nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2020‒02‒03
28 papers chosen by
Christian Zimmermann
Federal Reserve Bank of St. Louis

  1. Monetary Policy and Reserve Requirements in a Small Open Economy By Carlos Alberto Takashi Haraguchi; Jose Angelo Divino
  2. Dynastic Precautionary Savings By Corina Boar
  3. Financial frictions,the Phillips curve and monetary policy By Lieberknecht, Philipp
  4. What Is Driving The TFP Slowdown? Insights From a Schumpeterian DSGE Model By Pinchetti, Marco
  5. PreMISE: DSGE Model of the Slovak Economy Integrated in a Monetary Union By Milan Vyskrabka; Stanislav Tvrz; Martin Zeleznik
  6. Compositional nature of firm growth and aggregate fluctuations By Smirnyagin, Vladimir
  7. Pension, Retirement, and Growth in the Presence Heterogeneous Elderly By Hirono, Makoto; Mino, Kazuo
  8. Developing a DSGE Consumption Function for a CGE Model By Peter B. Dixon; Maureen T. Rimmer
  9. The impact of benefit sanctions on equilibrium wage dispersion and job vacancies By Sébastien Ménard
  10. Saving Behavior Across the Wealth Distribution: The Importance of Capital Gains By Andreas Fagereng; Martin Blomhoff Holm; Benjamin Moll; Gisle Natvik
  11. Hours risk and wage risk: Repercussions over the life-cycle By Jessen, Robin; König, Johannes
  12. Advanced Macroeconomics for Undergraduates By Chu, Angus C.
  13. Household Balance Sheet Channels of Monetary Policy: A Back of the Envelope Calculation for the Euro Area By Jiri Slacalek; Oreste Tristani; Giovanni L. Violante
  14. Optimal Fiscal Policy without Commitment: Revisiting Lucas-Stokey By Davide Debortoli; Ricardo Nunes; Pierre Yared
  15. Reducing the income tax burden for households with children: An assessment of the child tax credit reform in Austria By Michael Christl; Silvia De Poli; Janos Vargas
  16. The Optimal Mix of Monetary and Climate Policy By Chen, Chuanqi; Pan, Dongyang
  17. Micro Jumps, Macro Humps: Monetary Policy and Business Cycles in an Estimated HANK Model By Adrien Auclert; Matthew Rognlie; Ludwig Straub
  18. Heterogeneous Real Estate Agents and the Housing Cycle By Sonia Gilbukh; Paul Goldsmith-Pinkham
  19. Health subsidies, prevention and welfare By Luca Marchiori; Olivier Pierrard
  20. Fiscal Policy and the Nominal Term Premium By Roman Horvath; Lorant Kaszab; Ales Marsal
  21. The Bright Side of the Doom Loop: Banks Exposure and Default Incentives By Luis Rojas; Dominik Thaler
  22. Business Cycle Anatomy By Angeletos, Georges Marios; Collard, Fabrice; Dellas, Harris
  23. Financial Stability with Sovereign Debt By Ryuichiro Izumi
  24. Political Activism and the Provision of Dynamic Incentives By Antoine Camous; Russell Cooper
  25. Health Shocks and the Evolution of Earnings over the Life-Cycle By Michael Keane; Elena Capatina; Shiko Maruyama
  26. The Emergence of Procyclical Fertility: The Role of Gender Differences in Employment Risk By Sena Coskun; Husnu Dalgic
  27. Skewed Business Cycles By Sergio Salgado; Fatih Guvenen; Nicholas Bloom
  28. Efficient bargaining versus Right to manage in the era of liberalization By Natasha Miaouli; Panagiota Koliousi

  1. By: Carlos Alberto Takashi Haraguchi; Jose Angelo Divino
    Abstract: This paper investigates how a combination of monetary and macroprudential policies might affect the dynamics of a small open economy with financial frictions under alternative exogenous shocks. The proposed DSGE model incorporates macroprudential policy rules to the financial sector of an open economy. Exogenous shocks in productivity, domestic and foreign monetary policies are used to identify the roles of the macroprudential and monetary policies in stabilizing the economy. A welfare analysis compares the performance of alternative rules for reserve requirements. The model is calibrated for the Brazilian economy and results indicate the exchange rate plays a central role in the transmission of foreign shocks, but not of domestic shocks. Considering the volatility of the variables and convergence to steady state, the interest rate rule should target domestic inflation and not respond directly to the exchange rate. The reserve requirement rule, in its turn, should react countercyclically to the credit-gap and not have a fixed component. There is complementarity between monetary and macroprudential policies to stabilize the small open economy.
  2. By: Corina Boar
    Abstract: This paper provides evidence that parents accumulate savings to insure their children against income risk. I refer to this behavior as dynastic precautionary saving and quantify its extent using matched parent-child pairs from the Panel Study of Income Dynamics and exploiting variation in income risk across age, industries and occupations. I then build a model of altruistically linked overlapping generations, in which parents and children interact strategically, that is quantitatively consistent with the empirical evidence. I argue that strategic interactions are important for generating the observed dynastic precautionary behavior and use the model to show this component of household savings is quantitatively important for wealth accumulation, intergenerational transfers and consumption insurance.
    JEL: E21
    Date: 2020–01
  3. By: Lieberknecht, Philipp
    Abstract: This paper proposes a tractable financial accelerator New Keynesian DSGE modelthat allows for closed-form solutions. In the presence of financial frictions, theNew Keynesian Phillips curve features a flat slope with respect to the output gapand is strongly forward-looking. All shocks cause endogenous cost-push effects inthe Phillips curve, leading to larger inflation responses and a breakdown of divinecoincidence. The central bank's contemporaneous trade-off between output gap andinflation stabilization is aggravated. Optimal monetary policy is strongly forward-looking and geared towards inflation stabilization.
    Keywords: financial frictions,financial accelerator,Phillips curve,optimal monetary policy
    JEL: E42 E44 E52 E58
    Date: 2019
  4. By: Pinchetti, Marco
    Abstract: In this paper, I incorporate a Schumpeterian mechanism of creative destruction in a medium-scale DSGE framework. In the model, a sector of profit-maximizing innovators invests in R&D and endogenously gen- erates productivity gains, ultimately determining the economy's growth rate. I estimate the model using Bayesian methods on U.S. data of the last 25 years (1993q1-2018q4) in order to disentangle the key forces underlying the productivity slowdown experienced by the US economy since the early 2000s. In contrast with the previous literature, I exploit Fernald (2014) data on TFP, factor utilization and labour quality to discipline the production function, and find that the bulk of the TFP slowdown is due to a decrease in innovation's ability to generate TFP gains. These findings challenge the view of a large part of the literature, according to which the recent TFP dynamics in the US are mostly driven by demand slumps and/or liquidity crunches.
    Keywords: DSGE model, Endogenous TFP, Schumpeterian Growth, TFP Slowdown
    JEL: E24 E32 E5 O47
    Date: 2020–01–24
  5. By: Milan Vyskrabka (European Commission, Brusel, Belgium); Stanislav Tvrz (Ceska narodni banka, Prague, Czech Republic); Martin Zeleznik (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: The goal of the paper is to introduce the new structural model (PreMISE) of the National bank of Slovakia and illustrate how it is used for policy analysis. The model derivation and characteristics of its behavior are presented. At the same time procedures that are useful during the prediction process and their contribution to policy analysis are shown.
    Keywords: DSGE, general equilibrium, monetary policy, forecasting
    JEL: D58 E32 E58 E47 C53
    Date: 2019–11
  6. By: Smirnyagin, Vladimir (University of Minnesota)
    Abstract: This paper studies firm dynamics over the business cycle. I present evidence from the United Kingdom that more rapidly growing firms are born in expansions than in recessions. Using administrative records from Census data, I find that this observation also holds for the last four recessions in the United States. I also present suggestive evidence that financial frictions play an important role in determining the types of firms that are born at different stages of the business cycle. I then develop a general equilibrium model in which firms choose their managers’ span of control at birth. Firms that choose larger spans of control grow faster and eventually get to be larger, and in this sense have a larger target size. Financial frictions in the form of collateral constraints slow the rate at which firms reach their target size. It takes firms longer to get up to scale when collateral constraints tighten; therefore, businesses with the largest target size are affected disproportionately more. Thus, fewer entrepreneurs find it profitable to choose larger projects when financial conditions deteriorate. Using Bayesian methods, I estimate the model using micro and aggregate data from the United Kingdom. I find that financial shocks account for over 80% of fluctuations in the formation of businesses with a large target size, and TFP and labour wedge shocks account for the remaining 20%. An independently estimated version of the model with no choice over the span of control needs larger aggregate shocks in order to account for the same data series, suggesting that the intensive margin of business formation is important at business cycle frequencies. The model with the choice over the span of control generates an empirically relevant and non-targeted collapse in the right tail of the cumulative growth distribution among firms started in recessions, while the model without such a choice does not. The paper also discusses implications for micro-targeted government stimulus policies.
    Keywords: Business cycles; firm dynamics
    JEL: E23 E32 H25
    Date: 2020–01–03
  7. By: Hirono, Makoto; Mino, Kazuo
    Abstract: This study explores the linkage between the labor force participation of the elderly and the long-run performance of the economy in the context of a two-period-lived overlapping generations model. We assume that the old agents are heterogeneous in their labor efficiency and they continue working if their income exceeds the pension that can be received in the case of full retirement. We first inspect the key factors that determine the labor supply of old agents. We then examine analytically as well as numerically the long-run impact of labor participation of the elderly on capital accumulation.
    Keywords: retirement decision, labor force participation, population aging, pension system, capital accumulation
    JEL: E10 E62
    Date: 2019–11–20
  8. By: Peter B. Dixon; Maureen T. Rimmer
    Abstract: DSGE models incorporate attractive theoretical specifications of the behaviour of forward-looking households facing an uncertain future. Central to these specifications is the idea that households decide their consumption level in year t by applying a function (policy rule) whose arguments represent information available in year t. Using the insight that, under certain conditions, the policy rule (but not the resulting policy) is invariant through time, DSGE modellers have developed the perturbation and other methods for quantitatively specifying policy rules. They have applied these methods in small macro models. In this paper we adapt the perturbation method so that it can be used to specify a policy rule for household consumption in a full-scale CGE model. A novel feature of our method is the use of specially constructed CGE simulations to reveal key parameters used in deriving the policy rule. We apply our method in an illustrative simulation of the effects of a technology shock in a 70-sector version of the USAGE model of the U.S. economy.
    Keywords: Consumption function Dynamic stochastic general equilibrium Computable general equilibrium Perturbation method
    JEL: E21 C61 C68 C63
    Date: 2020–01
  9. By: Sébastien Ménard (TEPP - Travail, Emploi et Politiques Publiques - UPEM - Université Paris-Est Marne-la-Vallée - CNRS - Centre National de la Recherche Scientifique, GAINS - Groupe d'Analyse des Itinéraires et des Niveaux Salariaux - UM - Le Mans Université)
    Abstract: Usually, the literature on benefit sanctions focuses on the effects on labour supply. In this paper, we integrate commuting costs in an equilibrium job search model with wages posting to analyse the effects of job search monitoring on labour demand. We show that benefit sanctions increase job creation, but degrade the job quality and the average job-productivity. In addition, we emphasise that the optimal UB system is characterised by using both benefit sanctions and the mutualisation of commuting costs.
    Keywords: Wage dispersion,Job search,sanctions,Monitoring
    Date: 2020–01–15
  10. By: Andreas Fagereng; Martin Blomhoff Holm; Benjamin Moll; Gisle Natvik
    Abstract: Do wealthier households save a larger share of their incomes than poorer ones? We use Norwegian administrative panel data on income and wealth to answer this empirical question. The relation between saving rates and wealth crucially depends on whether saving includes capital gains. Saving rates net of capital gains ("net saving rates") are approximately constant across the wealth distribution. However, saving rates including capital gains ("gross saving rates") increase markedly with wealth. The proximate explanation is that wealthier households own assets that experience persistent capital gains which they hold onto instead of selling them off to consume ("saving by holding"). These joint patterns for net and gross saving rates challenge canonical models of household wealth accumulation. They are instead consistent with theories in which time-varying discount rates or portfolio adjustment frictions keep households from realizing capital gains. Between 1995 and 2015 Norway's aggregate wealth-to-income ratio rose from approximately 4 to 7. "Saving by holding" accounts for up to 80 percent of this increase.
    JEL: D14 E21 E40
    Date: 2019–12
  11. By: Jessen, Robin; König, Johannes
    Abstract: We decompose permanent earnings risk into contributions from hours and wage shocks. To distinguish between hours shocks, modeled as innovations to the marginal disutility of work, and labor supply reactions to wage shocks we formulate a life-cycle model of consumption and labor supply. Both permanent wage and hours shocks are important to explain earnings risk, but wage shocks have greater relevance. Progressive taxation strongly attenuates cross-sectional earnings risk, its life-cycle insurance impact is much smaller. At the mean, a positive hours shock of one standard deviation raises life-time income by 10%, while a similar wage shock raises it by 12%.
    Keywords: Earnings Risk,Wage Risk,Labor Supply,Progressive Taxation,Consumption Insurance
    JEL: D31 J22 J31
    Date: 2020
  12. By: Chu, Angus C.
    Abstract: This manuscript covers selected topics in advanced macroeconomics at the undergraduate level. It builds on materials in intermediate macroeconomics textbooks (e.g., Barro et al., 2017) by covering the mathematics of some basic dynamic general-equilibrium models, which are designed to give undergraduate students a firm appreciation of modern developments in macroeconomics. Chapter 1 begins with a simple static model to demonstrate the concept of general equilibrium. Then, Chapter 2 to 4 cover the neoclassical growth model to explore the effects of exogenous changes in the level of technology. Chapter 5 to 7 use the neoclassical growth model to explore the effects of fiscal policy instruments, such as government spending, labour income tax and capital income tax. Chapter 8 develops a simple new Keynesian model to analyze the effects of monetary policy. Chapter 9 begins the analysis of economic growth by reviewing the Solow growth model. Chapter 10 to 12 present the Ramsey model and introduce different market structures to the model to lay down the foundation of the Romer model. Chapter 13 incorporates an R&D sector into the Ramsey model with a monopolistically competitive market structure to develop the Romer model of endogenous technological change. Chapter 14 to 15 examine the implications of the Romer model. Chapter 16 concludes this manuscript by presenting the Schumpeterian growth model and examining its different implications from the Romer model.
    Keywords: Advanced macroeconomics; dynamic general equilibrium; economic growth; technological change
    JEL: A2 E3 O4
    Date: 2020
  13. By: Jiri Slacalek; Oreste Tristani; Giovanni L. Violante
    Abstract: This paper formulates a back of the envelope approach to study the effects of monetary policy on household consumption expenditures. We analyze several transmission mechanisms operating through direct, partial equilibrium channels—intertemporal substitution and net interest rate exposure—and indirect, general equilibrium channels—net nominal exposure, as well as wealth, collateral and labor income channels. The strength of these forces varies across households depending on their marginal propensities to consume, their balance sheet composition, the sensitivity of their own earnings to fluctuations in aggregate labor income, and the responsiveness of aggregate earnings, asset prices and inflation to monetary policy shocks. We quantify all these channels in the euro area by combining micro data from the HFCS and the EU-LFS with structural VARs estimated on aggregate time series. We find that the indirect labor income channel and the housing wealth effect are strong drivers of the aggregate consumption response to monetary policy and explain the cross-country heterogeneity in these responses.
    JEL: E21 E52
    Date: 2020–01
  14. By: Davide Debortoli; Ricardo Nunes; Pierre Yared
    Abstract: According to the Lucas-Stokey result, a government can structure its debt maturity to guarantee commitment to optimal fiscal policy by future governments. In this paper, we overturn this conclusion, showing that it does not generally hold in the same model and under the same definition of time-consistency as in Lucas-Stokey. Our argument rests on the existence of an overlooked commitment problem that cannot be remedied with debt maturity: a government in the future will not tax on the downward sloping side of the La er curve, even if it is ex-ante optimal to do so.
    Keywords: public debt, optimal taxation, fiscal policy
    JEL: H63 H21 E62
    Date: 2020–01
  15. By: Michael Christl (European Commission - JRC); Silvia De Poli (European Commission - JRC); Janos Vargas (European Commission – DG ECFIN)
    Abstract: This paper analyses the impact of the implementation of a child tax credit in Austria in 2019, not only on micro, but also on macro level by using a dynamic scoring methodology. First, we assess the fiscal and distributional impact of this reform using the microsimulation model EUROMOD. Second, we estimate labour supply impacts of the reform based on a structural discrete choice framework. Third, we evaluate the macroeconomic impacts of the reform, by calibrating and shocking QUEST, the DSGE model of the European Commission, with the micro-based results for the implicit tax rate, the non-participation and the labour supply elasticities. We show that the child tax credit reform in Austria reduces inequality, lowers the poverty rate in general, but by definition only for households with children. Overall the reform has a positive impact on labour supply, both on the extensive and on the intensive margin, especially for women. On the macro-level (and in the long-run), our model suggests a positive impact on employment. Additionally, we find that parts of the tax decrease can be potentially captured by the employer, meaning that gross wages would fall slightly. However, we find small but positive effects on GDP, investment and consumption, although the long-run macroeconomic effects depend crucially on how the government compensates the missing tax revenues after the reform. Accounting for these effects at the micro level, we show that the second round effects are important to take into account, because they provide insights into the medium-term distributional impact of the reform.
    Keywords: EUROMOD, tax credit, reform, DSGE, labour supply, microsimulation, discrete choice
    JEL: H24 H31 I38
    Date: 2019–12
  16. By: Chen, Chuanqi; Pan, Dongyang
    Abstract: Given central banks' recent interest in "greening the financial system", this research theoretically investigates the relationship between monetary and climate policy and tries to find their “optimal mix”. We build an Environmental Dynamic Stochastic General Equilibrium (E-DSGE) model with the consideration of illegal emission which is pervasive in many countries. According to the model, we find: First, the dynamic of monetary policy is influenced by the selection of regimes of climate policy and the effectiveness of enforcement of environmental regulation. Second, the coefficients in the traditional Taylor rule of monetary policy can be better set to enhance welfare when a certain regime of climate policy is given in the economy. This helps find the constrained optimums of a policy mix. Third, if the mitigation of climate change is augmented into the target of monetary policy, the economy’s welfare can be enhanced. However, under certain circumstances, a dilemma in such monetary policy makes it incompatible with the traditional mandate of central bank.
    Keywords: Optimal Mix, Monetary Policy, Climate Policy, E-DSGE
    JEL: E52 Q54 Q58
    Date: 2020
  17. By: Adrien Auclert; Matthew Rognlie; Ludwig Straub
    Abstract: We estimate a Heterogeneous-Agent New Keynesian model with sticky household expectations that matches existing microeconomic evidence on marginal propensities to consume and macroeconomic evidence on the impulse response to a monetary policy shock. Our estimated model uncovers a central role for investment in the transmission mechanism of monetary policy, as high MPCs amplify the investment response in the data. This force also generates a procyclical response of consumption to investment shocks, leading our model to infer a central role for these shocks as a source of business cycles.
    JEL: E21 E22 E32 E43 E52
    Date: 2020–01
  18. By: Sonia Gilbukh; Paul Goldsmith-Pinkham
    Abstract: The real estate market is highly intermediated, with 90 percent of buyers and sellers hiring an agent to help them transact a house. However, low barriers to entry and fixed commission rates result in a market where inexperienced intermediaries have a large market share, especially following house price booms. Using rich micro-level data on 10.4 million listings, we first show that houses listed for sale by inexperienced real estate agents have a lower probability of selling, and this effect is strongest during the housing bust. We then study the aggregate implications of the distribution of agents’ experience on housing market liquidity by building a dynamic entry and exit model of real estate agents with aggregate shocks. Several policies that raise the barriers to entry for agents are considered: 1) lower commission rates, 2) increased entry costs, and 3) more informed clients. Relative to the baseline, all three policies lead to an increase in average liquidity, with the largest effect during the bust.
    Keywords: intermediaries, housing prices, real-estate cycles
    JEL: R21 D40 R32
    Date: 2020–01
  19. By: Luca Marchiori; Olivier Pierrard
    Abstract: Health subsidies involve public budgetary costs. However, they generate a positive externality by encouraging participation in health-improving initiatives, which help reduce future health care costs. We build an overlapping generations model with a government subsidizing investment in health by the young generation and paying the health care costs of the old generation. We find that the welfare-maximizing subsidy rate depends positively on health externality and the size of health care costs, and negatively on the discount factor. The subsidy rate should therefore be high when prevention more effective at cost saving and when the population is myopic about the future. Moreover, the welfare-maximizing subsidy rate is lower than the health-maximizing rate but higher than the capital-maximizing rate.
    Keywords: Overlapping generations model, health subsidy, welfare
    JEL: H23 I18 O41
    Date: 2020–01
  20. By: Roman Horvath (Charles University, Prague, Czech Republic); Lorant Kaszab (Magyar Nemzeti Bank, Budapest, Hungary); Ales Marsal (Narodna banka Slovenska, Bratislava, Slovakia)
    Abstract: We estimate a New Keynesian model on post-war US data with generalised method of moments using either constant or time-varying debt and distortionary labor income taxes. We show that accounting for government debt and distortionary taxes help the New Keynesian model match the level of the nominal term premium with a lower relative risk-aversion than typically found in the literature.
    Keywords: zero-coupon bond, nominal term premium, balanced budget rule, income taxation
    JEL: E13 E31 E43 E44 E62
    Date: 2019–12
  21. By: Luis Rojas; Dominik Thaler
    Abstract: We revisit the doom-loop debate emphasizing the commitment device that the exposure of the financial sector to sovereign debt provides to the sovereign. If this mechanism is strong then lower exposure or a commitment not to bailout banks, two policy prescriptions that have emerged in this literature, can backfire. We present a simple 3-period model with strategic sovereign default where debt is held by local banks or foreign investors and show that: i) Reducing exposure reduces commitment and hence increases the probability of default, without avoiding the “doom loop”. Furthermore, that allowing banks to buy additional sovereign debt in times of sovereign distress can rule out the doom loop. ii) A no bailout commitment is not sufficient to rule out self-fulfilling expectations.
    Keywords: sovereign default, bailout, doom loop, self-fulfilling crises
    JEL: E44 E6 F34
    Date: 2020–01
  22. By: Angeletos, Georges Marios; Collard, Fabrice; Dellas, Harris
    Abstract: We propose a new strategy for dissecting the macroeconomic time series, provide a template for the propagation mechanism that best describes the observed business cycles, and use its properties to appraise models of both the parsimonious and the medium-scale variety. Our findings support the existence of a main business-cycle driver but rule out the following candidates for this role: technology or other shocks that map to TFP movements; news about future productivity; and inflationary demand shocks of the textbook type. Prominent members of the DSGE literature also lack the propagation mechanism seen in our anatomy of the data. Models that aim at accommodating demanddriven cycles under flexible prices appear promising.
    Date: 2020–01
  23. By: Ryuichiro Izumi (Department of Economics, Wesleyan University)
    Abstract: Are government guarantees or fnancial regulation a more effective way to prevent banking crises? I study this question in the presence of a negative feedback loop between the fscal position of the government and the health of the banking sector. I construct a model of fnancial intermediation in which the government issues, and may default on, debt. Banks hold some of this debt, which ties their health to that of the government. The government's tax revenue, in turn, depends on the quantity of investment that banks are able to fnance. I compare the effectiveness of government guarantees, liquidity regulation, and a combination of these policies in preventing self-fulflling bank runs. In some cases, a combination of the two policies is needed to prevent a run. In other cases, liquidity regulation alone is effective and adding guarantees would make the fnancial system fragile.
    Keywords: Bank runs, Sovereign default, Feedback loop, Government guarantees, Liquidity regulation
    JEL: G21 G28 H63
    Date: 2020–01
  24. By: Antoine Camous; Russell Cooper
    Abstract: This paper studies the determination of income taxes in a dynamic setting with human capital accumulation. The goal is to understand the factors that support an outcome without complete redistribution, given a majority of relatively poor agents. In the analysis, the internal dynamics of income are not sufficient to prevent complete redistribution under majority rule without commitment. However, a political influence game across the population limits the support for expropriatory taxation and preserves incentives. In some cases, the outcome of the game corresponds with the optimal allocation under commitment.
    JEL: D72 D74 E62 H31
    Date: 2020–01
  25. By: Michael Keane (School of Economics, UNSW Business School, UNSW Sydney); Elena Capatina (Research School of Economics, Australian National University); Shiko Maruyama (Economics Discipline Group, UTS Business School, University of Technology Sydney)
    Abstract: We study the contribution of health shocks to earnings inequality and uncertainty in labor market outcomes. We calibrate a life-cycle model with idiosyncratic health, earnings, employment and survival risk, where individuals make labor supply and savings decisions, adding two novel features. First, we model health as a complex multidimensional concept. We differentiate between functional health and latent health risk, and between temporary/persistent and predictable/unpredictable health shocks. Second, we model interactions between health and human capital accumulation. We find that, in an environment with both costly health shocks and means-tested transfers, low-skill workers find it optimal to reduce their labor supply in order to maintain eligibility for transfers that protect them from potentially high health care costs. Thus, means-tested transfers generate a moral hazard effect that causes agents (especially those with low productivity) to invest less in human capital. Provision of public insurance can alleviate this problem and enhance labor supply.
    Keywords: Health, Health Shocks, Human Capital, Income Risk, Precautionary Saving, Earnings Inequality, Health Insurance, Welfare
    JEL: D91 E21 I14 I31
    Date: 2019–12
  26. By: Sena Coskun; Husnu Dalgic
    Abstract: Fertility in the US exhibits a procyclical pattern since 80s. We argue that gender differences in employment risk leads to procyclical fertility; men mostly work in volatile and procyclical industries whereas women are likely to work in relatively stable and countercyclical industries. Our quantitative framework features a general equlibrium OLG model with endogeneous fertility and human capital choice and it shows that current gender industry composition in the US data accounts for all of this procyclicality. Moreover, we argue that gender income ratio (female to male) is higher in bad times which tilts the quality-quantity trade-off towards quality.
    Keywords: fertility, industry cyclicality, industry gender segregation, gender income gap, quality-quantity trade-off
    JEL: E24 E32 J11 J13 J16 J21 J24
    Date: 2020–01
  27. By: Sergio Salgado; Fatih Guvenen; Nicholas Bloom
    Abstract: Using firm-level panel data from the US Census Bureau and almost fifty other countries, we show that the skewness of the growth rates of employment, sales, and productivity is procyclical. In particular, during recessions, they display a large left tail of negative growth rates (and during booms, a large right tail of positive growth rates). We find similar results at the industry level: industries with falling growth rates see more left-skewed growth rates of firm sales, employment, and productivity. We then build a heterogeneous-agent model in which entrepreneurs face shocks with time-varying skewness that matches the firm-level distributions we document for the United States. Our quantitative results show that a negative shock to the skewness of firms’ productivity growth (keeping the mean and variance constant) generates a persistent drop in output, investment, hiring, and consumption. This suggests the rising risk of large negative firm-level shocks could be an important factor driving recessions.
    JEL: E3
    Date: 2019–12
  28. By: Natasha Miaouli (Athens University of Economics and Business); Panagiota Koliousi (Athens University of Economics and Business)
    Abstract: We compare product and labour market liberalization under the two trade union bargaining models: the Right- to- Manage (RTM) model and the Efficient Bargaining (EB) model. The vehicle is a dynamic general equilibrium (DGE) model that incorporates two types of agents (capitalists and workers), imperfectly competitive product and labour markets. The model is solved numerically employing common parameter values and data from the euro area. A key message is that product market deregulation is favourable under any labour market structure while opting for labour market deregulation one should provide special attention to the structu- re of the labour market such as the bargaining system of unions. If the prevailing way of bargaining is the RTM model then restructuring both markets is beneficial for all agents.
    Keywords: J5, I1
    Date: 2018–04

This nep-dge issue is ©2020 by Christian Zimmermann. It is provided as is without any express or implied warranty. It may be freely redistributed in whole or in part for any purpose. If distributed in part, please include this notice.
General information on the NEP project can be found at For comments please write to the director of NEP, Marco Novarese at <>. Put “NEP” in the subject, otherwise your mail may be rejected.
NEP’s infrastructure is sponsored by the School of Economics and Finance of Massey University in New Zealand.