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on Dynamic General Equilibrium |
| By: | Jun Nie; B. Ravikumar; Michael Sposi |
| Abstract: | We study the lifecycle aspect of within-country inequality that stems from capital and labor services supplied by individuals. Our environment is a combination of a multicountry trade model and an overlapping generations model with production and capital accumulation. Trade liberalization increases the measured total factor productivity in each country, which increases the marginal product of capital and incentivizes capital accumulation. Higher capital stock and higher measured productivity raise the marginal product of labor and, hence, wages. Inequality, measured by the ratio of old agents' income to that of the young, evolves over time due to capital accumulation during the transition from autarky to an open-economy world. Immediately after liberalization, inequality increases. Over time, capital accumulates at a diminishing rate and inequality declines. |
| Keywords: | trade; inequality; lifecycle; capital accumulation |
| JEL: | F11 D31 E22 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:98581 |
| By: | Cristiano Cantore; Pascal Meichtry |
| Abstract: | his paper studies the asymmetry in the macroeconomic effects of central bank asset market operations induced by state dependency and the associated role of household heterogeneity. We build a New Keynesian model with borrowers and savers in which quantitative easing and tightening operate through portfolio rebalancing between short-term and long-term government bonds. We highlight the significance of an occasionally binding zero lower bound in explaining a weaker aggregate impact of asset sales relative to asset purchases. In this context, when close to the lower bound, raising the nominal interest rate prior to unwinding quantitative easing mitigates the economic costs of monetary policy normalization. Furthermore, our results imply that household heterogeneity in combination with state dependency amplifies the revealed asymmetry, while household heterogeneity alone does not enhance the aggregate effects of asset market operations. |
| Keywords: | Unconventional Monetary Policy, Quantitative Tightening, Quantitative Easing, Heterogeneous Agents, Zero Lower Bound |
| JEL: | E21 E32 E52 E58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:955 |
| By: | Yasutaka Ogawa (Director and Senior Economist, Institute for Monetary and Economic Studies (currently, Financial System and Bank Examination Department), Bank of Japan (E-mail: yasutaka.ogawa@boj.or.jp)); Jiro Yoshida (Pennsylvania State University and the University of Tokyo (E-mail: jiro@psu.edu)) |
| Abstract: | This study quantifies the macroeconomic impact of population aging with a focus on large houses owned by elderly households for bequest motives, although younger generations may leave the inherited houses vacant. A quantitative overlapping generations model incorporates age-specific mortality rates and bequest motives to generate a hump- shaped age profile for consumption and an upward-sloping age profile for housing and savings. When calibrated to the Japanese economy, the model suggests that bequest-driven housing demand raises the output level but reduces consumption, the natural rate of interest, capital allocation to the goods sector, and housing affordability. These effects are more pronounced when households intend to bequeath housing rather than financial assets and when more houses become vacant upon inheritance. |
| Keywords: | Aging, Natural Rate of Interest, Overlapping Generations Model, Bequest Motives, Intergenerational Transfer of Housing, Japan |
| JEL: | D15 E22 J11 R21 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:24-e-04 |
| By: | Donggyu Lee |
| Abstract: | This paper studies how quantitative easing (QE) affects household welfare across the wealth distribution. I build a Heterogeneous Agent New Keynesian (HANK) model with household portfolio choice, wage and price rigidities, endogenous unemployment, frictional financial intermediation, an effective lower bound (ELB) on the policy rate, forward guidance, and QE. To quantify the contribution of the various channels through which monetary policy affects inequality, I estimate the model using Bayesian methods, explicitly taking into account the occasionally binding ELB constraint and the QE operations undertaken by the Federal Reserve during the 2009-15 period. I find that the QE program unambiguously benefited all households by stimulating economic activity. However, it had nonlinear distributional effects. On the one hand, it widened the income and consumption gap between the top 10 percent and the rest of the wealth distribution by boosting profits and equity prices. On the other hand, QE shrank inequality within the lower 90 percent of the wealth distribution, primarily by lowering unemployment. On net, it reduced overall wealth and income inequality, as measured by the Gini index. Surprisingly, QE has weaker distributional consequences compared with conventional monetary policy. Lastly, forward guidance and an extended period of zero policy rates amplified both the aggregate and the distributional effects of QE. |
| Keywords: | unconventional monetary policy; inequality; Heterogeneous-agent New Keynesian (HANK) model; quantitative easing; Bayesian estimation; effective lower bound |
| JEL: | E12 E30 E52 E58 |
| Date: | 2024–07–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:98524 |
| By: | Fève, Patrick; Cahn, Christophe; Matheron, Julien |
| Abstract: | This paper evaluates the long-run economic effects of a fiscal rebalancing reform, namely a policy consisting in increasing consumption taxes and simultaneously lowering payroll taxes, all this in a budget neutral way. To this end, we construct a heterogeneous-agent model and compare the pre- and post-reform steady states. The model is calibrated on French data to reproduce key characteristics of disposable income and net wealth distributions. We compare the outcomes of the reform under the benchmark model with those arising in its representative-agent version. Our results indicate that while the fiscal febalancing reform stimulates aggregate labor and capital, (i) it has a larger effect on capital in the heterogeneous-agent model than in its representative-agent counterpart; (ii) it also exacerbates wealth inequality, where wealthier households capture the whole macroeconomic increase in capital. The results are left unaffected by various perturbations around the baseline calibration. Taking into account the transition between the two stady states, a welfare analysis suggests that the reform entails a welfare cost even though a majority of agents would benefit from it. |
| Keywords: | Fiscal Policy; Fiscal rebalancing, Income & Wealth Distributions; Heterogeneous Agent Model |
| JEL: | E62 D31 C54 |
| Date: | 2024–07–08 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:129469 |
| By: | Maeng, F. S. |
| Abstract: | The share of debt denominated in domestic national currency issued by emerging economies has been rising sharply over time—progress away from the “original sin†of invoicing sovereign debt in foreign currencies. Yet this progress has been partial and subject to fluctuations. This paper develops a New Keynesian model with sovereign default where the government can manipulate expected inflation through debt issuance and default policies. High levels of national currency debt incentivize governments to reduce debt repayment by escalating (expected) inflation. Governments tilt the currency denomination of debt towards foreign currency to avoid distortions from escalating (expected) inflation, at the cost of giving up hedging consumption fluctuations of national currency debt. The model highlights default risk as a key factor driving a higher share of debt in foreign currency when expected inflation rises—a pattern observed in inflation-targeting emerging economies. Quantitatively, default risk explains up to 37 percentage points of the share of debt in foreign currency. Optimal debt management contains inflation, default frequency, and spreads. |
| Keywords: | Sovereign Default, Inflation, Currency Denomination, New Keynesian Theory |
| JEL: | E32 E52 E63 F34 H63 |
| Date: | 2024–07–02 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2438 |
| By: | Carlos de Resende; Alexandra Solovyeva; Moez Souissi |
| Abstract: | The paper explores the nexus between the financial and business cycles in a semi-structural New Keynesian model with a financial accelerator, an active banking sector, and an endogenous macroprudential policy reaction function. We parametrize the model for Luxembourg through a mix of calibration and Bayesian estimation techniques. The model features dynamic properties that align with theoretical priors and empirical evidence and displays sensible data-matching and forecasting capabilities, especially for credit indicators. We find that the credit gap, which remained positive during COVID-19 amid continued favorable financial conditions and policy support, had been closing by mid-2022. Model-based forecasts using data up to 2022Q2 and conditional on the October 2022 WEO projections for the Euro area suggest that Luxembourg's business and credit cycles would deteriorate until late 2024. Based on these insights about the current and projected positions in the credit cycle, the model can guide policymakers on how to adjust the macroprudential policy stance. Policy simulations suggest that the weights given to measures of credit-to-GDP and asset price gaps in the macroprudential policy rule should be well-calibrated to avoid unwarranted volatility in the policy response. |
| Keywords: | Macroprudential policy; credit cycle; banks; forecasting and simulation; Luxembourg |
| Date: | 2024–07–09 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2024/140 |
| By: | Serdar Birinci; Miguel Faria-e-Castro; Kurt See |
| Abstract: | Between 2020 and 2023, the fraction of retirees in the working-age population in the U.S. increased above its pre-pandemic trend. Several explanations have been proposed to rationalize this gap, such as the rise in net worth due to higher asset returns, the labor market's deterioration due to higher unemployment risk, the expansion of fiscal support programs, and increased mortality risk. We quantitatively study the interaction of these factors and decompose their relative contribution to the recent rise in retirements using an incomplete markets, overlapping generations model with a frictional labor market. We find that all of these channels contribute to excess retirements, with labor market conditions being a more important driver in 2020-2021 and fiscal programs playing a larger role in 2022-2023. We show that our model's predictions on aggregate labor market moments and cross-sectional moments on retirement patterns across the wealth distribution are in line with the data. |
| Keywords: | retirement; labor supply; labor flows; financial markets |
| JEL: | E24 G11 J21 J22 J26 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:98578 |
| By: | Aurélien Espic; Lisa Kerdelhué; Julien Matheron |
| Abstract: | This paper studies the role of capital requirements in a context of monetary tightening. We build a new Keynesian model featuring costly defaults for banks, households and firms, and estimate it on Euro Area data between 2002 and 2023. We first identify the sources of this unprecedented episode before studying its propagation along financial variables. We then build various counterfactuals to assess how capital requirements have affected the transmission of this shock. We find that although capital requirements reduced the post-Covid expansion, they preserved macroeconomic stability by reducing banks probability of default. More generally, we show that capital requirements do not need to be countercyclical to be efficient: in an inflationary context, they act as automatic stabilizers, by limiting the amplitude of expansionary as well as recessionary shocks. |
| Keywords: | Monetary Tightening, Financial Stability, Macroprudential Policy. |
| JEL: | E44 E52 G21 G28 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:947 |
| By: | Victor Almeida; Carlos Esquivel; Timothy J. Kehoe; Juan Pablo Nicolini |
| Abstract: | We develop a sovereign default model with debt renegotiation in which interest-rate shocks affect default incentives through two mechanisms. The first mechanism, the standard mechanism, depends on how a higher interest rate tightens the government’s budget constraint. The second mechanism, the renegotiation mechanism, depends on how a higher rate increases lenders’ opportunity cost of holding delinquent debt, which makes lenders accept larger haircuts and makes default more attractive for the government. We use the model to study the 1982 Mexican default, which followed a large increase in U.S. interest rates. We argue that our novel renegotiation mechanism is key for reconciling standard sovereign default models with the narrative that U.S. monetary tightening triggered the crisis. |
| Keywords: | Renegotiation; Sovereign default; Interest rate shocks |
| JEL: | G28 F34 F41 |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:98598 |
| By: | Naohisa Hirakata (General Manager, Niigata Branch, Bank of Japan (E-mail: naohisa.hirakata@boj.or.jp)); Mitsuru Katagiri (Associate Professor, Faculty of Business Administration, Hosei University (E-mail: mitsuru.katagiri@hosei.ac.jp)) |
| Abstract: | This paper investigates the role of foreign direct investment (FDI) in accounting for the long-term trend of capital flows under demographic changes. For this purpose, we incorporate horizontal FDI under the proximity-concentration trade-off into a two-country DSGE model and conduct a quantitative analysis using long-term Japanese data for capital flows since the 1960s. The quantitative analysis finds that the transition dynamics solely driven by demographic changes well account for the long-term trend of capital flows and that multinational firms' endogenous decision on FDI in response to population aging is key to explaining the long-term trend. |
| Keywords: | Capital flows, Demographic changes, Foreign direct investment (FDI) |
| JEL: | F12 F23 F32 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:ime:imedps:24-e-05 |
| By: | Juan C. Córdoba; Anni T. Isojärvi; Haoran Li |
| Abstract: | We document that the protracted decline in the labor share has been accompanied by a decline in the tightness rate defined as the number of vacancies per job seekers. We argue that these two trends are related. When vacancies and job seekers are complements in the matching process, a decline in the tightness rate reduces workers’ fundamental bargaining power as defined by Hosios (1990), which in turn reduces the labor share of income. We calibrate a search and matching model extended to allow for an endogenous determination of bargaining power. The model can rationalize the common trends in the labor shares and tightness. According to the model, workers’ bargaining power declined by about 15 percent during the 1980–2007 period. |
| Keywords: | CES matching function; Search and matching; Endogenous bargaining power; Labor share |
| JEL: | E25 J30 J50 |
| Date: | 2024–05–29 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmoi:98592 |
| By: | Sztachera, Maciej |
| Abstract: | The quantitative HANK model, incorporating the coordination of hours worked in production, yields an improved empirical fit along two dimensions: a more concentrated steady-state distribution of hours worked and lower marginal propensities to earn (MPEs) with positive but moderate fiscal multipliers for separable preferences. In the model, failing to coordinate work hours with coworkers leads to wage penalties, and labor earnings display decreasing returns to hours. Consequently, households prefer working hours closer to the average and adjust their hours less in response to idiosyncratic shocks than in the standard model. Aggregate shocks increase optimal hours for all employees, and the coordination friction does not bind. The model matches the empirical estimates of the idiosyncratic and aggregate Frisch elasticities. |
| Keywords: | Coordination, fiscal multipliers, HANK trilemma, hours |
| JEL: | E24 E62 H31 H32 |
| Date: | 2024–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121556 |
| By: | Cozzi, Guido (University of St. Gallen); Mantovan, Noemi (University of Liverpool); Sauer, Robert M. (Royal Holloway, University of London) |
| Abstract: | We present a dynamic life-cycle model of women's labor supply, marriage, and fertility choices that explicitly incorporates mental and physical health. Correlated mental and physical health production functions are simultaneously estimated, including the endogenous decisions to seek psychotherapy and smoke cigarettes as health accumulation factors. The model is estimated by the Simulated Method of Moments with Indirect Inference using data from the British Household Panel Study. Results indicate that mental health has a stronger impact on labor supply than physical health. At the same time, estimates show that working part-time and full-time aect both mental and physical health. Moreover, we nd dierences in the interaction of the two forms of health on other life dynamics, with better mental health having stronger impacts on marriage and fertility outcomes than physical health. Counterfactual simulations reveal that not only permanent, but also temporary shocks to health and employment have long-lasting eects on life decisions, life satisfaction, and income due to their interaction with fertility. Finally, policy experiments show that lower costs for psychotherapy and increased costs of cigarettes would substantially increase fertility but decrease employment, while a decrease in childcare costs for employed women would increase both fertility and labor supply, supporting women's overall health. |
| Keywords: | female labor supply, marriage, fertility, career, family, mental health, physical health, psychotherapy, smoking, discrete choice dynamic programming models, structural estimation, simulated method of moments, indirect inference |
| JEL: | I12 J12 J13 J16 J22 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17143 |
| By: | Elnura Baiaman kyzy (Hitotsubashi Institute for Advanced Study (HIAS), Hitotsubashi University, Tokyo, Japan); Roberto Leon-Gonzalez (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | This paper proposes a novel Laplace based solution to nonlinear DSGE models that has a closed form likelihood. We implicitly use a nonlinear approximation to the policy function that is invertible with respect to the shocks, implying that in the approximation the shocks can be recovered uniquely from some of the control variables. Using perturbation methods and a Lagrange inversion formula we are able to calculate the derivatives of the likelihood and construct the Laplace based solution. In contrast with previous likelihood-based approaches, the method used here requires neither the introduction of linear shocks nor simulation to evaluate the likelihood. Using US data we estimate linear and nonlinear variants of a well-known neoclassical growth model with and without time-varying variances. We find that a nonlinear heteroscedastic model has a much better empirical performance. Furthermore, our models allow us to ascertain that the monetary policy shock causes 95% of the time changes in economic uncertainty. |
| Keywords: | Economic Uncertainty, Time-Varying Volatility, Risk-Premium, Higher-Order Approximation |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:ngi:dpaper:24-06 |
| By: | Russell Cooper; Ozgen Ozturk |
| Abstract: | This paper studies the determinants of the dispersion and cyclicality of TFPR, a revenue based measure of total factor productivity. Recent business cycle models are built upon the assumption of countercyclical dispersion in TFPQ, a quantity based measure of total factor productivity, based on evidence of countercyclical dispersion in TFPR. But, these are very different measures of productivity. The distribution of TFPR is endogenous, dependent upon exogenous shocks and the endogenous determination of prices. An overlapping generations model with monopolistic competition and state dependent pricing is constructed to study the factors that shape the TFPR distribution. The focus is on three key data patterns: (i) countercyclical dispersion of TFPR, (ii) countercyclical dispersion of price changes and (iii) countercyclical frequency of price adjustment. The analysis uncovers two interesting scenarios in which these moments are matched. One arises in the presence of shocks to the dispersion of TFPQ along with a negatively correlated change in the mean of TFPQ. The second arises if the monetary authority responds to shocks to the dispersion of TFPQ by “leaning against the wind”. The findings are robust to the introduction of non-CES household preferences. Due to state contingent pricing, the model is nonlinear. Simple correlations mask these nonlinearities of the underlying economy. |
| Date: | 2024–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:oxf:wpaper:1051 |
| By: | Pablo Garcia Sanchez; Luca Marchiori; Olivier Pierrard |
| Abstract: | We propose a two-period overlapping generation economy that incorporates health investment in preventive measures during youth. These preventive measures contribute to increased longevity and reduced frailty, which influence old-age care costs. As these costs are funded through pay-as-you-go social security contributions, investment in prevention creates externalities for the next generation. We analytically determine the optimal level of prevention and characterize the optimal health policy that a government should implement to achieve it. Our findings reveal that the optimal subsidy to healthcare exceeds the optimal subsidy to preventive measures. Furthermore, both subsidies are inversely related to the generosity of the public pension scheme. We explore the robustness of our results through various extensions and demonstrate their consistency with several patterns observed in cross-country OECD data. |
| Keywords: | Health, Prevention, Optimal Ramsey policy, Overlapping generations |
| JEL: | H23 I18 O41 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp186 |
| By: | Patrick Rey; Joseph E. Stiglitz |
| Abstract: | Principal-agent models take outside options, determining participation and incentive constraints, as given. We construct a general equilibrium model where workers’ reservation wages and the maximum punishment acceptable before workers quit are instead determined endogenously. We simultaneously extend the standard effort efficiency-wage model by incorporating noisy signals, labor market frictions, and the possibility of performance-based pay, analyzing the equilibrium response to an adverse signal, and establishing conditions under which equilibrium entails lowering wages (performance contracting) rather than firing. We provide a complete analysis of the general equilibrium comparative statics, showing, for instance, that frictions (sand-in-the-wheels) may decrease unemployment and that the equilibrium is determined by two simple aggregates which depend on the parameters of the economy, interpretable as the intercept and slope of a pseudo-labor supply curve, embedding all the binding constraints (e.g., the no-shirking and labor market participation constraints). We also show that there may exist only a firing equilibrium, a no-firing equilibrium, multiple (firing and no-firing) equilibria, and no pure-strategy equilibrium. The economy is, in general, not efficient either in the selection of the form of equilibrium or the wages paid within any type of equilibrium. We discuss welfare enhancing government interventions, including publicly provided sand-in-the-wheels. |
| JEL: | D82 D86 E24 J31 J41 J63 J64 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32700 |
| By: | Caterina Seghini; Stéphane Dees |
| Abstract: | As the world faces rising temperatures, extreme weather events and environmental disruption, the imperative to mitigate climate change has never been more pressing. Yet the pursuit of effective mitigation could threaten the sustainability of public debt due to the potentially huge fiscal costs of the associated policies. This paper uses a dynamic general equilibrium approach that takes into account the macroeconomic implications of the green transition and its consequences for public finances. It shows that when the government relies too heavily on expenditure-based measures, it threatens the sustainability of public debt, by increasing the probability of sovereign default, leading to higher interest rates on government bonds. This higher public default risk has potentially significant repercussions on investment financing conditions for the private sector, and increases the cost of the transition to a net-zero economy. On the other hand, carbon pricing policies make the transition more viable for public finances, at the expenses of similarly high economic costs, while remaining effective in reducing greenhouse gas emissions. The welfare-maximizing optimal policy mix yields a balanced approach, where the share of the mitigation effort undertaken by the public sector ranges from 25% to 40% between 2030 and 2050. |
| Keywords: | Climate Change, Mitigation Policies, Environmental Taxes and Subsidies, Public Finances |
| JEL: | D58 E63 H23 H63 Q54 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:949 |
| By: | Radoslaw (Radek) Stefanski; Alex Trew |
| Abstract: | The interest rate has been steadily falling for centuries. A process of selection that leads to increasing societal patience is key to explaining this decline. Three observations point to the potential role of this mechanism: patience varies across individuals, patience is inter-generationally persistent, and patience is positively related to fertility. A calibrated dynamic, heterogenous-agent model of fertility permits us to isolate the quantitative contribution of this mechanism. Selection can explain most of the decline in the interest rate over seven centuries, a fact that is robust to a number of model extensions. Quantitative implications are consistent with other facts, such as the steady increase in the investment rate since 1300. |
| Keywords: | Interest rates; selection; fertility; patience; heterogenous agents. |
| JEL: | E21 E43 J11 N30 O11 |
| Date: | 2023–01 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2023_01 |
| By: | Stefan Hohberger |
| Abstract: | This paper estimates a three-region structural macroeconomic model to analyse the main drivers of GDP, inflation, and wage growth through the COVID-19 pandemic and recovery period in Germany. By incorporating COVID-related shocks, trade in commodities, and endogenous ELB periods, the estimation results suggest: (i) the COVID-19 pandemic in 2020-21 was mainly driven by domestic and foreign lockdown shocks (demand-driven), (ii) the inflation surge in 2021-22 was characterised by an increase in commodity prices, a recovery of global demand, and pronounced supply-side factors, and (iii) wage growth per hour was counterbalanced by competing demand and supply-side effects. Key estimated shocks in the model closely match off-model indicators, supporting its empirical plausibility. |
| Keywords: | COVID-19, business cycle, inflation, open-economy DSGE model, Bayesian estimation, Germany |
| JEL: | C51 E32 E52 F41 F45 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-48 |
| By: | Meghana Gaur; John Grigsby; Jonathan Hazell; Abdoulaye Ndiaye |
| Abstract: | We introduce dynamic incentive contracts into a model of inflation and unemployment dynamics. Our main result is that wage cyclicality from incentives neither affects the slope of the Phillips curve for prices nor dampens unemployment dynamics. The impulse response of unemployment in economies with flexible, procyclical incentive pay is first-order equivalent to that of economies with rigid wages. Likewise, the slope of the Phillips curve is the same in both economies. This equivalence is due to effort fluctuations, which render effective marginal costs rigid even if wages are flexible. Our calibrated model suggests that 46% of the wage cyclicality in the data arises from incentives, with the remainder attributable to bargaining and outside options. A standard model without incentives calibrated to weakly procyclical wages matches the impulse response of unemployment in our incentive pay model calibrated to strongly procyclical wages. |
| Keywords: | incentive pay; Inflation; Unemployment dynamics; Wage rigidity |
| JEL: | E32 J64 E24 J33 J41 |
| Date: | 2024–05–24 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmoi:98575 |
| By: | Lux, Thomas |
| Abstract: | Identifiability of the parameters is an important precondition for consistent estimation of models designed to describe empirical phenomena. Nevertheless, many estimation exercises proceed without a preliminary investigation into the identifiability of its models. As a consequence, the estimates could be essentially meaningless if convergence to the true parameters is not guaranteed in the pertinent problem. We provide some evidence here that such a lack of identification is responsible for the inconclusive results reported in recent literature on parameter estimates for a certain class of nonlinear behavioral New Keynesian models. We also show that identifiability depends on the subtle details of the model structure. Hence, a careful investigation of identifiability should preceed any attempt at estimation of such models. |
| Keywords: | Behavioral macro, identification, forecast heuristics |
| JEL: | C53 E12 E32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:cauewp:300523 |
| By: | Cristiana Bendetti-Fasil; Giammario Impullitti; Omar Licandro; Petr Sedlacek; Adam Hal Spencer |
| Abstract: | R&D is procyclical and a crucial driver of growth. Evidence indicates that innovation activity varies widely across firms. Is there heterogeneity in innovation cyclicality? Does innovation heterogeneity matter for business cycle propagation? We provide empirical evidence that more productive firms are less procyclical in innovation. We develop a model replicating this observation, with selection as the driver of heterogeneous innovation cyclicality. We then examine how heterogeneous innovation and growth influence business cycle propagation. Dynamics of firm entry and exit, coupled with heterogeneous cyclicality, significantly amplify TFP shock propagation. Business cycle fluctuations give substantial welfare losses, with firm heterogeneity contributing significantly. |
| Keywords: | Growth, Business Cycles, Innovation, Heterogeneous Firms |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:not:notcfc:2024/03 |
| By: | Julien Pascal |
| Abstract: | This paper reviews the literature examining the consequences of heterogeneity in macroeconomic modeling, especially within the context of monetary and fiscal policy transmission. This review reveals that heterogeneity can significantly alter the transmission mechanisms of monetary policy in macroeconomic models and suggests possible advantages from collaboration between fiscal and monetary policies. The paper also provides a critical evaluation of various analytical and numerical methods to solve macroeconomic models with heterogeneity, underscoring the need for a careful methodological choice based on specific circumstances. |
| Keywords: | Literature review, Heterogeneity, Monetary Policy, Fiscal Policy, Macroeconomic Modeling, HANK model. |
| JEL: | E32 E52 E62 D31 C61 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp185 |
| By: | Antonin Bergeaud; Pierre Cahuc; Clement Malgouyres; Sara Signorelli; Thomas Zuber |
| Abstract: | Using French administrative data, we estimate the wage gap distribution between in-house and temporary agency workers working in the same establishment and the same occupation. The average wage gap is about 3%, but the gap is negative in more than 25% of establishment x occupation cells. We develop and estimate a search and matching model which shows that while the wage gap is largely inefficient, eliminating it reduces efficiency, as it also arises from objective factors that contribute to the efficient allocation of jobs. |
| Keywords: | wage gap, temporary work agency, labor market frictions |
| Date: | 2024–07–02 |
| URL: | https://d.repec.org/n?u=RePEc:cep:cepdps:dp2014 |
| By: | Erin Wolcott |
| Abstract: | Labor protection policies in the 1950s and 1960s helped many low- and middle-wage white workers in the United States achieve the American Dream. This coincided with historically low levels of inequality across income deciles. After the Civil Rights Act of 1964, policies that had previously helped build the white middle class reversed, especially in states with a larger Black population. Calibrating a labor search model to match minimum wages, unemployment benefits, and bargaining power before and after the Civil Rights Act, I find declining labor protections explain half of the rise in 90/10 wage inequality since the 1960s. |
| Keywords: | Minimum wage; Labor protections; Unemployment insurance; Wage inequality; Unions; Segregation; Worker bargaining power |
| JEL: | E24 J64 J30 J78 |
| Date: | 2024–05–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmoi:98574 |
| By: | Barıs Alpaslan; Mevza Kurtulmuslar |
| Abstract: | This paper makes a contribution to the literature in a number of important ways: First, this paper offers a two-period OLG model of endogenous growth that incorporates both meritocracy and social capital: in our theoretical framework, meritocracy can promote social capital. Second, this paper provides a measure of the meritocracy degree to determine the extent to which there is an incidence of nepotism in the society this is because meritocracy is the opposite of nepotism, that is, the lower meritocracy degree, the higher nepotism is or the other way around. Third, this is the first study that has provided a solid evidence base for Turkey in linking the notion of meritocracy with social capital and explaining its implications for long-run growth. To this end, we calibrate our theoretical model based on a combination of theoretical restrictions and empirical observations. We conduct several policy experiments. We first consider an increase in the share of public spending on social capital building activities and infrastructure investment under two scenarios: each increase is financed by a cut in either other items or education. We also run a policy experiment associated with a decrease in the share of non-meritocratic political elites. In general, the findings of our policy experiments show that a higher meritocracy degree can promote social capital and therefore long-run growth. However, when an increase in the share of government spending on either social capital building activities or infrastructure investment is financed by a cut in education, in the benchmark case, the net impacts on long-run growth turn out to be negative or very small due to the trade-off effect because it seems that the cut in the share of government spending on education is detrimental to growth. |
| Keywords: | meritocracy, social capital, political capital, economic growth, Turkey |
| JEL: | D73 J10 J45 O10 O41 |
| Date: | 2024–07 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-47 |