nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2018‒10‒22
24 papers chosen by
Christian Zimmermann
Federal Reserve Bank of St. Louis

  1. Heterogeneity, Rigidity and Convergence of Labor Markets in the Euro Area By Jocelyn Maillard
  2. Monetary Policy Volatility Shocks in Brazil By Angelo Marsiglia Fasolo
  3. Financial Frictions, the Phillips Curve and Monetary Policy By Lieberknecht, Philipp
  4. Managing Reductions in Aid Inflows: Assessing Policy Choices in Haiti By Ioana Moldovan; Marina V Rousset; Chris Walker
  5. Neo-Fisherianism in a Small Open-Economy New Keynesian Model By Eurilton Araújo
  6. Fiscal Multipliers and Financial Crises By Faria-e-Castro, Miguel
  7. Robust Macroprudential Policy Rules under Model Uncertainty By Binder, Michael; Lieberknecht, Philipp; Quintana, Jorge; Wieland, Volker
  8. The Aggregate Consequences of Tax Evasion By Di Nola, Alessandro; Kocharkov, Georgi; Scholl, Almuth; Tkhir, Anna-Mariia
  9. Unemployment insurance union By Clemens, Marius; Claveres, Guillaume
  10. What inflation measure should a currency union target? By William Barnett; Chan Wang; Xue Wang; Liyuan Wu
  11. Population aging and cross-country redistribution in integrated capital markets By Davoine, Thomas
  12. Forward Guidance at the Zero Lower Bound: Curse and Blessing of Time-Inconsistency By Böhl, Gregor; Strobel, Felix
  13. Overcoming the Original Sin: gains from local currency external debt By Ricardo Sabbadini
  14. A structural analysis of US entry and exit dynamicsn By Miguel Casares Polo; Sandra Miñes
  15. Technological unemployment revisited: Automation in a search and matching framework By Cords, Dario; Prettner, Klaus
  16. Dynamics of Deterrence: A Macroeconomic Perspective on Punitive Justice Policy By Bulent Guler; Amanda Michaud
  17. Household Leverage and the Recession By Callum Jones; Virgiliu Midrigan; Thomas Philippon
  18. The 2008 U.S. Auto Market Collapse By Dupor, Bill; Li, Rong; Mehkari, M. Saif; Tsai, Yi-Chan
  19. Cross-Border Credit Intermediation and Domestic Liquidity Provision in a Small Open Economy By Thorvardur T. Olafsson
  20. Is Marriage for White People? Incarceration, Unemployment, and the Racial Marriage Divide By Elizabeth Caucutt; Nezih Guner; Christopher Rauh
  21. A Large Central Bank Balance Sheet? The Role of Interbank Market Frictions By Thaler, Dominik
  22. Euro Area and U.S. External Adjustment: The Role of Commodity Prices and Emerging Market Shocks By Giovannini, Massimo; Kollmann, Robert; Ratto, Marco; Roeger, Werner; Vogel, Lukas
  23. The Macroeconomic Consequences of Early Childhood Development Policies By Daruich, Diego
  24. A Job Ladder Model with Stochastic Employment Opportunities By Bradley, Jake; Gottfries, Axel

  1. By: Jocelyn Maillard (Univ Lyon, Université Lumière Lyon 2, GATE UMR 5824. 93, Chemin des Mouilles, F-69130 Ecully, France)
    Abstract: This paper investigates the welfare consequences of labor market convergence reforms for a large range of calibrations in a two-country monetary union DSGE model with search and matching frictions. The model features trade in consumption and investment goods, price stickiness, firing costs and is calibrated to reflect the structural asymmetries of flexible and rigid countries of the Euro Area in terms of size and labor market variables. Across steady states, convergence brings welfare gains for the rigid country and welfare losses for the flexible country in most situations. The higher the flexibility induced by the convergence, the higher the gains for the rigid country and the lower the losses for the flexible country. Taking into account the transition path brings results that are qualitatively similar, but have a lower magnitude in terms of welfare gains/losses. Indeed, wage bargaining has a short-term negative impact on the rigid country and a short-term positive impact on the flexible country. As such, I conclude that convergence in labor markets can lead to substantial welfare gains in a monetary union, but only if the implementation is carefully designed.
    Keywords: Unemployment, Monetary Union, Labor Market Reform
    JEL: E32 F41 J64
    Date: 2018
  2. By: Angelo Marsiglia Fasolo
    Abstract: This paper provides empirical evidence for the impact of changes in volatility of monetary policy in Brazil using a SVAR where the time-varying volatility of shocks directly affects the level of observed variables. Contrary to the literature, an increase in monetary policy volatility results in higher in inflation, combined with reduction in output. The qualitative differences of impulse responses functions, compared to the literature for developed economies, are explained using a calibrated small-scale DSGE model with habit persistence in consumption and stochastic volatility shocks in the Taylor rule. The DSGE model is capable of explaining the increase of inflation in the medium term after a monetary policy volatility shock
    Date: 2018–08
  3. By: Lieberknecht, Philipp
    Abstract: How does the presence of financial frictions alter the Phillips curve and the conduct of optimal monetary policy? I investigate this question in a tractable small-scale New Keynesian DSGE model with a financial accelerator. The accelerator amplifies shocks, decreases the slope of the Phillips curve and renders forward-looking behavior more relevant for current macroeconomic dynamics. I show analytically that these three factors imply an inflationary bias of discretionary monetary policy relative to the standard model and a stabilization bias relative to commitment policy. A conservative central banker who places a larger weight on inflation stabilization than society is able to reduce both biases and closely mimics the optimal policy under commitment. The required degree of inflation conservatism increases in the degree to which financial frictions are present.
    Keywords: Financial frictions, financial accelerator, Phillips curve, missing disinflation, optimal monetary policy, discretion, commitment, inflation conservatism, inflation targeting
    JEL: E4 E42 E44 E5 E52 E58
    Date: 2018–10–09
  4. By: Ioana Moldovan; Marina V Rousset; Chris Walker
    Abstract: A low-income country such as Haiti that confronts an environment of diminishing aid inflows must assess tradeoffs among the available policy options: spending cuts, monetization, sales of debt, or use of foreign reserves. To provide the analytical tools for this task, the paper draws from a set of DSGE models recently developed to evaluate policy choices in low-income countries for which external aid flows represent an important revenue source. Two simplified stylized variations of the main model are used to gain intuition and initially assess the trdeaoffs. Subsequenctly a full-scale small open economy DSGE model, calibrated to match conditions in Haiti and in similar low-income countries, is employed. Several key results are common to all model versions. While sales of foreign exchange reserves can compensate for the loss of aid inflows, this strategy is not sustainable. The remaining policy choices entail larger welfare costs, involving lower consumption levels and real depreciation. The results suggest that a mixture of spending cuts and depreciation is the best strategy, when use of foreign reserves is constrained.
    Keywords: General equilibrium models;Fiscal policy;Monetary policy;Public investment;International reserves;Capital inflows;Low-income developing countries;Haiti;Dynamic Stochastic General Equilibrium Model (DSGE); Aid; Fiscal Policy; Monetary Policy; Public Investment; Foreign Reserves; Haiti
    Date: 2018–09–11
  5. By: Eurilton Araújo
    Abstract: In this study, the Neo-Fisherian hypothesis denotes the positive short-run co-movement between the nominal interest rate and inflation conditional on a monetary policy shock. To investigate the situations in which this hypothesis may arise in a simple small open-economy New Keynesian model, I extend the analysis of Garín et al. (2018) to the framework in Galí and Monacelli (2005). This paper shows that, under relatively high substitutability between domestic and foreign goods, this hypothesis most likely emerges in economies that are more open. Furthermore, targeting CPI inflation accentuates the forces leading to a Neo-Fisherian behavior
    Date: 2018–08
  6. By: Faria-e-Castro, Miguel (Federal Reserve Bank of St. Louis)
    Abstract: I study the macroeconomic effects of the US fiscal policy response to the Great Recession, accounting not only for standard tools such as government purchases and transfers but also for financial sector interventions such as bank recapitalizations and credit guarantees. A global solution to a quantitative model calibrated to the US allows me to study the state-dependent effects of different types of fiscal policies. I combine the model with data on the US fiscal policy response to find that the fall in aggregate consumption would have been twice as worse in the absence of that response with a cumulative loss of 14.5%. Transfers and bank recapitalizations yielded the largest fiscal multipliers at the height of the crisis through new transmission channels that arise from linkages between household and bank balance sheets.
    JEL: E4 E6 G01 G28
    Date: 2018–10–01
  7. By: Binder, Michael; Lieberknecht, Philipp; Quintana, Jorge; Wieland, Volker
    Abstract: Against the backdrop of elevated model uncertainty in DSGE models with a detailed modeling of financial intermediaries, we investigate the performance of optimized macroprudential policy rules within and across models. Using three canonical banking DSGE models as a representative sample, we show that model-specific optimized macroprudential policy rules are highly heterogeneous across models and not robust to model uncertainty, implying large losses in other models. This is particularly the case for a perfect-coordination regime between monetary and macroprudential policy. A Stackelberg regime with the central bank as leader operating according to the rule by Orphanides and Wieland (2013) implies smaller potential costs due to model uncertainty. An even more effective approach for policymakers to insure against model uncertainty is to design Bayesian model-averaged optimized macroprudential rules. These prove to be more robust to model uncertainty by performing better across models than model-specific optimized rules, regardless of the regime of interaction between the two authorities.
    Keywords: Macroprudential Policy,Optimized Policy Rules,Model Uncertainty,Bayesian Model-Averaging,Robust Policy Rules
    JEL: E44 E52 E58 E61 G28
    Date: 2018
  8. By: Di Nola, Alessandro; Kocharkov, Georgi; Scholl, Almuth; Tkhir, Anna-Mariia
    Abstract: There is a sizeable overall tax gap in the U.S., albeit tax noncompliance differs sharply across income types. While only small percentages of wages and salaries are underreported, the estimated misreporting rate of self-employment business income is substantial. This paper studies how tax evasion in the self-employment sector affects aggregate outcomes and inequality. To this end, we develop a dynamic general equilibrium model with incomplete markets in which heterogeneous agents choose between being a worker and being self-employed. Self-employed agents may hide a share of their business income but are confronted with the probability of being detected by the tax authority. Our model replicates important quantitative features of U.S. data, in particular, the misreporting rate, wealth inequality, and the firm size distribution. Our quantitative findings suggest that tax evasion induces self-employed businesses to stay small. In the aggregate, tax evasion increases the size but decreases the productivity of the self-employment sector. Moreover, it increases aggregate savings and reduces wealth inequality. We show that tax revenues follow a Laffer curve in the size of the tax evasion penalty.
    Keywords: Tax evasion,Self-Employment,Wealth inequality,Tax policy.
    JEL: H24 H25 H26 C63 E62 E65
    Date: 2018
  9. By: Clemens, Marius; Claveres, Guillaume
    Abstract: A European unemployment insurance scheme has gained increased attention as a new and ambitious common fiscal instrument which could be used for temporary cross-country transfers. Part of the national stabilizers composing unemployment insurance schemes would be transferred to the central level. Unemployed are then insured by both layers. When a country is hit by an asymmetric shock, it would receive positive net transfers from the central fund in the form of reduced taxes and increased benefits, providing risk-sharing for the whole union. We build a two-country DSGE model with supply, demand and labor market shocks in order to capture the recent national insurance system and the unemployment insurance union (UIU) design. The model is calibrated to the euro area core and periphery data and matches the empirically observed cyclicality of the net replacement rate, the wage and unemployment dynamics. This baseline scenario is then compared to an optimal unemployment insurance union with passive and active benefit policies. For all underlying shocks, we find that the UIU reduces the fluctuation of consumption and unemployment while it increases the fluctuations of the trade balance. In case of a positive domestic government spending shock the UIU reduces the negative crowding out effect on private consumption and investment. The model will be used to analyze the effects of national and supranational benefit policies on labour market patterns and welfare.
    Keywords: Unemployment insurance,search and matching,fiscal union
    JEL: E32 E61 J65
    Date: 2018
  10. By: William Barnett (Department of Economics, The University of Kansas; Center for Financial Stability, New York City; IC2 Institute, University of Texas at Austin); Chan Wang (School of Finance, Central University of Finance and Economics, Beijing, China); Xue Wang (Department of Finance, Jinan University, Guangzhou, China); Liyuan Wu (Guanghua School of Management, Peking University, Beijing, China)
    Abstract: What is the appropriate inflation target for a currency union, when conducting monetary policy: core inflation or headline inflation? We answer the question in a two-country New Keynesian model with an energy sector. We derive the welfare loss function and find that optimal monetary policy should target output gaps, the terms of trade gap, the Prouder Price Index inflation rates, and the real marginal cost gaps. We use the welfare loss function to evaluate two alternative Taylor-type monetary policy rules. We find that the choice of preferred policy rule depends on the shocks. Specifically, when productivity shocks hit the economy, the policymaker should follow the headline inflation Taylor rule, while the core inflation Taylor rule should be followed when a negative energy endowment shock hits the economy.
    Keywords: Core inflation; Headline inflation; Optimal monetary policy; Currency union; Welfare.
    JEL: E5 F3 F4
    Date: 2018–05
  11. By: Davoine, Thomas
    Abstract: Population aging challenges the financing of social security systems in developed economies, as the fraction of the population in working age declines. The resulting pressure on capital-labor ratios translates into a pressure on factor prices and production. While European countries all face this challenge, the speed at which their population ages differs, and thus the pressure on capital-labor ratios. If capital markets are integrated, differences in population aging may lead to cross-country spillovers, as investors freely seek the best returns on capital. Using a multi-country overlapping-generations model covering 14 European Union countries, I quantify spillovers and find that capital market integration leads to redistribution across countries over the long run. For instance, GDP per capita would on average be 2.9 %-points lower in Germany in each of the next 50 years if capital markets were perfectly integrated and public debts kept constants with increases in labor income taxes, compared to a closed economy case; by contrast, GDP per capita would on average be 2.1 %-points higher in France, whose population ages slower than in Germany. I also show that pension reforms can change the cross-country redistribution patterns, some countries losing from capital market integration without the reform but winning with it.
    Keywords: population aging,pension reforms,capital markets,cross-country spillovers,overlapping-generations modelling
    JEL: C68 E60 F41 J11
    Date: 2018
  12. By: Böhl, Gregor; Strobel, Felix
    Abstract: Forward guidance as a tool of unconventional monetary policy can be highly efficient to support aggregate demand and to steer the economy out of the zero lower bound (ZLB). However, the effect that stimulates the economy can give rise to a time-inconsistency problem: if the central bank promises to keep interest rates at the ZLB for long, the sub-sequent increase in inflation and economic activity may create a motive for the central bank to forego its promise and to exit the ZLB earlier than announced. We illustrate the time-inconsistency problem in a New Keynesian model with hand-to-mouth consumers. Using a novel and analytically tractable method for handling occasionally binding constraints, we contrast the case of commitment to forward guidance with the case in which monetary policy allows for an early exit of the ZLB. Our method is able to provide results on uniqueness and existence of (ZLB) equilibria. We study the equilibrium selection given different scenarios and conclude that central bankers should be careful when choosing the number of periods with low interest rates in order to avoid the inconsistency problem. Furthermore, we calculate government spending multipliers and argue that the multiplier is even larger if combined with forward guidance.
    Keywords: Forward Guidance,zero lower bound,occasionally binding constraints,government spending multiplier
    JEL: E63 C63 E58 E32 C62
    Date: 2018
  13. By: Ricardo Sabbadini
    Abstract: Is it better for emerging countries to issue external debt denominated in local (LC) or foreign currency (FC)? An economy issuing LC debt can avoid an explicit and costly default by inflating away its debt. However, in the hands of a discretionary policymaker, such tool might lead to excessive inflation and negative consequences for welfare. To investigate this question, I develop a quantitative model of sovereign default extended to incorporate real exchange rates and inflation. I find that an economy issuing LC debt defaults less often, sustains slightly lower debt levels, and presents positive average inflation. The net effect is a modest welfare loss when compared to issuing debt in FC. However, if monetary policy is credible, the welfare change is positive, but also of limited size. In this case, the real exchange rate serves as a buffer to accommodate negative output shocks and to prevent defaults
    Date: 2018–09
  14. By: Miguel Casares Polo (Departamento de Economía-UPNA); Sandra Miñes (UPNA)
    Abstract: We report empirical evidence indicating that US business formation has recently turned more volatile, procyclical and persistent due to changes in exit dynamics. To study these stylized facts, we estimate a DSGE model with endogenous entry and exit. Business units feature heterogeneous productivity and they shut down if the present value of expected future dividends falls below the current liquidation value. The estimation results imply structural changes in US exit dynamics after 2007: the semi- elasticity of the exit rate to critical productivity has increased and the average plant-level productivity has decreased.
    Keywords: Endogenous entry and exit, DSGE models, US business cycles
    JEL: E20 E32
    Date: 2018
  15. By: Cords, Dario; Prettner, Klaus
    Abstract: Will low-skilled workers be replaced by automation? To answer this question, we set up a search and matching model that features two skill types of workers and includes automation capital as an additional production factor. Automation capital is a perfect substitute for low-skilled workers and an imperfect substitute for high-skilled workers. Using this type of model, we show that the accumulation of automation capital decreases the labor market tightness in the low-skilled labor market and increases the labor market tightness in the high-skilled labor market. This leads to a rising unemployment rate of low-skilled workers and a falling unemployment rate of high-skilled workers. In addition, automation leads to falling wages of low-skilled workers and rising wages of high-skilled workers.
    Keywords: unemployment,automation,search and matching model,technological progress,inequality,skill premium
    JEL: C78 J63 J64 O33
    Date: 2018
  16. By: Bulent Guler (Indiana University Bloomington); Amanda Michaud (University of Western Ontario)
    Abstract: We argue that transitional dynamics play a critical role in the evaluation of punitive incarceration reform on crime, inequality and the macroeconomy. Individuals’ past choices related to crime and employment under old policies have persistent consequences that limit their future responses to policy changes. Novel cohort evidence is provided in support of this mechanism. A quantitative model of this theory calibrated using restricted administrative data predicts nuanced, non-monotone dynamics of crime and incarceration similar to the U.S. experience following a single permanent increase in punitive incarceration in the 1980s. Increased inequality and declining employment accompany these changes and are borne unequally across generations.
    Date: 2018
  17. By: Callum Jones; Virgiliu Midrigan; Thomas Philippon
    Abstract: We evaluate and partially challenge the ‘household leverage’ view of the Great Recession. In the data, employment and consumption declined more in states where household debt declined more. We study a model where liquidity constraints amplify the response of consumption and employment to changes in debt. We estimate the model with Bayesian methods combining state and aggregate data. Changes in household credit limits explain 40 percent of the differential rise and fall of employment across states, but a small fraction of the aggregate employment decline in 2008-2010. Nevertheless, since household deleveraging was gradual, credit shocks greatly slowed the recovery.
    Keywords: United States;Western Hemisphere;Financial crises;Great Recession, Household Debt, Regional Evidence, Zero Lower Bound, General
    Date: 2018–08–30
  18. By: Dupor, Bill (Federal Reserve Bank of St. Louis); Li, Rong (Renmin University of China); Mehkari, M. Saif (University of Richmond); Tsai, Yi-Chan (National Taiwan University)
    Abstract: New vehicle sales in the U.S. fell nearly 40 percent during the last recession, causing significant job losses and unprecedented government interventions in the auto industry. This paper explores two potential explanations for this decline: falling home values and falling households’ income expectations. First, we establish that declining home values explain only a small portion of the observed reduction in vehicle sales. Using a county-level panel from the episode, we find: (1) A one-dollar fall in home values reduced new vehicle spending by about 0.9 cents; and (2) Falling home values explain approximately 19 percent of the aggregate vehicle spending decline. Next, examining state-level data from 1997-2016, we find: (3) The short-run responses of vehicle consumption to home value changes are larger in the 2005-2011 period relative to other years, but at longer horizons (e.g. 5 years), the responses are similar across the two sub-periods; and (4) The service flow from vehicles, as measured from miles traveled, responds very little to house price shocks. We also detail the sources of the differences between our findings (1) and (2) from existing research. Second, we establish that declining current and expected future income expectations played an important role in the auto market’s collapse. We build a permanent income model augmented to include infrequent, repeated car buying. Our calibrated model matches the pre-recession distribution of auto vintages and exhibits a large vehicle sales decline in response to a moderate decline in expected permanent income. In response to the decline in permanent income, households delay replacing existing vehicles, allowing them smooth the effects of the income shock without significantly adjusting the service flow from their vehicles. Combining our negative results regarding housing wealth with our positive model-based findings, we interpret the auto market collapse as consistent with existing permanent income based approaches to durable goods consumption (e.g., Leahy and Zeira (2005)).
    Date: 2018–09–11
  19. By: Thorvardur T. Olafsson
    Abstract: This paper develops a small open economy model where global and domestic liquidity is intermediated to the corporate sector through two financial processes. Investment banks intermediate cross-border credit through interlinked debt contracts to entrepreneurs and commercial banks intermediate domestic savings to liquidity constrained final good producers. Both processes are needed to facilitate development of key production inputs. The model captures procyclical investment bank leverage dynamics, global liquidity spillovers, domestic money market pressures, and macrofinancial linkages through which shocks propagate across the two processes, affecting spreads and balance sheets, as well as the real economy through investment and working capital channels.
    Keywords: Financial intermediation;financial frictions, cross-border banking flows, macrofinancial linkages, working capital, credit contracts, General, Financial Markets and the Macroeconomy, International Lending and Debt Problems, Open Economy Macroeconomics
    Date: 2018–09–11
  20. By: Elizabeth Caucutt (Western University Canada); Nezih Guner (CEMFI); Christopher Rauh (University of Cambridge, INET Institute)
    Abstract: The black-white differences in marriages in the US are striking. While 83% of white women between ages 25 and 54 were ever married in 2006, only 56% of black women were: a gap of 27 percentage points. Wilson (1987) suggests that the lack of marriageable black men due to incarceration and unemployment is responsible for low marriage rates among the black population. In this paper, we take a dynamic look at the Wilson Hypothesis. We argue that the current incarceration policies and labor market prospects make black men riskier spouses than white men. They are not only more likely to be, but also to become, unemployed or incarcerated than their white counterparts. We develop an equilibrium search model of marriage, divorce and labor supply that takes into account the transitions between employment, unemployment and prison for individuals by race, education, and gender. We estimate model parameters to be consistent with key statistics of the US economy. We then investigate how much of the racial divide in marriage is due to differences in the riskiness of potential spouses. We find that differences in incarceration and employment dynamics between black and white men can account for half of the existing black-white marriage gap in the data.
    Keywords: Marriage, race, incarceration, Inequality, unemployment
    JEL: J12 J21 J64
    Date: 2018–10
  21. By: Thaler, Dominik
    Abstract: Recent quantitative easing (QE) policies implemented over the course of the Great Recession by the major central banks have had a profound impact on the working of money markets, giving rise to large excess reserves and pushing down key interbank rates against their floor .the interest rate on reserves. With macroeconomic fundamentals improving, central banks now face the dilemma as to whether to maintain this large balance sheet/floor system, or else to reduce balance sheet size towards pre-crisis trends and operate traditional corridor systems. We address this issue using a relatively simple New Keynesian model with two distinct features: heterogeneous banks that trade funds in an interbank market, and matching frictions in the latter market. We show that a large balance sheet allows for ampler .policy widening the average distance between the interest on reserves and its effective lower bound. Nonetheless, a lean-balance-sheet regime that resorts to temporary QE in response to recessions severe enough for the lower bound to bind achieves similar stabilization and welfare outcomes as a large-balance-sheet regime in which interest-rate policy is the primary adjustment margin thanks to the larger policy space. At the same time, the effectiveness of QE through the channel we model is limited. In line with the empirical evidence, the marginal effect vanishes as the balance sheet becomes very big.
    Keywords: central bank balance sheet,interbank market,search and matching frictions,reserves,zero lower bound
    JEL: E20 E30 G10 G20
    Date: 2018
  22. By: Giovannini, Massimo; Kollmann, Robert; Ratto, Marco; Roeger, Werner; Vogel, Lukas
    Abstract: The trade balances of the Euro Area (EA) and of the US have improved markedly after the Global Financial Crisis. This paper quantifies the drivers of EA and US economic fluctuations and external adjustment, using an estimated (1999-2017) three-region (US, EA, rest of world) DSGE model with trade in manufactured goods and in commodities. In the model, commodity prices reflect global demand and supply conditions. The paper highlights the key contribution of the post-crisis collapse in commodity prices for the EA and US trade balance reversal. Aggregate demand shocks originating in Emerging Markets too had a significant impact on EA and US trade balances. The broader lesson of this paper is that Emerging Markets and commodity shocks are major drivers of advanced countries’ trade balances and terms of trade.
    Keywords: EA and US external adjustment,commodity markets,emerging markets
    JEL: F2 F3 F4 F2 F3 F4
    Date: 2018
  23. By: Daruich, Diego (Federal Reserve Bank of St. Louis)
    Abstract: To study long-run large-scale early childhood policies, this paper incorporates early childhood investments into a standard general-equilibrium (GE) heterogeneous-agent overlapping-generations model. After estimating it using US data, we show that an RCT evaluation of a short-run small-scale early childhood program in the model predicts effects on children's education and income that are similar to the empirical evidence. A long-run large-scale program, however, yields twice as large welfare gains, even after considering GE and taxation effects. Key to this difference is that investing in a child not only improves her skills but also creates a better parent for the next generation.
    Keywords: Inequality; intergenerational mobility; early childhood development
    JEL: J13 J24 J62
    Date: 2018–10–11
  24. By: Bradley, Jake (University of Nottingham); Gottfries, Axel (University of Edinburgh)
    Abstract: We set up a model with on-the-job search in which firms infrequently post vacancies for which workers occasionally apply. The model nests the standard job ladder and stock-flow models as special cases while remaining analytically tractable and easy to estimate from standard panel data sets. Structurally estimating the model, the parameters are significantly different from the stock-flow or the job ladder model. Further, the estimated parameters governing workers search behavior are found to be consistent with recent survey evidence documented in Faberman et al. (2016). The search behavior implied by the standard job ladder model significantly understates the search option associated with employment (and thus underestimates the replacement ratio). Finally, the standard model is unable to generate the decline in the job finding rate and starting wage with duration of unemployment, both of which are present in our data.
    Keywords: on-the-job search, wage dispersion, wage posting, stock-flow
    JEL: J31 J64
    Date: 2018–08

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