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on Dynamic General Equilibrium |
| By: | William Tayler; Roy Zilberman |
| Abstract: | We characterize optimal unconventional monetary and fiscal-financial policies within a tractable New Keynesian model featuring a monetary policy cost channel. State-dependent deposit tax-subsidy interventions remove the zero lower bound constraint on the nominal interest rate, thereby minimizing output and price fluctuations following both supply-driven and demand-driven liquidity traps. Specifically, deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks by enabling the implementation of negative nominal interest rates. Moreover, deposit taxes facilitate modest interest rate hikes to escape deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary. |
| Keywords: | deposit tax-subsidy, cost channel, optimal policy, discretion vs. commitment, zero lower bound |
| JEL: | E32 E44 E52 E58 E63 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:lan:wpaper:400233890&r=dge |
| By: | Tomohiro Uchiyama |
| Abstract: | In this paper, we study economic dynamics in a standard overlapping generations model without production. In particular, using numerical methods, we obtain a necessary and sufficient condition for the existence of a topological chaos. This is a new application of a recent result characterising the existence of a topological chaos for a unimodal interval map by Deng, Khan, Mitra (2022). |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.15755&r=dge |
| By: | Zhifeng Cai; Jonathan Heathcote |
| Abstract: | How generous should social insurance be when quits account for a large share of transitions into non-employment? We address this question using a multi-sector directed search model extended to incorporate endogenous quits both to other jobs and to non-employment. Workers quit too often in the competitive equilibrium, and private markets co-ordinate on excessively high “efficiency” wages. Quantitatively, we find that unemployment insurance is optimally much less generous in an economy with quits than in one without. An extended Baily-Chetty formula is derived to illustrate the source of this difference. |
| Keywords: | Directed search; Quits; Great Resignation; Unemployment insurance |
| JEL: | E24 J65 J31 J64 |
| Date: | 2023–10–16 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:97206&r=dge |
| By: | Ponthiere, Gregory |
| Abstract: | Welfare States do not insure citizens against the risk of premature death, i.e., the risk of having a short life. Using a dynamic OLG model with risky lifetime, this paper compares two insurance devices reducing well-being volatility due to the risk of early death: (i) an ante-mortem age-based statistical discrimination policy that consists of an allowance given to all young adults (including the unidentified adults who will die early); (ii) a post-mortem subsidy on accidental bequests due to early death. Each policy is financed by taxing old-age consumption. Whereas each device can yield full insurance, the youth allowance is shown to imply a higher lifetime well-being at the stationary equilibrium. The marginal utility of consumption exceeding the marginal utility of giving when being dead, the youth allowances system is, despite imperfect targeting, a more effi cient mechanism of insurance against the risk of early death. |
| Keywords: | premature death, mortality risk, social insurance, inheritance, lifecycle models |
| JEL: | J10 J17 I31 E21 H55 |
| Date: | 2023 |
| URL: | http://d.repec.org/n?u=RePEc:zbw:glodps:1342&r=dge |
| By: | Dick Oosthuizen |
| Abstract: | Before the Great Recession, residential institutional investors predominantly bought and rented out condos, but then they increased their market share of rental houses from 17 percent in 2001 to 28 percent in 2018. Along with this change, rental survey data show that the annual house operating-cost premium of institutional investors relative to homeowners fell from 44 percent in 2001 to 28 percent in 2015. To measure how these reduced costs affected the housing bust of 2007–2011, I build a heterogeneous agent model of the housing market featuring corporate investors and two types of dwellings: condos and houses. A transition experiment intended to replicate the Great Recession yields three results. First, house prices would have fallen by 1.6 percentage points more without the corporate-cost reduction. Second, the corporate-cost reduction can explain the fall in the homeownership rate. Third, the cost reduction produced a welfare gain of 0.4 percent for homeowners and 0.6 percent for individual investors. |
| Keywords: | general equilibrium; housing; investors; housing prices; homeownership |
| JEL: | D10 D31 E21 E30 E51 |
| Date: | 2023–10–10 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedpwp:97147&r=dge |
| By: | Carlos Carvalho; Andrea Ferrero; Felipe Mazin; Fernanda Nechio |
| Abstract: | We explore the implications of demographic trends for the evolution of real interest rates across countries and over time. To that end, we develop a tractable three-country general equilibrium model with imperfect capital mobility and country-specific demographic trends. We calibrate the model to study how low-frequency movements in a country's real interest rate depend on its own and other countries' demographic factors, given a certain degree of financial integration. The more financially integrated a country is, the higher the sensitivity of its real interest rate to global developments is, and the less its own real rate determinants matter. We then estimate panel error correction models relating real interest rates to many of its possible determinants-demographics included-imposing some restrictions motivated by lessons from our structure model. Results corroborate the importance of accounting for time-varying financial integration, and show global factors and life expectancy are relevant determinants of real interest rates. |
| Keywords: | life expectancy; population growth; demographics; real interest rates; neutral rate; capital flows; secular stagnation |
| JEL: | E52 E58 J11 A11 |
| Date: | 2023–10–24 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedfwp:97243&r=dge |
| By: | Alkis Blanz; Beatriz Gaitan |
| Abstract: | In this paper, we compare different mitigation policies when housing investments are irreversible. We use a general equilibrium model with non-homothetic preferences and an elaborate setup of the residential housing and energy production sector. In the first-best transition, the energy demand plays only a secondary role. However, this changes when optimal carbon taxes are not available. While providing subsidies for retrofits results in the lowest direct costs for households, it ultimately leads to the highest aggregate costs and proves to be an ineffective way to decarbonize the economy. In the second-best context, a phased-in carbon price outperforms the subsidy-based transition. |
| Date: | 2023–10 |
| URL: | http://d.repec.org/n?u=RePEc:arx:papers:2310.15687&r=dge |
| By: | Michael E. Waugh |
| Abstract: | This paper studies the implications of household heterogeneity for trade. I develop a model where household heterogeneity is induced via incomplete markets and results in heterogeneous price elasticities. Conditional on exposure to trade, heterogeneous price elasticities imply that different households value price changes differently, and thus rich and poor households experience different gains from trade. I calibrate the model to match bilateral trade flows and micro-facts about household-level expenditure patterns and elasticities. I find gains from trade that are pro-poor and that the average gains from trade are substantially larger than representative agent benchmarks. |
| Keywords: | International trade; Heterogeneous agent; Inequality |
| JEL: | E20 F40 F10 D30 |
| Date: | 2023–10–18 |
| URL: | http://d.repec.org/n?u=RePEc:fip:fedmsr:97207&r=dge |