nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2020‒01‒20
23 papers chosen by



  1. A DSGE model for Fiscal Policy Analysis in The Gambia By DJINKPO, Medard
  2. A model of the optimal allocation of government expenditures By FAN Simon,; PANG Yu,; PESTIEAU Pierre,
  3. A Search Theoretic Model of Part-Time Employment and Multiple Job Holdings By Compton, Andrew
  4. Macroeconomic Macroeconomic Effects of Credit Deepening in Latin America. By Carvalho, Carlos; Pasca, Nilda; Souza, Laura; Zilberman, Eduardo
  5. Decomposing the Societal Opportunity Costs of Property Crime By Compton, Andrew
  6. Bank Monitoring and Liquidity in the Business Cycle By Minetti, Raoul; Cal, Qingqing; Di Pietro, Marco; Kokas, Sotirios
  7. The Signalling Channel of Negative Interest Rates By Oliver de Groot; Alexander Haas
  8. Cross-Border flows and the effect of Global Financial shocks in Latin America. By Gondo, Rocío; Pérez, Fernando
  9. Dynamic Effects of Patent Policy on Innovation and Inequality in a Schumpeterian Economy By Angus C. Chu; Yuichi Furukawa; Sushanta Mallick; Pietro Peretto; Xilin Wang
  10. SFX Interventions, Financial Intermediation, and External Shocks in Emerging Economies. By Carrasco, Alex; Florián, David; Nivín, Rafael
  11. Global v. Local Methods in the Analysis of Open-Economy Models with Incomplete Markets By Oliver de Groot; C. Bora Durdu; Enrique G. Mendoza
  12. Capital Flows and Bank Risk-Taking. By Pozo, Jorge
  13. Shocks de precios internacionales bajo incertidumbre estocástica By Alarcon Gambarte, Samuel
  14. Effects of Minimum Wage on Automation and Innovation in a Schumpeterian Economy By Angus C. Chu; Guido Cozzi; Yuichi Furukawa; Chih-Hsing Liao
  15. Population Aging, Credit Market Frictions, and Chinese Economic Growth By Michael Dotsey; Wenli Li; Fang Yang
  16. Exporting Through Intermediaries: Impact on Export Dynamics and Welfare By Parisa Kamali
  17. Bank Risk-Taking in a Small Open Economy. By Pozo, Jorge
  18. Does the Life Cycle Hypothesis Apply in the Case of Japan? By Charles Yuji Horioka
  19. The Trade-Comovement Puzzle By Lukasz A. Drozd; Sergey Kolbin; Jaromir B. Nosal
  20. Monetary Policy in an Era of Global Supply Chains By Shang-Jin Wei; Yinxi Xie
  21. Optimal Capital Taxation in an Economy with Innovation-Driven Growth By Ping-ho Chen; Angus C. Chu; Hsun Chu; Ching-chong Lai
  22. Deregulation as a Source of China’s Economic Growth By Shiyuan Pan; Kai Xu; Kai Zhao
  23. Can a reduction in credit card processing fees offset the effect of a hike in the minimum wage? By La, Jung Joo

  1. By: DJINKPO, Medard
    Abstract: The study investigates the effect of fiscal and monetary policies on domestic debt dynamics and provides fiscal rules useful to control domestic debt dynamics and maintain fiscal consolidation. Using a New-Keynesian model with the fiscal sector, this study analyses the contribution of government spending on aggregate demand measured by fiscal multipliers and the impact of tax adjustment on domestic debt dynamics. The findings indicate that while consumption and capital income tax have a stabilizing effect on domestic debt, labor income tax produces a weakly positive impact on domestic debt growth due to a higher fraction of Non-Ricardian households in the economy. The study provides a quantitative framework through a Bayesian estimation of steady-state tax rates as a benchmark to tax policy, aiming at mitigating fiscal distress without an adverse impact on output growth.
    Keywords: New-Keynesian model, Fiscal multipliers effect, Non-Ricardian household, Fiscal and monetary policy, Bayesian estimation
    JEL: C11 E62 E63
    Date: 2019–12–27
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:97874&r=all
  2. By: FAN Simon, (Lingnan University); PANG Yu, (Macau University of Science and Technology); PESTIEAU Pierre, (Université de Liège, CORE, and Toulouse School of Economics)
    Abstract: Government expenditures can be used for various socio-economic objectives, including public education, consumption of public goods and services, and social protection. This paper analyzes the optimal allocation of public expenditures among these competing functions. We establish an overlapping generations model with heterogeneous individuals in which the government optimally chooses income tax, transfer payment, educational spending, and public consumption. Our model characterizes the transitional dynamics and the steady state of each function with and without a pay-as-you-go international contract. We also conduct a simulation illustrating that the presence of an intergenerational contract may raise public consumption and social welfare in the ssteady state.
    Keywords: government spending,public education,public consumption,individual heterogeneity
    JEL: H20 H31 H50
    Date: 2019–11–27
    URL: http://d.repec.org/n?u=RePEc:cor:louvco:2019018&r=all
  3. By: Compton, Andrew
    Abstract: This paper develops a search-matching model of the labor market with part-time employment and multiple job holdings. The model is calibrated to data from the CPS between 2001 and 2004. Workers are able to choose their search intensity and are allowed to hold two jobs while firms can choose what type of worker to recruit. When compared to the canonical Diamond-Mortensen-Pissarides model, this model performs quite well while capturing some empirical regularities. First, the model generates recruiting and vacancy posting rates that move in opposite directions. Second, part-time employment is up to 10 times more responsive than full-time employment. Third, the model suggests that multiple job holding rates are more flexible than observed in the data with the rate changing by as much as 4 percentage points compared to 0.1 percentage points in the data. Finally, the full model is able to capture compositional changes during recessions with the full-time rate declining and the part-time rate increasing. It also produces an empirically consistent increase in the unemployment rate as well as a decrease in output. The DMP model is more muted than in the data for both.
    Keywords: Job Search; Part-Time Employment; Multiple Job Holdings
    JEL: J64
    Date: 2019–08–28
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:97003&r=all
  4. By: Carvalho, Carlos (PUC Río); Pasca, Nilda (Banco Central de Reserva del Perú); Souza, Laura (Itaú-Unibanco); Zilberman, Eduardo (BCCH)
    Abstract: We augment a standard dynamic general equilibrium model with financial frictions, in order to quantify the macroeconomic effects of the credit deepening process observed in Latin America in the last decade - most notably in Brazil. In the model, a stylized banking sector intermediates credit from patient households to impatient households and entrepreneurs. Motivated by the Brazilian experience, we allow the credit constraint faced by households to depend on labor income. Our model is designed to isolate the effects of credit deepening through demand-side channels, and abstracts from potential effects of credit supply on total factor productivity. In the calibrated model, credit deepening generates only modest above-trend growth in consumption, investment, and GDP. Since Brazil has experienced one of the most intense credit deepening processes in Latin America, we argue that the quantitative effects that hinge on the channels captured by the model are unlikely to be sizable elsewhere in Latin America.
    Keywords: credit deepening; financial frictions; consignado credit; payroll lending
    JEL: E20 E44 E51
    Date: 2019–12
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-013&r=all
  5. By: Compton, Andrew
    Abstract: In this paper, I explore how property crime can affect static and dynamic general equilibrium behavior of households and firms. I calibrate a model with a representative firm and heterogeneous households where households have the choice to commit property crime. In contrast to previous literature, I treat crime as a transfer rather than home production. This creates a feedback loop wherein negative productivity shocks increase property crime which further depresses legitimate work and capital accumulation. These responses by households are particularly important when thinking about the effect of property crime on the economy. Household and firm losses account for 24% of compensating variation (CV) and 37% of lost production. This suggests that behavioral responses are quite important when calculating the cost of property crime. Finally, on the margin, decreasing property crime by 1\% increases social welfare by 0.19%, but the effect is diminishing suggesting that reducing crime entirely may not be optimal from a policymakers perspective.
    Keywords: Crime, Welfare, Police, Public Goods, Business Cycles
    JEL: E26 E32 H41 K1
    Date: 2019–11–13
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:97002&r=all
  6. By: Minetti, Raoul (Michigan State University, Department of Economics); Cal, Qingqing (Michigan State University, Department of Economics); Di Pietro, Marco (Sapienza University of Rome); Kokas, Sotirios (University of Glasgow)
    Abstract: This paper studies the interaction between bank monitoring and liquidity and its impact on business cycle transmission. We develop a dynamic general equilibrium model with endogenous loan monitoring and constrained banks in retail and wholesale liquidity markets. Liquidity shortages and loan portfolio values govern banks' monitoring incentives and productivity. Calibrating the model to U.S. data reveals that banks monitoring acts as a countercyclical attenuator of aggregate liquidity shocks but as an amplifier of capital shocks that erode loan portfolio values. Credit policies can temporarily dilute stabilizing effects of bank monitoring. The model predictions are broadly consistent with granular evidence on 200 U.S. banks over 1995-2015.
    Keywords: Bank monitoring; Liquidity constraints; Business cycles
    JEL: E32 E44 F44
    Date: 2020–01–09
    URL: http://d.repec.org/n?u=RePEc:ris:msuecw:2020_003&r=all
  7. By: Oliver de Groot; Alexander Haas
    Abstract: Negative interest rates are a new (and controversial) monetary policy tool. This paper studies a novel signalling channel and asks whether negative rates can be 1) an effective and 2) an optimal policy tool. 1) We build a financial-friction newKeynesian model in which monetary policy can set a negative reserve rate, but deposit rates are constrained by zero. All else equal, a negative rate contracts bank net worth and increases credit spreads (the costly “interest margin” channel). However, it also signals lower future deposit rates, even with current deposit rates constrained, boosting aggregate demand and net worth. Quantitatively, we find the signalling channel dominates, but the effectiveness of negative rates depends crucially on three factors: i) degree of policy inertia, ii) level of reserves, iii) zero lower bound duration. 2) In a simplified model we prove two necessary conditions for the optimality of negative rates: i) time-consistent policy setting, ii) preference for policy smoothing.
    Keywords: Monetary policy, Taylor rule, Forward guidance, Liquidity trap
    JEL: E44 E52 E61
    Date: 2019–08
    URL: http://d.repec.org/n?u=RePEc:liv:livedp:201905&r=all
  8. By: Gondo, Rocío (Banco Central de Reserva del Perú); Pérez, Fernando (Banco Central de Reserva del Perú)
    Abstract: This work quantifies the effect of changes in global financial conditions on cross-border flows and domestic financial and macroeconomic variables for a group of countries in Latin America. Using the BIS database of international banking statistics, we consider heterogeneous effects of different types of international financing (credit from global banks to domestic banks and non-financial firms and bond issuance by non-financial firms), on the behavior of the domestic banking system and the transmission to the real economy through the link between bank credit, investment and output. Consistent with the implications from a DSGE model such as Aoki et al. (2018), our results show that an increase in foreign interest rates translate into lower external funding for banks and thus into lower credit growth and higher domestic interest rates. This effect is amplified through an exchange rate depreciation due to capital outflows. We find evidence of a larger drop in flows from global banks to domestic banks relative to those from global banks to non-financial firms. In terms of the real economy, we observe a reduction in GDP growth, although not significant, and an increase in inflation due to the pass through effect from the exchange rate to prices.
    Keywords: Panel Vector Autoregressions, Exogenous Block, Bayesian Estimation, Cross-Border flows.
    JEL: C23 E44 F21 F32
    Date: 2019–12
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-020&r=all
  9. By: Angus C. Chu; Yuichi Furukawa; Sushanta Mallick; Pietro Peretto; Xilin Wang
    Abstract: This study explores the dyanmic effects of patent policy on innovation and income inequality in a Schumpeterian growth model with endogenous market structure and heterogeneous households. We find that strengthening patent protection has a positive effect on economic growth and a positive or an inverted-U effect on income inequality when the number of differentiated products is fixed or in the short run. However, when the number of products adjusts endogenously, the effects of patent protection on growth and inequality become negative in the long run. We also calibrate the model to US data to perform a quantative analysis and find that the long-run negative effect of patent policy on inequality is much larger than its short-run positive effect. This result is consistent with our empirical finding from a panel vector autoregression.
    Keywords: minimum wage, unemployment, innovation, automation
    JEL: D30 O30 O40
    Date: 2019–09
    URL: http://d.repec.org/n?u=RePEc:liv:livedp:201911&r=all
  10. By: Carrasco, Alex (Banco Central de Reserva del Perú); Florián, David (Banco Central de Reserva del Perú); Nivín, Rafael (Banco Central de Reserva del Perú)
    Abstract: In this document, we study the role of sterilized foreign exchange (SFX) interventions as an additional monetary policy instrument for emerging market economies in response to external shocks. We develop a model in order to analyze SFX interventions as a balance sheet policy induced by a financial friction in the form of an agency problem between banks and depositors. The severity of the bank's agency problem depends directly on a measure of currency mismatch at the bank level. Moreover, credit and deposit dollarization co-exists in equilibrium as endogenous variables. In this context, SFX interventions can lean against the response of the bank's lending capacity and ultimately the response of real variables by moderating the response of the exchange rate. Furthermore, we take the model to data by calibrating it to replicate some financial steady-state targets for the Peruvian banking system as well as matching the impulse responses of the macroeconomic model to the impulse responses implied by an SVAR model. Our results indicate that SFX interventions successfully reduce GDP and investment volatility by about 6% and 14%, respectively, when compared to a flexible exchange rate regime. Moreover, SFX interventions reduce the response of GDP to foreign interest rate and commodity price shocks by around 11 and 22 percent, respectively. Hence, this policy produces significant welfare gains when responding to external shocks: if the Central Bank does not intervene in the Forex market in the face of external shocks, there would be a welfare loss of 1.1%.
    Keywords: Sterilized Forex Interventions, External Shocks, Financial Cycle, Dollarization, Monetary Policy.
    Date: 2019–12
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-022&r=all
  11. By: Oliver de Groot; C. Bora Durdu; Enrique G. Mendoza
    Abstract: Global and local methods are widely used in international macroeconomics to analyze inocomplete markets models. We study solutions for an endowment economy, an RBC model and a Sudden Stops model with an occassionally binding credit constraint. First-order, second-order, risky steady state (RSS), and DynareOBC solutions are compared v. xed-point-iteration global solutions in the time and frequency domains. The solutions differ in key respects, including measures of precautionary savings, cyclical moments, impulse response functions, financial premia and macro resposnse to credit constraints, and periodograms of consumption, foreign assets and net exports. The global method is easy to implement and fast albeit slower than local methods, except DynareOBC which is of comparable speed. These findings favor global methods except when prevented by the curse of dimensionality and urge creation when using local methods. Of the latter, first-order solutions are preferable because results are very similar to second-order and RSS methods.
    Keywords: Solution methods; Sudden Stops; Incomplete Markets; Precautionary savings; Occasionally binding constraints
    JEL: F41 E44 D82
    Date: 2019–11
    URL: http://d.repec.org/n?u=RePEc:liv:livedp:201916&r=all
  12. By: Pozo, Jorge (Banco Central de Reserva del Perú)
    Abstract: I build up a framework to study the dynamics of the default probability of banks and the excess bank risk-taking in an emerging economy. I calibrate the model for the 1998 Peruvian economy. The novelty result is that an infinity-period model creates an intertemporal channel that amplifies banks' incentives to take excessive risk. I simulate the sudden stop that hit Peru in 1998 as a negative shock on the foreign borrowing limit of banks. The model accurately predicts the substantial short-term rise in the morosity rate through the rise of the excess bank risk-taking after the sudden stop.
    Keywords: Sudden stop, bank risk-taking, prudential policy.
    JEL: E44 F41 G01 G21 G28
    Date: 2019–12
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-017&r=all
  13. By: Alarcon Gambarte, Samuel
    Abstract: Latin America has experienced a context of high volatility in its terms of trade during recent years. To analyze this phenomenon, a new way of modeling external prices that seeks to capture the uncertainty of the international market is provided. A stochastic dynamic general equilibrium model is constructed and estimated with data from Bolivia. Finally, a simulation is carried out introducing an export price shock and analyzing three different scenarios: Conventional, under persistence shock and variance shock. It is analyzed the macroeconomic mechanisms of transmission in the face of external shocks and how economic agents react to changes in uncertainty.
    Keywords: Macroeconomía de la Economía Abierta, Fluctuaciones y Ciclo Económico. Macroeconomics of the Open Economy, Fluctuations and Economic Cycle.
    JEL: E32 F4 F41
    Date: 2019–11
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:97116&r=all
  14. By: Angus C. Chu; Guido Cozzi; Yuichi Furukawa; Chih-Hsing Liao
    Abstract: This study explores the effects of minimum wage on automation and innovation in a Schumpeterian growth model. We find that raising the minimum wage decreases the employment of low-skill workers and has ambiguous effects on innovation and automation. Specifically, if the elasticity of substitution between low-skill workers and high-skill workers in production is less (greater) than unity, then raising the minimum wage leads to an increase (a decrease) in automation and innovation. We also calibrate the model to aggregrate data to quantify the effects of minimum wage on the macroeconomy.
    Keywords: minimum wage, unemployment, innovation, automation
    JEL: E24 O30 O40
    Date: 2019–09
    URL: http://d.repec.org/n?u=RePEc:liv:livedp:201912&r=all
  15. By: Michael Dotsey; Wenli Li; Fang Yang
    Abstract: We build a unified framework to quantitatively examine population aging and credit market frictions in contributing to Chinese economic growth between 1977 and 2014. We find that demographic changes together with endogenous human capital accumulation account for a large part of the rise in per capita output growth, especially after 2007, as well as some of the rise in savings. Credit pol-icy changes initially alleviate the capital misallocation between private and public firms and lead to significant increases in both savings and output growth. Later, they distort capital allocation. While contributing to further increase in savings, the distortion slows down economic growth. Among factors that we consider, increased life expectancy and financial development in the form of reduced inter-mediation cost are the most important in driving the dynamics of savings and growth.
    Keywords: Aging; Credit policy; Household saving; Output growth; China
    JEL: E21 J11 J13 L52
    Date: 2019–12–20
    URL: http://d.repec.org/n?u=RePEc:fip:fedpwp:86688&r=all
  16. By: Parisa Kamali
    Abstract: In many countries, a sizable share of international trade is carried out by intermediaries. While large firms tend to export to foreign markets directly, smaller firms typically export via intermediaries (indirect exporting). I document a set of facts that characterize the dynamic nature of indirect exporting using firm-level data from Vietnam and develop a dynamic trade model with both direct and indirect exporting modes and customer accumulation. The model is calibrated to match the dynamic moments of the data. The calibration yields fixed costs of indirect exporting that are less than a third of those of direct exporting, the variable costs of indirect exporting are twice higher, and demand for the indirectly exported products grows more slowly. Decomposing the gains from indirect and direct exporting, I find that 18 percent of the gains from trade in Vietnam are generated by indirect exporters. Finally, I demonstrate that a dynamic model that excludes the indirect exporting channel will overstate the welfare gains associated with trade liberalization by a factor of two.
    Date: 2019–12–27
    URL: http://d.repec.org/n?u=RePEc:imf:imfwpa:19/302&r=all
  17. By: Pozo, Jorge (Banco Central de Reserva del Perú)
    Abstract: I develop an open economy model with banks facing foreign borrowing limits. The interaction of banks' limited liability and deposit insurance leads banks into socially excessive risk-taking, which involves credit volume and not the type of credit. The novel result is that, under a realistic calibration, a lower foreign interest rate reduces the excessive bank risk-taking. Since the foreign borrowing limit is binding, this lower rate does not boost banks' credit, but rather decreases it, since for a given capital the lower rate reduces the default probability of banks, which diminishes their risk-taking incentives. Through the same mechanism, a greater access to the international credit markets reduces the excessive risk-taking by banks. Hence, less banking regulation to achieve socially efficient risk-taking is required after a foreign rate reduction and a higher foreign borrowing limit.
    Keywords: Macroprudential policies, financial stability, monetary policy and bank risk-taking.
    JEL: E44 E52 F41 G01 G21 G28
    Date: 2019–12
    URL: http://d.repec.org/n?u=RePEc:rbp:wpaper:2019-016&r=all
  18. By: Charles Yuji Horioka
    Abstract: In this paper, we first discuss the simplest version of the life cycle model, which is arguably the most widely used theoretical model in economics, and then consider whether or not the life cycle model applies in the case of Japan using a variety of methodologies and data and placing emphasis on the author’s own research. In particular, we survey the literature on the impact of the age structure of the population on the saving rate, on the saving behavior of retired households, on saving motives, on the importance of bequests, on bequest motives, on the prevalence of altruism, and on the importance of borrowing (liquidity) constraints and show that almost all previous research suggests that the life cycle model is more applicable in Japan than it is in other countries. Thus, the answer to the question posed in the title of this paper is an unqualified “yes.” Finally, we discuss the policy implications of our finding that the life cycle model applies in the case of Japan.
    Date: 2020–01
    URL: http://d.repec.org/n?u=RePEc:dpr:wpaper:1074&r=all
  19. By: Lukasz A. Drozd; Sergey Kolbin; Jaromir B. Nosal
    Abstract: Standard international transmission mechanism of productivity shocks predicts a weak endogenous linkage between trade and business cycle synchronization: a problem known as the trade-comovement puzzle. We provide the foundational analysis of the puzzle, pointing to three natural candidate resolutions: i) financial market frictions; ii) Greenwood–Hercowitz–Huffman preferences; and iii) dynamic trade elasticity that is low in the short run but high in the long run. We show the effects of each of these candidate resolutions analytically and evaluate them quantitatively. We find that, while i) and ii) fall short of the data, iii) goes a long way toward resolving the puzzle.
    Keywords: trade-comovement puzzle; elasticity puzzle; trade elasticity; international comovement
    JEL: E32 F32 F41 F44
    Date: 2020–01–02
    URL: http://d.repec.org/n?u=RePEc:fip:fedpwp:86697&r=all
  20. By: Shang-Jin Wei; Yinxi Xie
    Abstract: We study the implications of global supply chains for the design of monetary policy, using a small-open economy New Keynesian model with multiple stages of production. Within the family of simple monetary policy rules with commitment, a rule that targets separate producer price inflation at different production stages, in addition to output gap and real exchange rate, is found to deliver a higher welfare level than alternative policy rules. As an economy becomes more open, measured by the export share, the optimal weight on the upstream inflation rises relative to that on the final stage inflation. If we have to choose among aggregate price indicators, targeting PPI inflation yields a smaller welfare loss than targeting CPI inflation alone. As the production chain becomes longer, the optimal weight on PPI inflation in the policy rule that targets both PPI and CPI inflation will also rise. A trade cost shock such as a rise in the import tariff can alter the optimal weights on different inflation variables.
    JEL: E52 F4
    Date: 2020–01
    URL: http://d.repec.org/n?u=RePEc:nbr:nberwo:26602&r=all
  21. By: Ping-ho Chen; Angus C. Chu; Hsun Chu; Ching-chong Lai
    Abstract: This paper investigates optimal capital taxation in an innovation-driven growth model. We examine how the optimal capital tax rate varies with externalities associated with R&D and innovation. Our results show that the optimal capital tax rate is higher when (i) the "stepping on toes effect" is smaller, (ii) the "standing on shoulders effect" is stronger, or (iii) the extent of creative destruction is greater. Moreover, the optimal capital tax rate and the monopolistic markup exhibit an inverted-U relationship. By calibrating our model to the US economy, we find that the optimal capital tax rate is positive, at a rate of around 11.9 percent. We also find that a positive optimal capital tax rate is more likely to be the case when there is underinvestment in R&D.
    Keywords: Optimal capital taxation, R&D externalities, innovation
    JEL: E62 H21 O31
    Date: 2019–09
    URL: http://d.repec.org/n?u=RePEc:liv:livedp:201913&r=all
  22. By: Shiyuan Pan (Zhejiang University); Kai Xu (Zhejiang University); Kai Zhao (University of Connecticut)
    Abstract: We develop a two-sector growth model of vertical structure in which the up-stream sector features Cournot competition and produces intermediate goods that are used in the downstream sector for the production of final goods. In such a ver-tical structure, we show that deregulation and increased market competition in the upstream sector does not only increase its own productivity, but also has a substan-tial spill-over effect on the productivity of the downstream sector through affecting factor prices. We calibrate the model to the Chinese economy and use the calibrated model to quantitatively evaluate the extent to which deregulation in the upstream market in China from 1998 to 2007 accounts for the rapid economic growth over the same period. Our quantitative experiments suggest that deregulation in the up-stream market in China from 1998 to 2007 can account for a significant fraction of China’s economic growth during this period partly due to the significant spillover effect it has on the downstream sector. In addition, our model can also match sev-eral relevant observations in China during the same period including high and rising returns to capital, declining markups.
    Keywords: Deregulation; Economic Growth; Vertical Structure
    JEL: E20 O41
    Date: 2020–01
    URL: http://d.repec.org/n?u=RePEc:uct:uconnp:2020-01&r=all
  23. By: La, Jung Joo
    Abstract: The objective of this study is to assess whether a reduction in credit card processing fees can offset the effect of a hike in the minimum wage by examining the unique case of South Korea. To do so, this study introduces a theoretical model with money and credit as the explicit means of payment. In particular, it develops a general equilibrium model with micro-foundations for dealing with the relationship between minimum wage increases and job automation, and takes a long-run approach in the quantitative analysis. Contrary to the existing literature, the study shows that a minimum wage hike negatively and significantly affects overall employment. The calibrated results show that a 13.6% hike in the minimum wage causes a 16.46% reduction in the demand for simple labor earning the minimum wage, and also decreases the demand for non-simple labor by 0.157%. In contrast, if a policy of reducing credit card processing fees is adopted to ease the negative effect of a hike in minimum wage on employment, a 0.65% reduction in these fees (derived by shifting the burden of interest on credit card debt from seller to buyer) results in a 0.09% decrease in the labor demand.
    Keywords: Hike in minimum wage; Reduction in credit card processing fee; Job automation
    JEL: E42 J23 J38
    Date: 2019–12–31
    URL: http://d.repec.org/n?u=RePEc:pra:mprapa:97920&r=all

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