic trends, overlapping generations, housing
    JEL: D53 E21 E32 J11
    Date: 2017–12
  19. By: Cooke, Dudley (University of Exeter); Kara, Engin (Cardiff University)
    Abstract: We develop an open economy New Keynesian model with heterogeneity in price stickiness and positive trend inflation. The main insight of our analysis is that, in the presence of heterogeneity in price stickiness, there is a strong link between trend inflation and the timing of the peak response of the real exchange rate to a monetary policy shock. Without trend inflation, the real exchange rate peaks almost immediately. With trend inflation set at historical values, the peak occurs at around 2 years. Delayed overshooting is a consequence of the interaction between heterogeneity in price stickiness and trend inflation.
    JEL: E52 F41 F44
    Date: 2018–01–01
  20. By: Thomaidou, Fotini
    Abstract: The purpose of this study is to explore the effects of exogenous social security system parameters on welfare. The set up is an overlapping generations economy, with skills heterogeneity, which distinguishes consumers between high and low skilled. The lowskilled receive an extra supplement pension. The social security system has three exogenous parameters: the benefits, the contributions, and the funding parameter. The author examines and compares the effects of these three exogenous social security parameters, first under inelastic and then under elastic labor supply, on individuals welfare. He finds that when labor supply is inelastic, the parameters affect differently the welfare of the high and the low-skilled, since for the latter, we must also take into account the indirect effects through the supplement pension provision. When labor supply is elastic, the effects of changes in the social security parameters on welfare are the same for both the high and the low skilled, as in the case of inelastic labor supply.
    Keywords: social security,pensions,PAYGO,funded systems,welfare,skills heterogeneity
    JEL: D11 E21 H55
    Date: 2018
  21. By: Florian, David (Banco Central de Reserva del Perú); Limnios, Chris (Providence College); Walsh, Carl (University of California, Santa Cruz)
    Abstract: This paper studies a channel system for implementing monetary policy when bank lending is subject to frictions. These frictions affect the spread between the interbank rate and the loan rate. We show how the width of the channel, the nature of random payment flows in the interbank market and the presence of frictions in the loan market affect the propagation of financial shocks that originate either in the interbank market or in the loan market. We study the transmission mechanism of two different financial shocks: 1) An increase in the volatility of the payment shock that banks face once the interbank market has closed and 2) An exogenous termination of loan contracts that directly affects the probability of continuation of credit relationships. Both financial shocks are propagated through the interaction of the marginal value of having excess reserves as collateral relative to other bank assets, the real marginal cost of labor for all active firms and the reservation productivity that selects the mass of producing firms. Our results suggest that financial shocks produce a reallocation of bank assets towards excess reserves as well as intensive and extensive margin effects over employment. The aggregation of those effects produce deep and prolonged recessions that are associated to fluctuations in the endogenous component of total factor productivity that appears as an additional input in the aggregate production function of the economy. We show that this wedge depends on aggregate credit conditions and on the mass of producing firms.
    Keywords: Monetary policy implementation, channel system, central bank, credit frictions
    JEL: E4 G21
    Date: 2018–02
  22. By: Jinill, Kim; Ruge-Murcia, Francisco
    Abstract: This paper studies the implication of extreme shocks for monetary policy. The analysis is based on a small-scale New Keynesian model with sticky prices and wages where shocks are drawn from asymmetric Generalized Extreme Value distributions. A nonlinear perturbation solution of the model is estimated by the simulated method of moments. Under the Ramsey policy, the central bank responds nonlinearly and asymmetrically to shocks. The trade-off between targeting a gross inflation rate above 1 (or a net inflation rate above 0) as insurance against extreme shocks and targeting an average gross inflation at unity to avoid adjustment costs is unambiguously decided in favour of strict price stability.
    JEL: E4 E5
    Date: 2018–02–06
  23. By: Lena Dräger (Johannes Gutenberg University Mainz); Giang Nghiem (Goethe-University Frankfurt am Main)
    Abstract: Evaluating two new survey datasets of German consumers, we test whether individual consumption spending decisions are formed according to an Euler equation derived from consumption life-cycle models. Measured in qualitative individual changes, our results suggest that current and planned spending are positively correlated, thus supporting the hypothesis of consumption smoothing. Also, current spending is positively correlated with inflation expectations, and negatively with nominal interest rate expectations. Interestingly, the effect of perceived real interest rates is only significant for financial market participants, financially unconstrained households and those with high financial literacy, implying that these are important conditions for the ability to smooth consumption over time. Moreover, these households are better positioned in the wealth and income distributions. In that sense, the ability to smooth consumption may be a channel through which distributional effects of policy shocks may occur. Finally, news on inflation and monetary policy observed by the consumer strengthen the effect of their inflation expectations on current spending, suggesting that imperfect information may also influence the Euler equation relationship.
    Keywords: Euler equation; consumption plans; macroeconomic expectations; households; survey micro data
    JEL: D12 D84 E52
    Date: 2016–11–15
  24. By: Hafedh Bouakez; Rigas Oikonomou; Romanos Priftis
    Abstract: We study optimal debt management in the face of shocks that can drive the economy into a liquidity trap and call for an increase in public spending in order to mitigate the resulting recession. Our approach follows the literature of macroeconomic models of debt management, which we extend to the case where the zero lower bound on the short-term interest rate may bind. We wish to identify the conditions under which removing long-maturity government debt from the secondary market can be an optimal policy outcome. We show that the optimal debt-management strategy is to issue short-term debt if the government faces a sizable exogenous increase in public spending and if its initial liability is not very large. In this case, our results run against the standard prescription of the debt-management literature. In contrast, if the initial debt level is high, then issuing long term government bonds is optimal. Finally, we find a role for revisions in the debt management strategy during LT episodes, whereby the government actively manages the maturity structure, in some cases removing long bonds from the secondary market.
    Keywords: debt management, debt maturity, fiscal policy, liquidity trap, monetary policy, tax smoothing, portfolio rebalancing
    JEL: E43 E62 H63
    Date: 2017

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