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on Dynamic General Equilibrium |
| By: | Alan Finkelstein Shapiro; Victoria Nuguer |
| Abstract: | We study the labour market and macroeconomic effects of a carbon tax in the energy sector in emerging economies. We build a search and matching macro model with pollution externalities from energy production, endogenous green-technology adoption, and salaried-firm entry that incorporates two key elements of the employment and firm structure of these economies: salaried labor and firm informality and self-employment. Calibrating the model to emerging-economy data, we show that a carbon tax increases green-technology adoption and the share of green energy, but also leads to higher energy prices. As a result, the tax reduces salaried firm creation, the number of formal firms, and formal employment, and leads to an increase in self-employment, labor participation, and unemployment - a response that generates long run output and welfare losses. Green-technology adoption limits while self-employment exacerbates the quantitative magnitude of these losses. A joint policy that combines a carbon tax with a reduction in the cost of firm formality can offset the adverse effects of the tax and generate a transition to a lower-carbon economy with minimal economic costs. |
| Keywords: | environmental and fiscal policy, carbon tax, endogenous firm creation, green technology adoption, search frictions, unemployment and labour force participation, informality and self-employment, emerging economies |
| JEL: | E20 E24 E61 H23 J46 J64 O44 Q52 Q55 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1204 |
| By: | Joachim Jungherr; Matthias Meier; Timo Reinelt; Immo Schott |
| Abstract: | We provide novel empirical evidence that firms’ investment is more responsive to monetary policy when a higher fraction of their debt matures. In a heterogeneous firm New Keynesian model with financial frictions and endogenous debt maturity, two channels explain this finding: (1.) Firms with more maturing debt have larger roll-over needs and are therefore more exposed to fluctuations in the real interest rate (roll-over risk). (2.) These firms also have higher default risk and therefore react more strongly to changes in the real burden of outstanding nominal debt (debt overhang). Unconventional monetary policy, which operates through long-term interest rates, has larger effects on debt maturity but smaller effects on output and inflation than conventional monetary policy. |
| Keywords: | monetary policy; investment; corporate debt; debt maturity |
| JEL: | E32 E44 E52 |
| Date: | 2024–08–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98708 |
| By: | Dirk Krueger; Fulin Li; Harald Uhlig |
| Abstract: | This paper characterizes the transition dynamics of a continuous-time neoclassical production economy with capital accumulation in which households face idiosyncratic income risk and cannot commit to repay their debt. Therefore, even though a full set of contingent claims that pay out conditional on the realization of idiosyncratic shocks is available, the equilibrium features imperfect insurance and a non-degenerate cross-sectional consumption distribution. When household labor productivity takes two values, one of which is zero, and the utility function is logarithmic, we characterize the entire transition dynamics induced by unexpected technology shocks, including the evolution of the consumption distribution, in closed form. Thus, the model constitutes an analytically tractable alternative to the standard incomplete markets general equilibrium Aiyagari (1994) model by retaining its physical environment, but replacing the incomplete asset markets structure with one in which limits to consumption insurance emerge endogenously due to limited commitment. |
| JEL: | D11 E21 G22 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32880 |
| By: | Адилханова Зарина // Adilkhanova Zarina (National Bank of Kazakhstan) |
| Abstract: | Данная работа исследует значимость степени жесткости заработной платы в контексте формирования денежно-кредитной политики в Казахстане. Оценка влияния жесткости заработной платы на инфляцию проведена в рамках новой кейнсианской модели, в которой рынок труда характеризуются трениями поиска и сопоставления, описанной в работе Christoffel et al. (2008). Результаты показали, что рынок труда, характеризующийся более низкой степенью жесткости заработной платы, существенно изменяет трансмиссию шоков. Например, инфляция проявляет более быстрый отклик на шок денежно- кредитной политики и становится менее устойчивой при более гибкой заработной плате. // This work investigates the significance of wage rigidity in the context of formulating monetary policy in Kazakhstan. The assessment of the impact of wage rigidity on inflation was conducted within the framework of a New Keynesian model, in which the labor market is characterized by search and matching frictions, as described in the work of Christoffel et al. (2008). The results showed that a labor market characterized by lower wage rigidity significantly alters the transmission of shocks. For example, inflation responds more quickly to a monetary policy shock and becomes less stable with more flexible wages. |
| Keywords: | жесткость заработных плат, инфляция, рынок труда, wage rigidity, inflation, labor market |
| JEL: | E12 E32 E52 J30 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:aob:wpaper:54 |
| By: | Oscar Iván Avila-Montealegre; Juan J. Ospina-Tejeiro; Mario A. Ramos-Veloza |
| Abstract: | Healthcare expenditure in Colombia is expected to increase by 35% over the next eight years, due to population aging, rising costs, and domestic policies. These trends, in a context of high levels of informality and affiliation to the subsidized regime, add significant pressure to public finances. Using a dynamic general equilibrium model with heterogeneous households, we analyze the macroeconomic impact of financing a higher public healthcare expenditure through different taxes. The funding sources play a significant role in shaping the aggregate dynamics and income inequality. While consumption taxes are the best option in terms of output, financing with taxes on high-skilled labor improves income distribution. **** RESUMEN: En Colombia, el gasto publicó en salud incrementaría alrededor de 35% en los próximos ocho años debido al envejecimiento de la población, al aumento de los costos de tratamientos y medicinas, y a las políticas propias del sector. Estas tendencias, en un contexto de alta informalidad y dependencia del régimen subsidiado al presupuesto del Gobierno, ejercen una presión significativa s obre l as finanzas públicas. Utilizando un modelo de equilibrio general dinámico con hogares heterogéneos, analizamos el impacto macroeconómico de la financiación de un mayor gasto en s alud a través d e impuestos al consumo, al uso del capital y al trabajo. Encontramos que las fuentes de financiamiento tienen un papel significativo en la determinación de la dinámica agregada y la desigualdad del ingreso. Mientras que los impuestos al consumo son la mejor opción en términos de producto, la financiación mediante impuestos al trabajo de alta calificación mejora l a distribución del ingreso. |
| Keywords: | General Equilibrium; Heterogeneous Agents; Taxes; Government Expenditure, Equilibrio General, agentes heterogéneos, impuestos, gasto del gobierno |
| JEL: | E10 E62 E26 F41 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1278 |
| By: | Roger E.A. Farmer |
| Abstract: | I introduce money into an incomplete markets model with heterogeneous agents and uninsurable income risk. I show that the model exhibits both non-monetary and monetary equilibria, with the latter existing when income risk is sufficiently high. Using numerical methods, I characterize the properties of these equilibria and analyze their stability. I find that for a range of realistic parameter values, the non-monetary equilibrium is dynamically inefficient and indeterminate, and there is a second determinate monetary equilibrium with positive valued fiat money. |
| JEL: | D52 E30 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32836 |
| By: | Francesco Zanetti; Federico S. Mandelman; Yang Yu; Andrei Zlate |
| Abstract: | We document a steady decline in low-skilled immigration that began with the onset of the Great Recession in 2007, which was associated with labor shortages in low-skilled service occupations and a decline in the skill premium. Falling returns to high-skilled jobs coincided with a decline in the educational attainment of native-born workers. We develop and estimate a stochastic growth model with endogenous immigration and training to account for these facts and study macroeconomic performance and welfare. Lower immigration leads to higher wages for low-skilled workers and higher consumer prices. Importantly, the decline in the skill premium discourages the training of native workers, persistently reducing aggregate productivity and welfare. Stimulus policies during the COVID-19 pandemic, amid a widespread shortage of low-skilled immigrant labor, exacerbated the rise in consumer prices and reduced welfare. We show that the 2021-2023 immigration surge helped to partially alleviate existing labor shortages and restore welfare. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:24-013e |
| By: | Konstantinos Mavrigiannakis; Stelios Sakkas |
| Abstract: | This paper aims at assessing quantitatively the macroeconomic impact of EU sanctions against Russia for the economy of Cyprus. To this end, we use a medium-scale micro-founded DSGE model of a small open economy participating in a currency union like the euro area calibrated to the economy of Cyprus. The model features two sectors of production, namely the tradable and the non-tradable one. In this model, EU sanctions influence the sanctioning economy (i.e. Cyprus) through a mix of foreign shocks that hit in principle the tradable sector. In particular, to mimic the economic environment (namely, how all this started in 2022), we analyse first the effects of an energy-type shock modelled as a standard cost-push shock on imported goods. In turn, we add to this economic environment the impact of policy reactions like EU sanctions against Russia. In this context and given the strong trade ties of Cyprus with Russia we model sanctions as two simultaneous negative exogenous shocks, that is, a temporary decrease in the exported goods reflecting primarily reductions observed in tourism and financial services, and inward foreign direct investment (FDI). Contrary to the mild impacts reported in the literature for the majority of EU countries we find non negligible adverse effects for the economy of Cyprus which range from -1.28% to -3.36% in terms of average output loss in the short run. Given Cyprus’s vulnerable external position we show that the impact of sanctions depend crucially on the degree of tightening financing conditions which are likely to hit particularly more countries with high initial current account deficits and debt stocks. |
| Keywords: | Cyprus, economic sanctions, trade disintegration |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:hel:greese:200 |
| By: | van der Vaart, J; Groneck, M; van Ooijen, R |
| Abstract: | A well-established negative correlation exists between lifetime income and health and mortality risk. We quantify the welfare implications of living longer and using less LTC by higher incomes, implying higher lifetime retirement income and lower lifetime LTC cost. To this end, we model singles’ and couples' consumption and saving behavior throughout the life cycle. Households face uncertain labor income at working age and uncertain and heterogeneous health and mortality across socioeconomic groups, so precautionary savings will differ across these groups. In addition, we assume that households value living and giving bequests to their heirs, implying a potential saving motive for bequests. We estimate the parameters of the model using unique administrative data from the Netherlands. Old-age insurance programs for retirement and LTC provision result in a substantial redistribution of welfare due to socioeconomic inequalities in LTC needs and mortality. The welfare effect amounts to 23.4% additional consumption after age 65 for the income-rich compared to those in the bottom lifetime income quartile. A large part of 22.2pp of the welfare gain for the richer households is explained by their strong preferences for leaving bequests: they have lower co-payments for LTC and more retirement income, which they spend on leaving a larger bequest upon death. |
| Keywords: | socioeconomic inequalities; long-term care and mortality risk; retirement programs; couples' life-cycle model |
| JEL: | D15 H55 I14 J14 J17 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:yor:hectdg:24/20 |
| By: | Acabbi, Edoardo (Universidad Carlos III de Madrid); Alati, Andrea (Bank of England); Mazzone, Luca (International Monetary Fund) |
| Abstract: | Using administrative data, we document that workers acquire more human capital at more productive firms. Recessions distort workers-firm sorting, flatten the job ladder and impact human capital accumulation, as workers match on average to worse firms. To quantify the aggregate relevance of these effects, we build a directed search model with aggregate risk and worker-firm heterogeneity, in which human capital accumulation depends on firm quality. We estimate the model and show that recessions have persistent negative effects on the productivity of worker-firm matches, with distortions in sorting and human capital accumulation accounting for approximately 30% of cumulative output losses. |
| Keywords: | Human capital accumulation; hysteresis; sorting; scarring |
| JEL: | E24 E32 J24 J63 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:1077 |
| By: | Josué, ANDRIANADY |
| Abstract: | This study utilizes the DSGE model DIGNAD to assess the economic impacts of natural disasters on Madagascar. Four distinct scenarios are analyzed: the first scenario (zero scenario) simulates the effects of a natural shock occurring in 2027. The second scenario evaluates the impact of investing 1% of GDP in resilient infrastructure over a 5-year period preceding the shock. The third scenario examines the outcomes of a similar 1% GDP investment in standard, non-resilient infrastructurebefore the shock. The fourth scenario considers the implications of a 2% GDP investment in resilient infrastructure aimed at enhancing the country’s relatively low GDP, currently at around 31%. The findings reveal a projected contraction of approximately 6% in GDP growth in the event of the shock. Investing in resilient infrastructure significantly mitigates the decline in growth, reducing it by about 2% of GDP. Despite this benefit, the substantial financial requirements for such infrastructure present a considerable challenge for Madagascar. |
| Keywords: | DSGE model, DIGNAD, natural disasters, economic impact, resilient infrastructure, Madagascar, GDP growth, investment scenarios. |
| JEL: | A1 A10 E0 Q50 |
| Date: | 2024–08–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121646 |
| By: | Ding Dong; Zheng Liu; Pengfei Wang; Min Wei |
| Abstract: | Households often disagree in their inflation outlooks. We present novel empirical evidence that inflation disagreement weakens the power of forward guidance and conventional monetary policy. These empirical observations can be rationalized by a model featuring heterogeneous beliefs about the central banks’ inflation target. An agent who perceives higher future inflation also perceives a lower real interest rate and thus would like to borrow more to finance consumption, subject to borrowing constraints. Higher inflation disagreement would lead to a larger share of borrowing-constrained agents, resulting in more sluggish responses of aggregate consumption to changes in both current and expected future interest rates. This mechanism also provides a microeconomic foundation for Euler equation discounting that helps resolve the forward guidance puzzle. |
| Keywords: | inflation uncertainty and disagreement; inflation expectations; heterogeneous beliefs; borrowing constraints; monetary policy; forward guidance |
| JEL: | E21 E31 E52 E71 |
| Date: | 2024–08–05 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:98689 |
| By: | Bulent Guler; Yasin Kürsat Önder; Mauricio Villamizar-Villegas; Jose Villegas |
| Abstract: | We evaluate the effectiveness of consumer debt moratoria, one of the earliest policy interventions aimed at alleviating debt burdens. Using administrative data from Colombia, our study compares households that narrowly qualified for the moratorium (eligible up to 60 days overdue on their mortgages) against those who narrowly missed eligibility. Our analysis indicates that the moratorium policy boosts consumption among financially strained households while reducing delinquency rates on mortgages and other loans. We then develop a life-cycle incomplete market model, incorporating households subject to idiosyncratic income shocks, to examine both the general equilibrium and longrun effects of the policy. Our model shows that the policy increases aggregate output, consumption, and welfare for both households and bank owners. The policy also facilitates financial stability by attenuating the decline in house prices and increasing aggregate housing demand. Finally, we use our model to explore potential outcomes of debt forgiveness. **** RESUMEN: Evaluamos la efectividad de las políticas de los periodos de gracia (moratoria de deuda) de los hogares. Utilizando datos de registro de crédito (Formato 341) de Colombia, nuestro estudio compara los créditos que por poco eran elegibles para participar en el programa de moratoria (hasta 60 días de mora en sus créditos hipotecarios) contra aquellos que no alcanzaron a ser elegibles. Nuestro análisis indica que la política impulsa el consumo, al tiempo que reduce las tasas de morosidad, tanto en créditos hipotecarios como en otras modalidades. Para complementar el análisis, desarrollamos un modelo de ciclo de vida con mercados incompletos, incorporando hogares sujetos a choques idiosincráticos de ingresos, para examinar tanto el equilibrio general como los efectos a largo plazo de la política. Nuestro modelo muestra que la política aumenta la producción agregada, el consumo y el bienestar tanto de los hogares como de los bancos. La política también facilita la estabilidad financiera al atenuar la caída en los precios de las viviendas y aumentar su demanda. |
| Keywords: | debt moratoria, regression discontinuity design, heterogeneous agent models, moratoria de deuda, diseño de regresión discontinua, modelos de agentes heterogéneos |
| JEL: | E44 F34 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bdr:borrec:1276 |
| By: | Finamor, Lucas |
| Abstract: | In labor markets with substantial informality, distinct working arrangements offer different prospects for workers. Formal employment provides insurance programs requiring social security contributions and taxes. Informal and self-employment lack public insurance to mitigate risk but offer valuable routes out of unemployment. Workers face complex tradeoffs involving present and future risks, the ability to insure them, liquidity, and earnings. To investigate this question, I develop a life-cycle model of employment type and savings in a frictional search environment. I estimate the model using linked longitudinal survey and administrative Chilean data, exploiting policy reforms. The estimates suggest that formal sector insurance is valued; informal workers would be willing to forgo earnings to be formal employees. Informal opportunities also provide substantial insurance against unemployment risk. Exploring counterfactual policies, I show how the insurance values can be interpreted as summary measures of the attractiveness of these sectors given the policy and labor market environment. |
| Keywords: | Labor market informality, unemployment insurance, social security |
| JEL: | D14 J26 J46 J64 |
| Date: | 2024–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:121662 |
| By: | Peter Karadi; Anton Nakov; Galo Nuno Barrau; Ernesto Pasten; Dominik Thaler |
| Abstract: | We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides microfoundations for a nonlinear Phillips curve: the sensitivity of inflation to activity increases after large shocks due to an endogenous rise in the frequency of price changes, as observed during the recent inflation surge. In response to large cost-push shocks, optimal policy leverages the lower sacrifice ratio to reduce inflation and stabilize the frequency of price adjustments. At the same time, when facing total factor productivity shocks, an efficient disturbance, the optimal policy commits to strict price stability, similar to the prescription in the standard Calvo (1983) model. |
| Keywords: | state-dependent pricing, large shocks, nonlinear Phillips curve, optimal monetary policy |
| JEL: | E31 E32 E52 |
| Date: | 2024–08 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1203 |