nep-dge New Economics Papers
on Dynamic General Equilibrium
Issue of 2022‒10‒24
28 papers chosen by
Christian Zimmermann
Federal Reserve Bank of St. Louis

  1. Central bank digital currency and cryptocurrency in emerging markets By Le, Anh H.
  2. Softening the blow: Job retention schemes in the pandemic By Jolan Mohimont; Maite de Sola Perea; Marie-Denise Zachary
  3. Gini in the Taylor Rule: Should the Fed Care About Inequality? By Eunseong Ma; Kwangyong Park
  4. The Heterogeneous Welfare Effects of Business Cycles. By Eunseong Ma; Daeha Cho
  5. Real Wage Cyclicality and Monetary Policy. By Eunseong Ma
  6. The inverted leading indicator property and redistribution effect of the interest rate By Patrick Pintus; Yi Wen; Xiaochuan Xing
  7. Monetary Policy and Endogenous Financial Crises By Frederic Boissay; Fabrice Collard; Jordi Galí; Cristina Manea
  8. A Worker's Backpack as an alternative to PAYG pension systems By Julián Díaz-Saavedra; Ramon Marimon; João Brogueira de Sousa
  9. Home Construction Financing and Search Frictions in the Housing Market By Miroslav Gabrovski; Victor Ortego-Marti
  10. Labor Force Participation, Wages and Turbulence By Francesc Obiols-Homs; Virginia Sánchez-Marcos
  11. Incarceration, Unemployment, and the Racial Marriage Divide By Elizabeth M. Caucutt; Nezih Guner; Christopher Rauh
  12. Central Bank Digital Currency: Financial Inclusion vs. Disintermediation By Jeremie Banet; Lucie Lebeau
  13. Whither Liquidity Shocks? By Giorgio Massari; Patrizio Tirelli
  14. Monetary Policy and Inequality: How Does One Affect the Other? By Eunseong Ma
  15. Sovereign Risk, Financial Fragility and Debt Maturity By Dallal Bendjellal
  16. Q-Monetary Transmission By Priit Jeenas; Ricardo Lagos
  17. Labor Market Institutions and Fertility By Nezih Guner; Ezgi Kaya; Virginia Sánchez-Marcos
  18. Intensive and Extensive Margins of Labor Supply in HANK: Aggaregate and Disaggregate Implications. By Eunseong Ma
  19. What drives Indian inflation? Demand or supply By Ashima Goyal; Abhishek Kumar
  20. Macroeconomic and Asset Pricing Effects of Supply Chain Disasters By Vladimir Smirnyagin; Aleh Tsyvinski
  21. The macroeconomics of establishing a basic income grant in South Africa By Steenkamp, Daan; Havemann, Roy; Hollander, Hylton
  22. Returns to Labor Mobility. Layoff Costs and Quit Turbulence By Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
  23. Sudden Stops and Optimal Policy in a Two-agent Economy By Nina Biljanovska; Alexandros Vardoulakis
  24. Pollution versus Inequality: Tradeoffs for Fiscal Policy By Camille Hainnaux; Thomas Seegmuller
  25. Female Entrepreneurship, Financial Frictions and Capital Misallocation in the US By Marta Morazzoni; Andrea Sy
  26. Systemic bank runs without aggregate risk: how a misallocation of liquidity may trigger a solvency crisis By Lukas Altermatt; Hugo van Buggenum; Lukas Voellmy
  27. Local employment dynamics and communtig costs By Julien Pascal
  28. Labor Supply and Occupational Choice By Andrés Erosa; Luisa Fuster; Gueorgui Kambourov; Richard Rogerson

  1. By: Le, Anh H.
    Abstract: Blockchain technology has opened up the possibility of digital currency, smart contracts and much more applications including the launch of central bank digital currencies (CBDC). However, literature about the effect of CBDC with the presence of cryptocurrency for an emerging market economy seems to be left behind. In this paper, we introduce a New Keynesian - Dynamic Stochastic General Equilibrium (NK-DSGE) model to examine the implications of CBDC and cryptocurrency in an open economy for emerging markets. In our model, cryptocurrency is implemented as a form of deposit in banks where bankers can also receive deposits from abroad. Lastly, CBDC is introduced as a payment and saving instrument. We find that cryptocurrency has a crucial role in banking sectors and a significant effect on the dynamic of foreign debt which is deeply important for emerging markets. We also conduct optimal monetary policy under different scenarios. Hence, we uncover that a flexible rate in CBDC can affect the responses of the monetary rate and can reinforce the conventional monetary policy to achieve the central bank's targets.
    Keywords: Central bank digital currency, Cryptocurrency, Open-economy, Financial frictions, Optimal monetary policy
    JEL: E50 F30 F31 G15 G18 G23
    Date: 2022–09–20
  2. By: Jolan Mohimont (: Economics and Research Department, National Bank of Belgium); Maite de Sola Perea (Economics and Research Department, National Bank of Belgium); Marie-Denise Zachary (Economics and Research Department, National Bank of Belgium)
    Abstract: We evaluate the welfare effects of the economic consequence of the COVID shock and job retention schemes (JRS) in a heterogenous agents DSGE model calibrated to the euro area. We find that the welfare cost of the COVID shock is large. Households who hold a limited stock of financial wealth and are unable to perfectly insure against shocks to their labor incomes experience larger welfare losses. JRS implemented in response to the pandemic have large favorable welfare effects and benefit all households. These gains are particularly strong for liquid-asset-poor households, especially for those that are also unemployed or furloughed. JRS bring stronger benefits in economies characterized by labor markets with low exit/entry rates from/to unemployment.
    Keywords: : COVID-19, job retention schemes, furlough, household inequality, idiosyncratic risks, labor markets, welfare cost, DSGE.
    JEL: E21 E24 E52 E62
    Date: 2022–09
  3. By: Eunseong Ma (Yonsei University); Kwangyong Park (Bank of Korea)
    Abstract: This study investigates whether the Federal Reserve (Fed) should care about inequality. We develop a Heterogeneous Agent New Keynesian (HANK) model, which generates empirically realistic inequalities and business cycle properties observed in the U.S. data. We consider the income Gini coefficient in a monetary policy rule to see how an inequality-targeting monetary policy affects aggregate and disaggregate outcomes, as well as economic welfare. We find that a monetary policy rule with an explicit inequality target can be welfare improving, even if inequality becomes volatile. In particular, the policy reform can improve the welfare of the poorest the most. Finally, we demonstrate the feasibility of a subgroup targeting monetary policy as a tool for an implementable inclusive monetary policy.
    Keywords: Monetary Policy; Inequality; Welfare; Taylor Rule; Nonconvexity.
    JEL: E52 D31 D52 D63 J21
    Date: 2022–08
  4. By: Eunseong Ma (Yonsei University); Daeha Cho (Hanyang University)
    Abstract: This study investigates the welfare effects of business cycle fluctuations from a distributional perspective. To this end, we develop a quantitative heterogeneous-agent model which incorporates market incompleteness and non-convexity into the mapping from the time devoted to work to labor services. In this setup, households can insure against aggregate uncertainty using labor and savings and have substantially different labor supply elasticities. We find that the welfare effects are heterogeneous across households, with wealth-rich households benefiting most from business cycles. Wealth-rich households enjoy business cycles more than wealth-poor households, because they experience less volatile consumption and can enjoy higher average income through reallocating savings intertemporally.
    Keywords: Business Cycle, Welfare, Inequality, Volatility Effect, Level Effect, Nonconvexity.
    JEL: E32 D61 D31
    Date: 2022–10
  5. By: Eunseong Ma (Yonsei University)
    Abstract: Conventional wisdom based on many empirical studies has long held that real wages are procyclical conditional on a monetary policy shock. This paper challenges this conventional view by developing a quantitative heterogeneous-agent New Keynesian economy with sticky wages. I find that true real wages may be countercyclical conditional on a monetary policy shock, but the data may predict the wrong direction of the real wage dynamics due to the inconsistent definition. This result implies that the predictions of New Keynesian models with wage rigidities are consistent with the data.
    Keywords: Monetary policy; Real wages; Labor share; Earnings inequality.
    JEL: E52 J31 D31
    Date: 2022–08
  6. By: Patrick Pintus (AMSE - Aix-Marseille Sciences Economiques - EHESS - École des hautes études en sciences sociales - AMU - Aix Marseille Université - ECM - École Centrale de Marseille - CNRS - Centre National de la Recherche Scientifique); Yi Wen (Shanghai Jiao Tong University [Shanghai]); Xiaochuan Xing (Balyasny Asset Management L.P)
    Abstract: The interest rate at which US firms borrow funds has two features: (i) it moves in a countercyclical fashion and (ii) it is an inverted leading indicator of real economic activity: low interest rates today forecast future booms in GDP, consumption, investment, and employment. We show that a Kiyotaki–Moore model accounts for both properties when interest-rate movements are driven, in a significant way, by self-fulfilling belief shocks that redistribute income away from lenders and to borrowers during booms. The credit-based nature of such self-fulfilling equilibria is shown to be essential: the dynamic correlation between current loanable funds rate and future aggregate economic activity depends critically on the property that the interest rate is state-contingent. Bayesian estimation of our benchmark DSGE model on US data shows that the model driven by redistribution shocks results in a better fit to the data than both standard RBC models and Kiyotaki–Moore type models with unique equilibrium.
    Keywords: Endogenous collateral constraints,State-contingent interest rate,Redistribution shocks,Multiple equilibria
    Date: 2022–09
  7. By: Frederic Boissay; Fabrice Collard; Jordi Galí; Cristina Manea
    Abstract: We study whether a central bank should deviate from its objective of price stability to promote financial stability. We tackle this question within a textbook New Keynesian model augmented with capital accumulation and microfounded endogenous financial crises. We compare several interest rate rules, under which the central bank responds more or less forcefully to inflation and aggregate output. Our main findings are threefold. First, monetary policy affects the probability of a crisis both in the short run (through aggregate demand) and in the medium run (through savings and capital accumulation). Second, a central bank can both reduce the probability of a crisis and increase welfare by departing from strict inflation targeting and responding systematically to fluctuations in output. Third, financial crises may occur after a long period of unexpectedly loose monetary policy as the central bank abruptly reverses course.
    Keywords: financial crisis, monetary policy
    JEL: E32 E52
    Date: 2021–12
  8. By: Julián Díaz-Saavedra; Ramon Marimon; João Brogueira de Sousa
    Abstract: Facing an ageing population and historical trends of low employment rates, pay-as-you-go (PAYG) pension systems, currently in place in several European countries, imply very large economic and welfare costs in the coming decades. In an overlapping generations economy with incomplete insurance markets and frictional labour markets, an employment fund, which can be used while unemployed or retired, can enhance production efficiency and social welfare. With an appropriate design, the sustainable Backpack employment fund (BP) can greatly outperform -measured by average social welfare in the economy- existing pay-as-you go systems and also Pareto dominate a full privatization of the pension system, as well as a standard fully funded defined contribution pension system. We show this in a calibrated model of the Spanish economy, by comparing the effect of its ageing transition under these different pension systems and by showing how a front-loaded reform-transition, from the PAYG to the BP system can be Pareto improving, while minimizing the cost of the reform.
    Keywords: social security reform, ageing, taxation, debt
    JEL: C68 H55 J26
    Date: 2022–09
  9. By: Miroslav Gabrovski (University of Hawaii Manoa); Victor Ortego-Marti (Department of Economics, University of California Riverside)
    Abstract: This paper studies the effects of financial frictions in construction on housing market dynamics. To this end, we build a search-theoretic model of the housing market in which there is endogenous entry of buyers and developers face credit constraints. Our model explores a novel channel that links credit frictions faced by developers to the housing market: developers must search for financing before building a home à la Wasmer and Weil (2004). We calibrate the model to quantify the size of the credit channel during the 2012–2019 housing market recovery. Through a series of counterfactuals, our model predicts that the credit channel had a large impact on housing liquidity, construction, and the vacancy rate. Furthermore, it accounts for around half of the rise in prices during the 2012-2019 housing market recovery.
    Keywords: Housing market; Search and matching; Endogenous separations; Bev- eridge Curve; Housing liquidity
    JEL: E2 E32 R21 R31
    Date: 2022–10
  10. By: Francesc Obiols-Homs; Virginia Sánchez-Marcos
    Abstract: Participation of middle aged men with upper secondary education or less has decreased over the last two decades in the US. This comes together with wage stagnation for this demographic group. In this paper we use a general equilibrium model of the labor market with frictions, participation decisions and endogenous accumulation of skills through a learning by doing technology in order to understand these facts. We quantitatively assess the implications of an increase in the probability of skills loss during non-employment spells (turbulence, after Ljungqvist and Sargent, 1998) and show that non-participation increases and wages of more experienced workers fall because with increased turbulence their outside option worsens.
    Keywords: participation in the labor market, turbulence, Labor market frictions, human capital
    JEL: E24 E37 J21 J64
    Date: 2022–05
  11. By: Elizabeth M. Caucutt; Nezih Guner; Christopher Rauh
    Abstract: The difference in marriage rates between black and white Americans is striking. Wilson (1987) suggests that a skewed sex ratio and higher rates of incarceration and unemployment are responsible for lower marriage rates among the black population. In this paper, we take a dynamic look at the Wilson Hypothesis. Incarceration rates and labor market prospects of black men make them riskier spouses than white men. We develop an equilibrium search model of marriage, divorce, and labor supply in which transitions between employment, unemployment, and prison differ by race, education, and gender. The model also allows for racial differences in how individuals value marriage and divorce. We estimate the model and investigate how much of the racial divide in marriage is due to the Wilson Hypothesis and how much is due to differences in preferences for marriage. We find that the Wilson Hypothesis accounts for more than three quarters of the model's racial-marriage gap. This suggests policies that improve employment opportunities and/or reduce incarceration for black men could shrink the racial-marriage gap.
    Keywords: marriage, race, incarceration, inequality, unemployment
    JEL: J12 J J64
    Date: 2021–11
  12. By: Jeremie Banet; Lucie Lebeau
    Abstract: An overlapping-generations model with income heterogeneity is developed to analyze the impact of introducing a Central Bank Digital Currency (CBDC) on financial inclusion, and its potential adverse effect on bank funding. We highlight the role of two design parameters: the fixed cost of CBDC usage and the interest rate it pays, and derive principles for maximum inclusion and for mitigating the inclusion-intermediation trade-off. Agents’ choice of money instrument is endogenously driven by income heterogeneity. Pre-CBDC, wealthier agents adopt deposits, while poorer agents adopt cash and remain unbanked. CBDCs with low fixed costs (and low interest rates) are adopted by cash holders and directly increase inclusion. CBDCs with high fixed costs (and high interest rates) are adopted by deposit holders and increase inclusion by raising deposit rates. The former allows for more favorable inclusion-intermediation trade-offs. We calibrate the model to match the U.S. income distribution and aggregate share of unbanked households. A CBDC 50% cheaper (30% more expensive) than bank deposits decreases financial exclusion by 93% (71%) without impacting intermediation. In comparison, making the deposit market perfectly competitive would only decrease exclusion by 45%.
    Keywords: central bank digital currency; financial inclusion; payments; monetary policy
    JEL: E42 E51 E58 G21
    Date: 2022–09–24
  13. By: Giorgio Massari; Patrizio Tirelli
    Abstract: We show that popular models of (flight-to-) liquidity shocks have strongly counterfactual implications for asset returns and the composition of firms' liabilities, including the return spread between bank deposits and T-bills and the share of bank loans on corporate debt. Further, the implied estimate of the natural interest rate entails that the interest rate gap rose during recessions and fell thereafter. By including the relevant financial variables as observables in our empirical model, we can show that liquidity shocks played a negligible role and became virtually irrelevant after 2010. We also find that the slowdown in productivity growth, not liquidity shocks, caused the post-2010 fall in the natural rate.
    Keywords: natural rate of interest, DSGE models, liquidity shocks, flight-to-quality, financial frictions.
    JEL: C11 C32 C54 E43 E44
    Date: 2022–08
  14. By: Eunseong Ma (Yonsei University)
    Abstract: This paper studies a labor-supply-side channel affecting the relationship between monetary policy and income inequality. To this end, I build a heterogeneous-agent New Keynesian economy with indivisible labor in which both macro and micro labor supply elasticities are endogenously generated. First, I find that monetary policy shocks have distributional consequences due to a substantial heterogeneity in labor supply elasticity across households. Second, a more equal economy is associated with more effective monetary policy in terms of output. I document supporting empirical evidence for the key mechanism of the model using micro-level data and state-level data in the U.S.
    Keywords: Monetary policy; Inequality; Labor supply elasticity; Indivisible labor.
    JEL: E52 D31 D52 J21
    Date: 2022–09
  15. By: Dallal Bendjellal (Aix Marseille Univ, CNRS, AMSE, Marseille, France.)
    Abstract: This paper studies the transmission of a sovereign debt crisis in which a shift in default risk generates a recession and gives rise to a doom loop between sovereign distress and bank fragility with important amplification effects. The model is used to investigate the macroeconomic and welfare effects of altering debt maturity during the crisis. Short-term maturities alleviate the bankers' losses on long-term bonds and moderate the recession at the cost of higher levels of debt in the future. In contrast, long-term maturities are more effective to reduce the households' welfare losses as they lower default risk and distortionary taxes.
    Keywords: debt crisis, sovereign default risk, financial fragility, maturity dynamics
    JEL: E44 E62 H12
    Date: 2022–09
  16. By: Priit Jeenas; Ricardo Lagos
    Abstract: We study the effects of monetary-policy-induced changes in Tobin's q on corporate investment and capital structure. We develop a theory of the mechanism, provide empirical evidence, evaluate the ability of the quantitative theory to match the evidence, and quantify the relevance for monetary transmission to aggregate investment.
    Keywords: monetary transmission, stock prices, Tobin's q, investment, capital structure
    JEL: D83 E22 E44 E52 G12 G31 G32
    Date: 2022–05
  17. By: Nezih Guner; Ezgi Kaya; Virginia Sánchez-Marcos
    Abstract: The total fertility rate is as low as 1.3 in some high-income countries, and factors behind such low levels are not well understood. We show that uncertainty created by dual labor markets, the coexistence of temporary and open-ended contracts, and the inflexibility of work schedules are crucial to understanding low fertility. We focus on college-educated women and document that temporary contracts are associated with a lower probability of first birth using rich administrative data from the Spanish Social Security records. With Time Use data, we also show that women with children are less likely to work in jobs with split-shift schedules, with a long break in the middle of the day. Split-shift schedules present a concrete example of inflexible work arrangements and fixed time cost of work. We then build a life-cycle model in which married women decide whether to work or not, how many children to have, and when to have them. Reforms that eliminate duality or split-shift schedules increase the completed fertility of college-educated from 1.54 to around 1.7. These reforms also increase women's labor force participation and eliminate the employment gap between mothers and non- mothers. Reforming these labor market institutions and providing childcare subsidies increase fertility to 1.86.
    Keywords: fertility, Labor market institutions, temporary contracts, split-shift schedules, childcare subsidies
    JEL: E24 J13 J21 J22
    Date: 2021–11
  18. By: Eunseong Ma (Yonsei University)
    Abstract: This paper studies how adjustment along intensive and extensive margins of labor supply affects aggregate and disaggregate effects of monetary policy. To this end, I develop a heterogeneous-agent New Keynesian (HANK) economy where a nonlinear mapping from hours worked into labor services generates operative adjustment along intensive and extensive margins of labor supply. I find that monetary policy has significantly different effects on earnings inequality, depending on the extent to which margin is dominant, even if it generates similar aggregate responses.
    Keywords: Monetary policy; Intensive and extensive margins; Earnings inequality.
    JEL: E52 D31 D52 J21
    Date: 2022–09
  19. By: Ashima Goyal (Indira Gandhi Institute of Development Research); Abhishek Kumar
    Abstract: Understanding the drivers of inflation is an important issue in business cycle research and has been a matter of debate. In this paper, using data from a large emerging economy, we identify a structural shock (inflation shock) that explains the maximum forecast error variance of consumer prices. The inflation shock explains more than 80 per cent of the forecast error variance of consumer price up to 40 quarters. This shock increases prices and decreases output, implying that it is a supply shock. We also show that the food inflation shock is the primitive shock, which makes the inflation shock a supply shock and also feeds into non-food inflation. A large interest rate reaction to this shock leads to a prolonged decline in credit, investment, and output. Using the shocks obtained from a medium-scale new Keynesian model, we provide additional evidence that most of the variance of estimated inflation and food inflation shocks is explained by model-based supply shocks. These results suggest that central banks in emerging economies need to be more pragmatic in implementing inflation-targeting policies.
    Keywords: Inflation, India, SVAR, FEV, supply shock, demand shock
    JEL: E43 E44 E52
    Date: 2022–09
  20. By: Vladimir Smirnyagin; Aleh Tsyvinski
    Abstract: We build a general equilibrium production-based asset pricing model with heterogeneous firms that jointly accounts for firm-level and aggregate facts emphasized by the recent macroeconomic literature, and for important asset pricing moments. Using administrative firm-level data, we establish empirical properties of large negative idiosyncratic shocks and their evolution. We then demonstrate that these shocks play an important role for delivering both macroeconomic and asset pricing predictions. Finally, we combine our model with data on the universe of U.S. seaborne import since 2007, and establish the importance of supply chain disasters for the cross-section of asset prices.
    JEL: E0 F40 G0
    Date: 2022–09
  21. By: Steenkamp, Daan; Havemann, Roy; Hollander, Hylton
    Abstract: This paper quantifies the effect of fiscal transfers on the trade-off between social relief and debt accumulation, and discusses the economic growth and fiscal implications of different combinations of expanded social support and funding choices. Given South Africa’s already high level of public debt, the opportunity to fund a basic income grant through higher debt is limited. Using a general equilibrium model, the paper shows that extending the social relief of distress grant could be fiscally feasible provided taxes rise to fund such a programme. Implementing such a policy would, however, have a contractionary impact on the economy. A larger basic income grant (even at the level of the food poverty line) would threaten fiscal sustainability as it would require large tax increases that would crowd-out consumption and investment. The model results show that sustainably expanding social transfers requires structurally higher growth, which necessitates growth-enhancing reforms that crowd-in the private sector through, for example, relieving the energy constraint, increasing government infrastructure investment and expanding employment programmes.
    Keywords: Universal basic income, DSGE, fiscal sustainability
    JEL: D58 E62 H63
    Date: 2022–09–16
  22. By: Isaac Baley; Lars Ljungqvist; Thomas J. Sargent
    Abstract: Although they are studied too rarely, returns to labor mobility transmit important forces that decisively shape outcomes in macro-labor models. By focusing on returns to labor mobility, this paper sheds new light on calibrations of influential macro-labor studies and resolves an issue about the turbulence-theoretic explanation of trans-Atlantic unemployment experiences. It does so by invoking a cross-phenomenon restriction - in our case, how returns to labor mobility determine effects on unemployment of changes in layoff costs, on the one hand, and changes in quit turbulence, on the other hand. We also spotlight two distinct perspectives and associated sources of data: one from labor economics and another from the economics of industrial organization. Ultimately, we are reminded of the rule that new theories "must not throw out all the successes of former theories. . . . to preserve the successes of the past is not only a constraint, but also a guide".
    Keywords: labor mobility, quits, turnover, layoff cost, turbulence, unemployment, human capital, skills, matching model, search-island model
    JEL: E24 J63 J64
    Date: 2021–09
  23. By: Nina Biljanovska; Alexandros Vardoulakis
    Abstract: We introduce heterogeneity in terms of workers and entrepreneurs in an otherwise standard Fisherian model to study Sudden Stop dynamics and optimal policy. We show that the distinction between workers and entrepreneurs introduces a distributive externality that is absent from the representative-agent setup. While in tranquil times redistribution is driven by the relative marginal utilities of consumption, the planner additionally favors entrepreneurs during Sudden Stops to mitigate Fisherian deation. Although agentheterogeneity does not add much in explaining the Sudden Stop phenomena, it adds to the understanding of how policies can best be designed to alleviate the negative effects of Sudden Stops.
    Keywords: Sudden Stops; agent heterogeneity; macroprudential policy; payroll tax policy; representative-agent economy; representative-agent setup; two-agent Economy; two-agent economy; Payroll tax; Self-employment; Collateral; Asset prices; Global
    Date: 2022–07–22
  24. By: Camille Hainnaux (Aix Marseille Univ, CNRS, AMSE, Marseille, France.); Thomas Seegmuller (Aix Marseille Univ, CNRS, AMSE, Marseille, France.)
    Abstract: In this paper, we investigate the impact of redistribution and polluting commodity taxation on inequality and pollution in a dynamic setting. We build a two-sector Ramsey model with a green and a polluting good. Households are heterogeneous, which allows for income inequality, and have a level of subsistence consumption for the polluting commodity, modeled by non-homothetic preferences. Increasing the tax rate has a mixed effect depend on the level of subsistence consumption. A low level allows to tackle both the pollution and inequality issues. Under a high level of it, pollution increases: if inequality can be reduced through redistribution, taxation does not allow to solve for environmental degradation. Looking at the stability properties of the economy, we find that the level of subsistence consumption and the externality matter. A high subsistence level of polluting consumption leads to instability or indeterminacy of the steady-state, while the environmental externality plays a stabilizing role in the economy. This leaves room for taxation and redistribution: increasing the tax rate and redistributing more towards workers play a key role in the occurrence of indeterminacy and instability.
    Keywords: externalities; heterogeneous agents; inequality; pollution; redistribution; taxation
    JEL: E62 H23 Q52
    Date: 2022–09
  25. By: Marta Morazzoni; Andrea Sy
    Abstract: We document and quantify the effect of a gender gap in credit access on both entrepreneurship and input misallocation in the US. We show that female-owned firms are more likely to be rejected when applying for a loan and have a higher average product of capital, a sign of gender-driven capital misallocation across firms. Calibrating a heterogeneous agents model of entrepreneurship to the US economy, we establish that such gap in credit access explains the bulk of the gender differences in capital allocation across firms, and more than a third of their disparities in entrepreneurial rates. In a counterfactual exercise, we illustrate that eliminating this credit imbalance leads to a 4% increase in output, and that fiscal policies affect differently female and male entrepreneurial margins in the presence of gender gaps in financial access.
    Keywords: entrepreneurship, misallocation, aggregate productivity, gender differences, Financial constraints
    JEL: O11 E44 D11
    Date: 2021–10
  26. By: Lukas Altermatt; Hugo van Buggenum; Lukas Voellmy
    Abstract: We develop a general equilibrium model of self-fulfilling bank runs in a setting without aggregate risk. The key novelty is the way in which the banking system's assets and liabilities are connected. Banks issue loans to entrepreneurs who sell goods to households, which in turn pay for the goods by redeeming bank deposits. The return on bank assets is thus contingent on households being able to withdraw their deposits. In a run, not all households that wish to consume manage to withdraw, since part of banks' cash reserves end up in the hands of households without consumption needs. This lowers revenues of entrepreneurs, which causes some of them to default on their loans and thereby rationalises the run in the first place. Interventions that restrict redemptions in a run - such as deposit freezes - can be self-defeating due to their negative effect on demand in goods markets. We show how runs may be prevented with combinations of deposit freezes and redemption penalties as well as with the provision of emergency liquidity by central banks.
    Keywords: Fragility, deposit freezes, emergency liquidity
    JEL: E4 E5 G2
    Date: 2022
  27. By: Julien Pascal
    Abstract: I explore the links between commuting costs and local employment dynamics using a spatial discontinuity introduced by a French reform in September 2015. The reform decreased the cost of public transportation in selected areas of the Paris region, but did not affect other areas. In the baseline regression framework, which only includes units that are geographically close to each other, I find that areas benefiting from the reform experienced a 0:25 percentage point decline in the unemployment rate, a 0.60 percentage point increase in the share of employed workers commuting using public transport, and a 1.4% increase in the price of residential real estate. I extend the regression framework to take into account the heterogeneity of treatment introduced by the reform, which allows me to analyze the mechanisms driving the results. I also show that a calibrated spatial search-and-matching model can rationalize the estimated treatment effects.
    Keywords: Local employment, Commuting Costs, Policy, Search-and-Matching
    JEL: E24 J68 R13 R23
    Date: 2022–10
  28. By: Andrés Erosa; Luisa Fuster; Gueorgui Kambourov; Richard Rogerson
    Abstract: We document a robust negative relationship between mean annual hours in an occupation and the dispersion of annual hours within that occupation. We study a unified model of occupational choice and labor supply that features heterogeneity across occupations in the return to working additional hours and show that it can match the key features of the data both qualitatively and quantitatively. Occupational choice in our model is shaped both by selection on comparative advantage and selection on tastes for leisure. Our quantitative work finds that the dominant source of differences in hours across occupations is selection on tastes for leisure.
    JEL: J22 J24 J31
    Date: 2022–09

This nep-dge issue is ©2022 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.