|
on Dynamic General Equilibrium |
| By: | Ignacio Presno; Andrea Prestipino |
| Abstract: | The 2022 inflation surge has renewed interest in the drivers of inflation, with special attention on the role of oil and other commodity prices given the large increase in these prices post-pandemic. In this note, we use a DSGE model of the global economy to quantify the impact on U.S. inflation and output of the oil shocks that drove oil prices up by about $45 per barrel in the first half of 2022, around Russia's invasion of Ukraine. |
| Date: | 2024–08–02 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfn:2024-08-02-3 |
| By: | López, Lucia; Odendahl, Florens; Parrága, Susana; Silgado-Gómez, Edgar |
| Abstract: | This paper uses a Bayesian Structural Vector Autoregressive (BSVAR) framework to estimate the pass-through of unexpected gas price supply shocks on HICP inflation in the euro area and its four largest economies. In comparison to oil price shocks, gas price shocks have approximately one-third smaller pass-through to headline inflation. Country-specific results indicate gas price increases matter more for German, Spanish and Italian inflation than for French inflation, hinging on the reliance on energy commodities in consumption, production, and different electricity prices regulation. Consistent with gas becoming a prominent energy commodity in the euro area, including time-variation through a time-varying parameter BVAR demonstrates a substantially larger impact of gas price shocks on HICP inflation in recent years. The empirical estimates are then rationalized using a New Keynesian Dynamic Stochastic General Equilibrium (NK-DSGE) model augmented with energy. In the model, the elasticity of substitution between gas and non-energy inputs plays a critical role in explaining the inflationary effects of gas shocks. A decomposition of the recent inflation dynamics into the model structural shocks reveals a larger contribution of gas shocks compared to oil shocks. JEL Classification: C11, C32, E31, Q41 |
| Keywords: | Bayesian VARs, inflation, natural gas and oil shocks, new Keynesian DSGE |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20242968 |
| By: | Juergen Jung (Department of Economics, Towson University); Vinish Shrestha (Department of Economics, Towson University) |
| Abstract: | We use an overlapping generations model with labor supply decisions, health risk, and health insurance choices to investigate the impact of proposed work requirements for Medicaid eligibility. Calibrating the model to US data, we simulate counterfactual experiments with a minimum weekly work hours requirement. Our partial and general equilibrium results indicate that Medicaid work requirements increase labor force participation, reduce hours worked, and boost output. However, most scenarios show overall welfare losses, mitigated somewhat by general equilibrium effects. Welfare losses are higher among low-income households, smaller for middle-income households, and result in gains for high-income households. The smallest welfare loss occurs when the reform targets healthy individuals, allowing sicker individuals to remain on Medicaid regardless of their work status. |
| Keywords: | The Patient Protection and Affordable Care Act (ACA), Medicaid expansion, Labor supply, Labor market distortions, Health risk. |
| JEL: | H51 I13 I14 I38 J21 D58 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:tow:wpaper:2024-10 |
| By: | Kaldorf, Matthias; Shi, Mengjie |
| Abstract: | This paper shows that firm credit constraints impair climate policy. Empirically, firms with tighter credit constraints, measured by their distanceto-default, exhibit a relatively smaller emission reduction after a carbon tax increase. We incorporate this channel into a quantitative DSGE model with endogenous credit constraints and carbon taxes. Credit frictions reduce the optimal investment into emission abatement since shareholders are less likely to receive the payoff from such an investment. We find that carbon taxes consistent with net zero emissions are 24 dollars/ton of carbon larger in the presence of endogenous credit constraints than in an economy without such frictions. |
| Keywords: | Climate Policy, Credit Constraints, Emission Reduction, Corporate Capital Structure, Firm Heterogeneity |
| JEL: | E44 G21 G28 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300704 |
| By: | Le, Vo Phuong Mai (Cardiff Business School); Meenagh, David (Cardiff Business School); Minford, Patrick (Cardiff Business School); Wickens, Michael (Cardiff Business School) |
| Abstract: | We implement a quantitative empirical test of the Öscal theory of the price level (FTPL) model via indirect inference, comparing it to a standard New Keynesian model. The FTPL alternative creates a serious instability problem because it triggers a ëdoom loopíin which ináation pushes up interest rates which in turn pushes up deficits and debt and so ináation. Without some sort of endogenous feedback response this instability prevents the model even from solving in finite space. This is the case whether we embed FTPL in an otherwise conventional New Keynesian model or in a classical RBC model. We then went on to look for endogenous responses of government spending and tax to the economy - a Fiscal Rule - which might render the FTPL model su¢ ciently stable to be testable. We found such a Rule: in it spending stabilises the output gap while tax responds to ináation, with an ináation cap ('tax reform') - such that if ináation exceeds some high rate it overrides the FTPL terminal condition by inserting whatever terminal surplus will cap ináation at this rate. With this rule in place we can solve ann RBC version of the model without triggering intolerable volatility. Finally, we test this version after reestimating it with the best available parameters. It is on the rejection borderline on our full postwar sample. |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2024/17 |
| By: | Di Nola, Alessandro; Kocharkov, Georgi; Scholl, Almuth; Tkhir, Anna-Mariia; Wang, Haomin |
| Abstract: | This paper studies the aggregate and distributional effects of raising the top marginal income tax rate in the presence of tax avoidance. To this end, we develop a quantitative macroeconomic model with heterogeneous agents and occupational choice in which entrepreneurs can avoid taxes in two ways. On the extensive margin, entrepreneurs can choose the legal form of their business organization to reduce their tax burden. On the intensive margin, entrepreneurs can shift their income between different tax bases. In a quantitative application to the US economy, we find that tax avoidance weakens the distortionary effects of higher income taxes at the top but makes them ineffective at lowering inequality. Eliminating tax avoidance by implementing an equal tax treatment of entrepreneurs across all legal forms of business organization substantially increases tax revenue, aggregate output, and welfare. |
| Keywords: | Tax Avoidance, Top Income Tax Rate, Occupational Choice, Legal Form of Organization, Wealth Inequality, Incomplete Markets, Heterogeneous Agents |
| JEL: | E21 E62 H25 H26 H32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300700 |
| By: | Kaldorf, Matthias; Rottner, Matthias |
| Abstract: | Does a shift to ambitious climate policy increase financial fragility? In this paper, we develop a quantitative macroeconomic model with carbon taxes and endogenous financial crises to study such "Climate Minsky Moments". By reducing asset returns, an accelerated transition to net zero exerts deleveraging pressure on the financial sector, initially elevating the financial crisis probability substantially. However, carbon taxes improve long-run financial stability since permanently lower asset returns reduce the buildup of excessive leverage. Quantitatively, we find that the net financial stability effect of ambitious climate policy is positive for low but empirically plausible social discount rates. |
| Keywords: | Climate Policy, Financial Stability, Financial Crises, Transition Risk |
| JEL: | E32 E44 G20 Q52 Q58 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300701 |
| By: | Falck, Elisabeth; Röhe, Oke; Strobel, Johannes |
| Abstract: | In recent years, there has been a controversial debate on how the rapid diffusion of digital technologies affects labour productivity in advanced economies. Using a multi-sector dynamic general equilibrium model, we show that cumulative labour productivity growth in the United States, Germany and France over the period from 1996 to 2020 would have been about half as high without the efficiency gains from the sectors producing digital goods - despite their relatively small size in terms of gross value added. This is not only because TFP growth in the digital sectors is exceptionally high, but also because other sectors benefit from these efficiency improvements via production linkages. |
| Keywords: | dynamic general equilibrium model, sectoral linkages, production network, digitalisation |
| JEL: | E17 E23 E24 O33 O41 O47 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:300703 |
| By: | Thorsten Drautzburg; Jesús Fernández-Villaverde; Pablo Guerrón-Quintana; Dick Oosthuizen |
| Abstract: | We propose a new tool to filter non-linear dynamic models that does not require the researcher to specify the model fully and can be implemented without solving the model. If two conditions are satisfied, we can use a flexible statistical model and a known measurement equation to back out the hidden states of the dynamic model. The first condition is that the state is sufficiently volatile or persistent to be recoverable. The second condition requires the possibly non-linear measurement to be sufficiently smooth and to map uniquely to the state absent measurement error. We illustrate the method through various simulation studies and an empirical application to a sudden stops model applied to Mexican data. |
| Keywords: | filtering, limited information, non-linear model, dynamic equilibrium model, sudden stops |
| JEL: | C32 C53 E37 E44 O11 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_11243 |
| By: | Palmer, Thomas |
| Abstract: | This paper establishes that the rise in employer-provided training due to technological change has dampened the college wage premium. Using unique survey micro-data, I show that hightechnology firms provide more training overall, but the gap in training participation between high- and low-skill workers is smaller within these firms. To understand the aggregate implications of these patterns, I build a quantitative model of the labor market with endogenous technology and training investments. In a counterfactual exercise, I find that the increase in the college wage premium would be 63 percent greater if training costs remained constant between 1980 and the early 2000s. |
| Keywords: | Training, Technological Change, College Wage Premium, Education, Technology |
| JEL: | E24 I24 J24 J31 M53 O33 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:clefwp:300865 |