|
on Dynamic General Equilibrium |
| By: | Krueger, Dirk; Ludwig, Alexander (Munich Center for the Economics of Aging (MEA)) |
| Abstract: | [English] We characterize the optimal linear tax on capital in an Overlapping Generations model with two period lived households facing uninsurable idiosyncratic labor income risk. The Ramsey government internalizes the general equilibrium feedback of private precautionary saving. For logarithmic utility our full analytical solution of the Ramsey problem shows that the optimal aggregate saving rate is independent of income risk. The optimal time-invariant tax on capital is increasing in income risk. Its sign depends on the extent of risk and on the Pareto weight of future generations. If the Ramsey tax rate that maximizes steady state utility is positive, then implementing this tax rate permanently generates a Pareto-improving transition even if the initial equilibrium is dynamically efficient. We generalize our results to Epstein-Zin-Weil utility and show that the optimal steady state saving rate is increasing in income risk if and only if the intertemporal elasticity of substitution is smaller than 1. [German] Sollten Kapitaleinkommen besteuert werden? Diese Frage hat in der Theorie der optimalen Besteuerung und in ihrer quantitativen Anwendung schon eine lange Reihe ökonomischer Literatur beschäftigt. Frühere Antworten zu dieser Frage, unter Verwendung relativ stilisierter ökonomischer Rahmenbedingungen, waren negativ. Das bedeutet, die Literatur kam zu dem Schluss, dass optimale Kapitaleinkommenssteuern null seien. Dies steht im Gegensatz zu den hohen Steuern auf Kapitaleinkommen, die in allen Industriestaaten zu beobachten sind. Eine aktuellere, größtenteils quantitative Literatur fand hingegen heraus, dass optimale Kapitaleinkommenssteuern positiv sein sollten. Gründe für diese Feststellung sind, dass zum einen Kapitaleinkommenssteuern ein effektiver Ersatz für fehlende altersabhängige Einkommenssteuern sein können, zum anderen dass sie ein effektives umverteilendes Steuerinstrument sind (von einkommensstarken zu einkommensschwachen Haushalten), und zum dritten, dass die Besteuerung von Kapitaleinkommen eine Absicherung gegen Einkommens- oder Renditeschocks aus der ex-ante Perspektive darstellen. Unser theoretisches Paper gibt neue analytische Einsichten für Gründe für optimale Steuern auf Kapitaleinkommen, die Aufschluss darüber geben, welche Mechanismen die Resultate in der überwiegend quantitativen Literatur treiben. Wir legen den Fokus auf einen Effekt, der bisher in der Literatur keine explizite Aufmerksamkeit erfahren hat, der jedoch implizit in zahlreichen quantitativen Studien über optimale Kapitaleinkommenssteuern präsent ist. In Gegenwart von Einkommensrisiken und unvollständiger Absicherung gegen diese, sichern sich Haushalte gegen niedrige Einkommensrealisierung durch privates Sparen ab. Wir zeigen, dass ein solches vorsorgendes Sparverhalten negative Effizienzwirkungen in der aggregierten Volkswirtschaft haben kann, insbesondere für die Renditen aus Kapitalanlagen. Der Staat internalisiert dieses negative Feedback. Wenn diese negativen Feedback-Effekte stark genug sind, dann sollten optimale Kapitaleinkommenssteuern positiv sein. Um diese Einsichten in all ihrer theoretischen Klarheit abzuleiten, halten wir das ökonomische Umfeld, das wir betrachten, sehr stilisiert. Während wir dadurch sehr klare und trennscharfe Charakterisierungen der treibenden Kräfte der optimalen Kapitaleinkommenssteuern liefern können, ist es trotzdem wichtig zu betonen, dass unser theoretischer Beitrag nicht beabsichtigt, ein realistisches ökonomisches Modell für eine quantitative Exploration zu stellen. Folglich ist der Hauptzweck unserer Analyse, hilfreiche Einsichten für eine verbesserte Interpretation der Erkenntnisse in der existierenden quantitativen Literatur über optimale Kapitaleinkommenssteuern zu bieten. |
| JEL: | H21 H31 E21 |
| Date: | 2018–02–09 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:201802&r=dge |
| By: | Benjamin Griffy |
| Abstract: | This paper quantifies the impact of borrowing constraints on consumption and earnings inequality in a life-cycle model with labor market search and endogenous human capital accumulation. I first show that following an unemployment spell, likely-constrained workers in the Survey of Income and Program Participation match to jobs that pay more per quarter when they receive an increase in their unemployment insurance. I then construct a life-cycle model with risk averse workers who face borrowing constraints, accumulate human capital endogenously, and search both on and off the job. I use indirect inference to estimate the model parameters, and show that wealth inequality causes both placement into lower-paying jobs as well as slower human capital accumulation when workers face borrowing constraints. Unemployment risk is partially responsible for this change in human capital accumulation. I compare changes in initial conditions and find that a standard deviation decrease in initial wealth causes a larger decline in life-cycle consumption than a standard deviation decrease in initial human capital. |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:nya:albaec:18-01&r=dge |
| By: | Guilherme Bandeira (Banco de España); Jordi Caballé (Universitat Autònoma de Barcelona and Barcelona GSE); Eugenia Vella (Move, Universitat Autònoma de Barcelona, and University of Sheeld) |
| Abstract: | High unemployment and fiscal austerity during the Great Recession have led to significant migration outflows in those European countries that suffered a deep deterioration of their economy, Greece being the most obvious case. This paper introduces endogenous migration in a small open economy DSGE model to analyze the business cycle effects from the interaction of fiscal consolidation instruments with migration. A tax-based consolidation induces the strongest increase in emigration, leading to the highest costs in terms of aggregate GDP and unemployment in the medium run. As a result, the unemployment gains from migration are only temporary. However, in terms of per capita GDP, cuts in the components of public spending that are either productive or utility-enhancing can lead to a deeper contraction than tax hikes or wasteful spending cuts. The introduction of potential migration by the employed implies even higher unemployment costs, a deeper demand contraction, and an increase in both the tax hike and the time required to achieve the same size of fiscal consolidation. |
| Keywords: | fiscal consolidation, migration, matching frictions, on-the-job search |
| JEL: | E32 F41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1839&r=dge |
| By: | Börsch-Supan, Axel; Härtl, Klaus; Leite, Duarte Nuno; Ludwig, Alexander (Munich Center for the Economics of Aging (MEA)) |
| Abstract: | We propose a unified framework to measure the effects of different reforms of the pension system on retirement ages and macroeconomic indicators in the face of demographic change. A rich overlapping generations (OLG) model is built and endogenous retirement decisions are explicitly modeled within a public pension system. Heterogeneity with respect to consumption preferences, wage profiles, and survival rates is embedded in the model. Besides the expected direct effects of these reforms on the behavior of households, we observe that feedback effects do occur. Results suggest that individual retirement decisions are strongly influenced by numerous incentives produced by the pension system and macroeconomic variables, such as the statutory eligibility age, adjustment rates, the presence of a replacement rate, and interest rates. Those decisions, in turn, have several impacts on the macro-economy which can create feedback cycles working through equilibrium effects on interest rates and wages. Taken together, these reform scenarios have strong implications for the sustainability of pension systems. Because of the rich nature of our unified model framework, we are able to rank the reform proposals according to several individual and macroeconomic measures, thereby providing important support for policy recommendations on pension systems. |
| JEL: | C68 D91 E17 H55 J11 J26 |
| Date: | 2018–04–25 |
| URL: | http://d.repec.org/n?u=RePEc:mea:meawpa:201804&r=dge |
| By: | Etienne Lalé |
| Abstract: | We analyze the effects of government-mandated severance payments in a rich life-cycle model with search-matching frictions in the labor market, risk-averse agents and imperfect insurance against idiosyncratic shocks. Our model emphasizes a tension between worker-firm bargains and consumption smoothing: entry wages are tilted downwards as a response to future severance payments, which runs counter to having a smooth consumption path. Consequently, we find that severance payments produce mostly negative welfare effects. We use the model to characterize the determinants of these welfare losses. We show that even when optimized jointly with unemployment insurance benefits, large government-mandated severance payments should be avoided. |
| Keywords: | Severance Payments,Labor-market Frictions,Precautionary Savings,Welfare, |
| JEL: | E21 I38 J63 J65 |
| Date: | 2018–04–26 |
| URL: | http://d.repec.org/n?u=RePEc:cir:cirwor:2018s-14&r=dge |
| By: | Pau Roldán (Banco de España); Sonia Gilbukh (Cuny Baruch College) |
| Abstract: | This paper analyzes the macroeconomic implications of customer capital accumulation at the firm level. We build an analytically tractable search model of firm dynamics in which firms compete for customers by posting pricing contracts in the product market. Cross-sectional price dispersion emerges in equilibrium because firms of different sizes and productivities use different pricing strategies to strike a balance between attracting new customers and exploiting incumbent ones. Using micro-pricing data from the U.S. retail sector, we calibrate the model to match moments from the cross-sectional distribution of sales and prices, and use our estimated model to explain sluggish aggregate dynamics and cross-sectional heterogeneity in the response of markups to aggregate shocks. We find that there is incomplete price pass-through leading to procyclicality in the average markup, with smaller firms being more responsive to shocks than larger firms. |
| Keywords: | customer capital, product market frictions, directed search, firm dynamics, dynamic contracts, price dispersion |
| JEL: | D21 D83 E2 L11 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1838&r=dge |
| By: | Pablo D'Erasmo (Federal Reserve Bank of Philadelphia); Enrique G. Mendoza (Department of Economics, University of Pennsylvania) |
| Abstract: | Infrequent but turbulent overt sovereign defaults on domestic creditors are a "forgotten history" in Macroeconomics. We propose a heterogeneous-agents model in which the government chooses optimal debt and default on domestic and foreign creditors by balancing distributional incentives v. the social value of debt for self-insurance, liquidity, and risk-sharing. A rich feedback mechanism links debt issuance, the distribution of debt holdings, the default decision, and risk premia. Calibrated to Eurozone data, the model is consistent with key long-run and debt-crisis statistics. Defaults are rare (1.2 percent frequency), and preceded by surging debt and spreads. Debt sells at the risk-free price most of the time, but the government's lack of commitment reduces sustainable debt sharply. |
| Keywords: | public debt, sovereign default, debt crisis, European crisis |
| JEL: | E6 E44 F34 H63 |
| Date: | 2018–09–14 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-018&r=dge |
| By: | Adam, Klaus; Woodford, Michael |
| Abstract: | We analytically characterize optimal monetary policy for an augmented New Keynesian model with a housing sector. In a setting where the private sector has rational expectations about future housing prices and inflation, optimal monetary policy can be characterized without making reference to housing price developments: commitment to a "target criterion" that refers to inflation and the output gap only is optimal, as in the standard model without a housing sector. When the policymaker is concerned with potential departures of private sector expectations from rational ones and seeks to choose a policy that is robust against such possible departures, then the optimal target criterion must also depend on housing prices. In the empirically realistic case where housing is subsidized and where monopoly power causes output to fall short of its optimal level, the robustly optimal target criterion requires the central bank to "lean against" housing prices: following unexpected housing price increases, policy should adopt a stance that is projected to undershoot its normal targets for inflation and the output gap, and similarly aim to overshoot those targets in the case of unexpected declines in housing prices. The robustly optimal target criterion does not require that policy distinguish between "fundamental" and "non-fundamental" movements in housing prices. |
| JEL: | D81 D84 E52 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:cfswop:601&r=dge |
| By: | Naoki Aizawa (Department of Economics, University of Wisconsin-Madison); Hanming Fang (Department of Economics, University of Pennsylvania) |
| Abstract: | We present and empirically implement an equilibrium labor market search model where risk averse workers facing medical expenditure shocks are matched with ï¬ rms making health insurance coverage decisions. Our model delivers a rich set of predictions that can account for a wide variety of phenomenon observed in the data including the correlations among ï¬ rm sizes, wages, employer-sponsored health insurance offering rates, turnover rates and workers’ health compositions. We estimate our model by Generalized Method of Moments using a combination of micro datasets including the Survey of Income and Program Participation, the Medical Expenditure Panel Survey and the Kaiser Family Employer Health Insurance Beneï¬ ts Survey. We use our estimated model to evaluate the equilibrium impact of the 2010 Affordable Care Act (ACA) and compare it with other health care reform proposals. We also use the estimates of the early impact of the ACA as a model validation. We ï¬ nd that the full implementation of the ACA would reduce the uninsured rate among the workers in our estimation sample from about 21.3% in the pre-ACA benchmark economy to 6.6%. We also ï¬ nd that income-based premium subsidies for health insurance purchases from the exchange play an important role for the sustainability of the ACA; without the premium subsidies, the uninsured rate would be around 15.8%. In contrast, as long as premium subsidies and health insurance exchanges with community ratings stay intact, ACA without the individual mandate, or without the employer mandate, or without both mandates, could still succeed in reducing the uninsured rates to 11.4%, 7.5% and 12.9% respectively. |
| Keywords: | Health, Health Insurance, Health Care Reform, Labor Market Equilibrium |
| JEL: | G22 I11 I13 J32 |
| Date: | 2018–06–11 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-012&r=dge |
| By: | Borsoi, Nicolas da Silva; Teles, Vladimir Kühl |
| Abstract: | The literature measuring the magnitude of the fiscal multiplier has a considerable consensus that the stimulative effects of fiscal instruments depends on the current state of economic activity, whether it is expanding or facing a recession. However, none of the previous works studied how the nature of an economic downturn, if the economy is facing an adverse supply/demand shock, affects the effectiveness of fiscal expansions. We introduce in a simple New Keynesian model with a rich description of fiscal policy, the assumption of imperfectly informed policymakers (fiscal and monetary) to approach the question. Our results point out the existence of disparate effects of fiscal policy depending on whether the economy is facing a demand or a supply recession. Yet, we find out that cuts in taxes are an effective tool to counter the effects of adverse shocks on economic activity and aggregate consumption. |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:fgv:eesptd:492&r=dge |
| By: | Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Andrii Parkhomenko (Universitat Autònoma de Barcelona & Barcelona GSE); Gustavo Ventura (Arizona State University) |
| Abstract: | We document that for a group of high-income countries (i) mean earnings of managers tend to grow faster than for non managers over the life cycle; (ii) the earnings growth of managers relative to non managers over the life cycle is positively correlated with output per worker. We interpret this evidence through the lens of an equilibrium life-cycle, span-of-control model where managers invest in their skills. We parameterize this model with U.S. observations on managerial earnings, the size-distribution of plants and macroeconomic aggregates. We then quantify the relative importance of exogenous productivity differences, and the size-dependent distortions emphasized in the misallocation literature. Our fi?ndings indicate that such distortions are critical to generate the observed differences in the growth of relative managerial earnings across countries. Thus, observations on the relative earnings growth of managers become natural targets to discipline the level of distortions. Distortions that halve the growth of relative managerial earnings (a move from the U.S. to Italy in our data), lead to a reduction in managerial quality of 27% and to a reduction in output of about 7% ? more than half of the observed gap between the U.S. and Italy. We ?find that cross-country variation in distortions accounts for about 42% of the cross-country variation in output per worker gap with the U.S. |
| Keywords: | Cross-country income differences, managers, distortions, management practices, size distribution, skill investment. |
| JEL: | E23 E24 J24 M11 O43 O47 |
| Date: | 2017–03 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1710&r=dge |
| By: | Dominik Thaler (Banco de España) |
| Abstract: | Why do governments borrow internationally, so much as to risk default? Why do they remain out of fi nancial markets for a while after default? This paper develops a quantitative model of sovereign default with endogenous default costs to propose a novel and unifi ed answer to these questions. In the model, the government has an incentive to borrow internationally due to a difference between the world interest rate and the domestic return on capital, which arises from a friction in the domestic banking sector. Since banks are exposed to sovereign debt, sovereign default causes losses for them, which translate into a fi nancial crisis. When deciding upon repayment, the government trades off these costs against the advantage of not repaying international investors. After default, it only reaccesses international capital markets once banks have recovered, because only then are they able to effi ciently allocate the marginal unit of investment again. Exclusion hence arises endogenously. The model is able to generate signifi cant levels of domestic and foreign debt, realistic spreads, quantitatively plausible drops of lending and output in default episodes, and periods of postdefault international fi nancial market exclusion of a realistic duration. |
| Keywords: | sovereign default, banking crisis, endogenous cost of default, international capital market exclusion. |
| JEL: | F34 E62 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1824&r=dge |
| By: | Gavazza, Alessandro; Lanteri, Andrea |
| Abstract: | This paper studies the equilibrium dynamics in consumer durable goods markets after aggregate credit shocks. We introduce two novel features into a general-equilibrium model of durable consumption with heterogeneous households facing idiosyncratic income risk and borrowing constraints: (1) different qualities of durable goods trade on secondary markets at market-clearing prices; and (2) households endogenously choose when to trade them or scrap them. The model successfully matches several empirical patterns that we document using data on U.S. car markets around the Great Recession. After a tightening of the borrowing limit, debt-constrained households postpone the decision to scrap and upgrade their low-quality cars, depressing mid-quality car prices. In turn, this effect reduces wealthy households' incentives to replace their mid-quality cars with high-quality ones, thereby decreasing new-car sales. We further use our framework to study the effects of collateral constraints and aggregate income shocks, and to evaluate targeted fiscal stimulus policies such as the Car Allowance Rebate System in 2009 ("Cash for Clunkers"). |
| Keywords: | credit constraints; Durable goods |
| JEL: | E21 E32 L62 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13229&r=dge |
| By: | Henrique S. Basso (Banco de España); Omar Rachedi (Banco de España) |
| Abstract: | We document that fiscal multipliers depend on the age structure of the population. Using the variation in military spending and birth rates across U.S. states, we show that local fiscal multipliers increase with the share of young people in total population. We rationalize this fact with a parsimonious life-cycle open-economy New Keynesian model with credit market imperfections. The model explains 65% of the relationship between local fiscal multipliers and demographics. We use the model to study the implications of population aging, and find that nowadays U.S. national fiscal multipliers are 36% lower than in 1980. |
| Keywords: | life-cycle, population aging, fiscal policy |
| JEL: | E30 E62 J11 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:bde:wpaper:1837&r=dge |
| By: | Paolo Martellini (Department of Economics, University of Pennsylvania); Guido Menzio (Department of Economics, University of Pennsylvania) |
| Abstract: | Over the last century, unemployment, vacancy, job-ï¬ nding and job-loss rates as well as the Beveridge curve have no trend. Yet, the last century has seen the development and diffusion of many information technologies—such as telephones, fax machines, computers, the Internet—which presumably have increased the efï¬ ciency of search in the labor market. We explain this phenomenon using a textbook search-theoretic model of the labor market. We show that there exists an equilibrium in which unemployment, vacancies, job-ï¬ nding and job-loss rates are constant while the search technology improves over time if and only if ï¬ rm-worker matches are heterogeneous in quality, the distribution of match qualities is Pareto, and the quality of a match is observed before the start of the employment relationship. Under these conditions, improvements in search lead to an increase in the rate at which workers meet ï¬ rms and to a proportional decline in the probability that the quality of a ï¬ rm-worker match is acceptable leading to a constant job-ï¬ nding rate, unemployment, etc... Interestingly, under the same conditions, unemployment, vacancies, job-ï¬ nding and job-loss rates are independent of the size of the labor market even in the presence of increasing returns to scale in search. While declining search frictions do not lower unemployment, they contribute to growth. The magnitude of the contribution depends on the thickness of the tail of the Pareto distribution. We present a simple strategy to measure the decline in search frictions and its contribution to growth. A rudimentary implementation of this strategy suggests that the decline in search frictions has been substantial, it has been caused by both improvements in the search technology and increasing returns to scale in the search process, and it has had a non-negligible impact on growth. |
| Keywords: | Search frictions, Unemployment, Growth, Agglomeration |
| JEL: | E24 O40 R11 |
| Date: | 2018–04–09 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-005&r=dge |
| By: | Stylianos G. Gogos (Eurobank Ergasias S.A.); Dimitris Papageorgiou (Bank of Greece); Vanghelis Vassilatos (Athens University of Economics and Business) |
| Abstract: | We built upon Angelopoulos et al. (2009) and we employ a dynamic general equilibrium model in order to examine the interrelated role of rent seeking activities, institutions and government policy variables, like tax rates and public spending, on Greece’s economic performance during the last fourty years. We focus on the period 1979-2001. According to Kehoe and Prescott (2002, 2007) this period can be characterized as a great depression. The model is the standard neoclassical growth model augmented with a government sector and an institutional structure which creates incentives for optimizing agents to engage in rent seeking contests in order to extract rents from the government. This behavior creates a cost to the economy in the form of an unproductive use of resources. Our main findings are as follows: First, in terms of the path of key macroeconomic variables, our model fits the data quite well. Second, by conducting a growth accounting exercise we find that during the period 1979-1995 a non negligible proportion of the decline of total factor productivity (TFP) can be accounted for rent seeking activities. Third, our model produces an index which can be interpreted as a measure of the quality of institutions in the Greek economy. Our model based index exhibits a resemblance with the internal country risk guide (ICRG) index which is widely used in the literature as a proxy for the quality of a country’s institutions. |
| Keywords: | Growth Accounting; Rent Seeking; Institutions; Dynamic General Equilib.rium |
| JEL: | E62 E32 O17 O40 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:bog:wpaper:252&r=dge |
| By: | Manuel Guerra; João Pereira; Miguel St. Aubyn |
| Abstract: | The negative effect of population aging on the economy can be mitigated by a behavioral effect of people as a reaction to a higher life expectancy. We analyze the optimal life-cycle of individuals that allocate time at the intensive margin between leisure, human capital accumulation, and labor supply while facing an age-dependent mortality. This allows to enhance effects of changes in life expectancy on labor supply and human capital accumulation and to uncover trade-offs between time allocations at different stages of the life-cycle. Our life-cycles are characterized by on the job training throughout all the working life with a possibility of a temporary exit from the labor market. We simulate the model numerically and nd that with a higher life expectancy, labor supply increases at the intensive margin and the individual invests more in human capital. We also nd a willingness to increase labor supply at the extensive margin. |
| Keywords: | Life-Cycle; Age-Dependent Mortality; Aging; Time Allocation |
| JEL: | J22 J24 H55 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:ise:remwps:wp0562018&r=dge |
| By: | Svetlana Pashchenko (University of Georgia); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies) |
| Abstract: | Individuals' medical spending has both necessary and discretionary components which are not, however, separately observable. This paper studies ways to improve upon existing public health insurance policies by using a framework where both the discretionary and necessary components of medical spending are explicitly modeled. First, using a simple theoretical framework the paper shows that the key to reducing discretionary medical spending is to introduce a trade-off between non-medical and medical consumption. Next, using a rich quantitative life-cycle model the paper shows that this trade-off can be successfully implemented by introducing an option to substitute public health insurance with cash transfers. |
| Keywords: | medical spending, health insurance, optimal taxation, life-cycle model, ex-post moral hazard |
| JEL: | D52 D91 E21 H53 I13 I18 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2018-080&r=dge |
| By: | Sherwin Lott (Department of Economics, University of Pennsylvania) |
| Abstract: | When testing a theory, we should ask not just whether its predictions match what we see in the data, but also about its “completeness†: how much of the predictable variation in the data does the theory capture? Deï¬ ning completeness is conceptually challenging, but we show how methods based on machine learning can provide tractable measures of completeness. We also identify a model domain—the human perception and generation of randomness—where measures of completeness can be feasibly analyzed; from these measures we discover there is signiï¬ cant structure in the problem that existing theories have yet to capture. |
| Keywords: | Perturbation methods, DSGE models, odd derivatives, computational macroeconomics |
| Date: | 2018–05–21 |
| URL: | http://d.repec.org/n?u=RePEc:pen:papers:18-011&r=dge |
| By: | Berk Yavuzoglu (Department of Economics, Nazarbayev University) |
| Abstract: | It is essential to understand the labor supply incentives generated by the Social Security (SS) system to Americans beyond normal retirement age, currently 66, since the U.S. population is growing older steadily and the fiscal burden of SS is sizable. This paper analyzes the joint determination of labor supply, consumption (savings) and the decision to apply for SS benefits of elderly single males, using a dynamic programming formulation and restricted data from the Health and Retirement Study. The focus is on the participation decision rather than the retirement decision because a significant portion of the elderly return to work after being nonparticipants for a while. The model accounts for this through wage, health status and health expenses shocks. Undertaking a counterfactual analysis, I find that the year 2000 SS amendment abolishing the "earnings test" for the age group 66−70 explains one-fourth of the recent increase in the elderly labor force participation rate (LFPR). Applying the "earnings test" to my post2000 sample decreases LFPR by 3.5 percentage points and mean hours worked by 117 hours at this age group. I further find via counterfactual analyses that the elderly labor supply decision is sensitive to changes in SS benefit and payroll tax amounts on the extensive margin, but the eects on the intensive margin are not substantial. Decreasing SS benefits by 20 percent increases the participation rate of the elderly aged 66 − 75 by 37 percent. Because a change in the payroll tax rate is effectively a change in the wage rate, I estimate labor supply elasticities for the elderly and find that the elasticities are around unit elasticity |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:naz:wpaper:1803&r=dge |
| By: | Ying Feng (University of California, San Diego); David Lagakos (University of California, San Diego); James E. Rauch (University of California, San Diego) |
| Abstract: | This paper draws on household survey data from countries of all income levels to measure how average unemployment rates vary with income per capita. We document that unemployment is increasing with GDP per capita. Furthermore, we show that this fact is accounted for almost entirely by low-educated workers, whose unemployment rates are strongly increasing in GDP per capita, rather than by high-educated workers, whose unemployment rates are not correlated with income. To interpret these facts, we build a model with workers of heterogeneous ability and two sectors: a traditional sector, in which self-employed workers produce output without reward for ability; and a modern sector, in which firms hire in frictional labor markets, and output increases with ability. Countries differ exogenously in the productivity level of the modern sector. The model predicts that as productivity rises, the traditional sector shrinks, as progressively less-able workers enter the modern sector, leading to a rise in overall unemployment and in the ratio of low-educated to high-educated unemployment rates. Quantitatively, the model accounts for around one third of the cross-country patterns we document. |
| Keywords: | unemployment, causal effects of education, ability effects, household survey data |
| JEL: | E24 E26 O11 O41 |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:hka:wpaper:2018-083&r=dge |
| By: | Kettemann, Andreas; Mueller, Andreas; Zweimüller, Josef |
| Abstract: | This paper explores the relationship between the duration of a vacancy and the starting wage of a new job, using unusually informative data comprising detailed information on vacancies, the establishments posting the vacancies, and the workers eventually filling the vacancies. We find that vacancy durations are negatively correlated with the starting wage and that this negative association is particularly strong with the establishment component of the starting wage. We also confirm previous findings that growing establishments fill their vacancies faster. To understand the relationship between establishment growth, vacancy filling and entry wages, we calibrate a model with directed search and ex-ante heterogeneous workers and firms. We find a strong tension between matching the sharp increase in vacancy filling for growing firms and the response of vacancy filling to firm-level wages. We discuss the implications of this finding as well as potential resolutions. |
| Keywords: | Recruiting; search; Vacancy Duration; Vacancy Posting; wages |
| JEL: | E24 J31 J63 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13249&r=dge |
| By: | 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正 |
| Abstract: | 本稿では、世代内の異質性を組み込んだ一般均衡型世代重複シミュレーションモデルを用いて、我が国財政の持続可能性を維持するために必要な財政再建について、消費増税か累進労働所得増税かという二択問題を想定し、効用基準と現行の投票制度を前提とした投票によって決定する場合の分析を行った。その結果、消費税増税への賛成者は、中年より若い世代の高所得層だけであり、財政当局が目論む財政再建策は実現不可能である。そこで、ベンサム型政府を想定し、財政再建開始年に生存するすべての国民の効用変化の総和を考慮した場合には、消費税が選択されると確認された。しかし、この結果は、もっぱら高所得層の利益のため他の所得階層に犠牲を強いるに等しい選択であり、公平性に適う選択であるかは疑問の余地が大きい。最後に、将来世代のなかでも、消費増税による財政再建のメリットが帰属する生年・所得階層を特定化するシミュレーションによれば、より高い所得階層に属する者ほど、また、より後に生まれる者ほど消費税の増税から得られる恩恵が大きいことが分かった。投票によっては、2137年生まれまでの将来世代を投票対象者に考慮しなければ消費増税による財政再建を実現できず、実質的に不可能であることが示された。, We calculate welfare changes to reveal Japan’s preferred tax hike option to achieve fiscal sustainability by an overlapping generation model with four types of households grouped by income levels based on the latest Japanese data. Households vote on preferred taxation, i.e. the consumption tax or the progressive income tax, according to respective welfare changes under the current election system. Following implications are delivered. First, the consumption tax option is chosen when voters consider temporary welfare changes alone, i.e. myopic, while the progressive income tax is chosen when voters consider life-long welfare changes, i.e. rational. Second, the consumption tax option is chosen under the Utilitarian-type government setting even when life-long welfare changes are considered. However, this choice results in net benefits among higher income households at the cost of lower income households, giving rise to worsening income distribution and unfairness. Third, the fiscal consolidation by the consumption tax option tends to bring net benefits to those with higher income, and to those born later. Finally, the government intention to raise the consumption tax further for fiscal consolidation will not be achieved by the current voting system with rational voters. To realize it through voting, it is necessary to give the right of voting to those who will be born before 2137. |
| Keywords: | 少子高齢化, 財政再建, 消費税, シミュレーション分析, population aging, fiscal sustainability, consumption tax, simulation analysis |
| JEL: | H30 C68 H61 E62 B41 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:cisdps:670&r=dge |
| By: | Belot, Michele; Kircher, Philipp; Muller, Paul |
| Abstract: | We study how job seekers respond to wage announcements by assigning wages randomly to pairs of otherwise similar vacancies in a large number of professions. High wage vacancies attract more interest, in contrast with much of the evidence based on observational data. Some applicants only show interest in the low wage vacancy even when they were exposed to both. Both findings are core predictions of theories of directed/competitive search where workers trade off the wage with the perceived competition for the job. A calibrated model with multiple applications and on-the-job search induces magnitudes broadly in line with the empirical findings. |
| Keywords: | directed search; field experiments; Online job search; wage competition |
| JEL: | C93 J31 J63 J64 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13286&r=dge |
| By: | 島澤, 諭; 難波, 了一; 堤, 雅彦; 小黒, 一正 |
| Abstract: | 本稿の目的は、財政健全化や社会保障制度改革等の政策変更により家計が被る影響が、世代間のみならず世代内でどのような点で異なり、どのような点で類似しているのかなどについて分析を行うために資するよう、家計を生年だけではなく所得階層に区分し、同一世代内における家計の異質性を明示的に考慮した一般均衡型世代重複シミュレーションモデルの開発を行うことにある。あわせて、現在の財政スタンスが持続可能か否かについてシミュレーションし、世代別・所得階層別生涯純税負担率の推計を行った。その結果、現在の財政スタンスを継続した場合、2040年に政府債務残高比率が457％に達したところで限界が訪れ、2041年には消費税率の抜本的な引上げが必要になること、また、政府債務残高比率を457％に維持するだけにしても、現在の歳出構造が続くならば、長期的に30％の消費税率が必要なこと、さらに、世代別では高齢層ほど、世代内では所得階層の低いほど、生涯純税負担率が小さいことが明らかになった。, This paper primarily aims at explaining the structure and properties of the newly developed overlapping generation model with four types of households grouped by income levels based on the latest Japanese data. Along with detailed account of the model structure and data, the sensitivity analysis on the key parameters, which are not fully supported by empirical studies, are conducted. Regarding policy simulations, we examine the fiscal sustainability of Japan under the current levels of debt and fiscal policy. Key findings are as follows. First, the financial collapse defined as a convergence limit, appears in 2040 when the debt-GDP ratio reaches 457%, implying that a significant tax hike is required to sustain the economy. Second, 30% of the consumption tax rate is necessary to restrain levels of the debt-GDP ratio from exceeding 457%, if the current structure of government spending lasts in the long run. Third, the lifetime net tax burden rate varies among households. The rate tends to be higher as they are born later (younger), and as they are richer. |
| Keywords: | 少子高齢化, 財政再建, 消費税, シミュレーション分析, population aging, fiscal sustainability, consumption tax, simulation analysis |
| JEL: | H30 C68 H61 E62 B41 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:hit:cisdps:669&r=dge |
| By: | Tim Leung; Raphael Yan |
| Abstract: | We study a stochastic control approach to managed futures portfolios. Building on the Schwartz 97 stochastic convenience yield model for commodity prices, we formulate a utility maximization problem for dynamically trading a single-maturity futures or multiple futures contracts over a finite horizon. By analyzing the associated Hamilton-Jacobi-Bellman (HJB) equation, we solve the investor's utility maximization problem explicitly and derive the optimal dynamic trading strategies in closed form. We provide numerical examples and illustrate the optimal trading strategies using WTI crude oil futures data. |
| Date: | 2018–11 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:1811.01916&r=dge |
| By: | Eichenbaum, Martin; Rebelo, Sérgio; Wong, Arlene |
| Abstract: | This paper studies how the impact of monetary policy depends on the dis- tribution of savings from refinancing mortgages. We show that the efficacy of monetary policy is state dependent, varying in a systematic way with the pool of potential savings from refinancing. We construct a quantitative dynamic life- cycle model that accounts for our findings. Motivated by the rapid expansion of Fintech, we study the impact of a fall in refinancing costs on the e cacy of monetary policy. Our model implies that as refinancing costs decline, the effects of monetary policy become less state dependent and more powerful. |
| Keywords: | monetary policy; Mortgages; refinancing; state dependency |
| JEL: | E52 G21 |
| Date: | 2018–10 |
| URL: | http://d.repec.org/n?u=RePEc:cpr:ceprdp:13223&r=dge |
| By: | Zouhair Aït Benhamou; Lesly Cassin |
| Abstract: | This paper puts forward a modified OLG framework for high migration countries such as Caribbean islands, to link economic growth and demographic features. Our theoretical model captures the potential effects of migration on the households' choices in terms of savings, fertility and education, and thus on the accumulation of human and physical capital. Through a numerical analysis we study specifically five countries. We find that households in Jamaica, Haiti and Dominican Republic invest more in education for future generations and increase their fertility rate. Thus due to migration, their economic growth is driven by accumulation of efficient units of labor. For Barbados or Trinidad and Tobago, the benefits from education are dwarfed respectively by a low migration premium or a low level of remittances. Their economic growth is therefore driven by a high accumulation of physical capital. Second, we introduce frictions on the capital market in order to account for the imperfections in the interest rate adjustments to the marginal productivity of capital. For the studied islands, physical capital accumulation on the one hand and economic growth on the other hand show trade-offs between short-run and long-run if the frictions are reduced. |
| Keywords: | Migration, Capital Markets, Overlapping Generations Model, Caribbean, Small Island Developing States |
| JEL: | F24 J24 J11 |
| Date: | 2018 |
| URL: | http://d.repec.org/n?u=RePEc:drm:wpaper:2018-41&r=dge |
| By: | Lozej, Matija (Central Bank of Ireland) |
| Abstract: | With the freemovement of labour in Europe, economic migration has become an important determinant of labour supply. Cyclical migration exceeds one percent of the population in many countries and affects (un)employment and wage setting. The main contribution of this paper is that it models migration as an endogenous decision in a search-and-matching framework, where labour market institutions play an important role. It shows that, contrary to typical beliefs, migration can amplify business cycles. After a positive shock to the economy, immigration increases the labour force and initially unemployment. The latter reduces a worker’s outside option in wage negotiations, resulting in a lower wage increase than when there is no migration. With cheaper labour firms post more job vacancies, which increases the probability that unemployed workers find jobs and attracts new workers to immigrate. Attenuated response of wages and the stronger response of employment to shocks result in a flatter Phillips curve. . . . |
| Keywords: | Migration; Search and Matching; Unemployment; Labour force; Business cycles. |
| JEL: | E23 E32 J21 J61 J64 |
| Date: | 2018–07 |
| URL: | http://d.repec.org/n?u=RePEc:cbi:wpaper:8/rt/18&r=dge |
| By: | Jeremy Greenwood (University of Pennsylvania); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Guillaume Vandenbroucke (Federal Reserve Bank of St. Louis) |
| Abstract: | Powerful currents have reshaped the structure of families over the last century. There has been (i) a dramatic drop in fertility and greater parental investment in children; (ii) a rise in married female labor-force participation; (iii) a significant decline in marriage and a rise in divorce; (iv) a higher degree of positive assortative mating; (v) more children living with a single mother; (vi) shifts in social norms governing premarital sex and married women's roles in the workplace. Macroeconomic models explaining these aggregate trends are surveyed. The relentless flow of technological progress and its role in shaping family life are stressed. |
| Keywords: | Assortative mating, baby boom, baby bust, family economics, female labor supply, fertility, household income inequality, household production, human capital, macroeconomics, marriage and divorce, quality-quantity tradeoff, premarital sex, quantitative theory, single mothers, social change, survey paper, technological progress, women's rights. |
| JEL: | D58 E1 E13 J1 J2 J12 J13 J22 N30 O3 O11 O15 |
| Date: | 2017–01 |
| URL: | http://d.repec.org/n?u=RePEc:cmf:wpaper:wp2018_1706&r=dge |