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on Dynamic General Equilibrium |
| By: | Genaro Mart\'in Damiani |
| Abstract: | Dynamic Stochastic General Equilibrium (DSGE) models, which are nowadays a crucial element of the set of quantitative tools that policy-makers have, did not emerge spontaneously. They rely on previously established ideas in Economics and relatively recent advancements in Mathematics. I aim to provide a comprehensive coverage of their history, starting from the pioneering Neoclassical general equilibrium theories and eventually reaching the New Neoclassical Synthesis (NNS). I thoroughly present the mathematical tools involved in formulating a DSGE model. I claim that this history has a mixed nature rather than an absolutist or relativist one, that the NNS may have emerged due to the complementary nature of New Classical and New Keynesian theories, and that the recent adoption and development of DSGE models by central banks from different countries has entailed a departure from the goal of building a universally valid theory that Economics has always had. The latter means that DSGE modeling has landed not without loss of generality. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2409.00812 |
| By: | Alexander Bick; Adam Blandin; Richard Rogerson |
| Abstract: | We document large differences in lifetime hours of work using data from the NLSY79 and argue that these differences are an important source of inequality in lifetime earnings. To establish this we develop and calibrate a rich heterogeneous agent model of labor supply and human capital accumulation that allows for heterogeneity in preferences for work, initial human capital and learning ability, as well as idiosyncratic shocks to human capital throughout the life-cycle. Our calibrated model implies that almost 20 percent of the variance in lifetime earnings is accounted for by differences in lifetime hours of work, with 90 percent of this effect due to heterogeneity in preferences. Higher lifetime hours contribute to lifetime earnings via two channels: a direct channel (more hours spent in production at given productivity) and a human capital channel (more hours spent investing in human capital, which increases future productivity). Between a third and a half of the effect of lifetime hours on lifetime earnings is due to the human capital channel. Our model implies that policies that limit long hours have important effects on both the mean and variance of lifetime earnings. |
| Keywords: | lifetime earnings; hours worked; human capital; inequality |
| JEL: | D15 E21 E24 J22 J31 J24 |
| Date: | 2024–09–16 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:98792 |
| By: | Miriam Braig (University of Erfurt); Sebastian K. Rüth (University of Erfurt); Wouter Van der Veken (National Bank of Belgium, Economics and Research Department and Ghent University) |
| Abstract: | We solve a canonical, estimated, medium-sized, open-economy New Keynesian model, cast it into a small-scale population vector autoregression, and assess whether best-practice structural identifications detect textbook “overshooting” after a monetary policy hike—i.e., an instant real appreciation that monotonically reverts. Our results include “delayed overshooting, ” “exchange rate puzzles, ” “forward discount puzzles, ” and model-consistent overshooting. Identifications that regularly indicate open-economy anomalies in empirics likewise produce them in our controlled setup. Vice versa, identifications that prompt theory-conform conclusions in actual data do so in our experimental data. We infer that less empirical evidence may contradict canonical international macro theory than previously understood. |
| Keywords: | New open economy macroeconomics, population vector autoregression, invertibility, structural identification, exchange rate, overshooting. |
| JEL: | C32 E32 E52 F41 F42 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbb:reswpp:202409-455 |
| By: | Ernest Liu (Princeton University); Vladimir Smirnyagin (University of Virginia); Aleh Tsyvinski (Yale University) |
| Abstract: | We empirically and quantitatively study the impact of supply chain disruptions on U.S. businesses. Leveraging granular shipment- level data on the universe of U.S. seaborne imports with nearly 200 million observations, we construct a measure of disruptions at the individual firm level for the time period 2013-2023. We document a significant heterogeneity in disruption rates among U.S. public firms, with a notable increase observed in recent years. We introduce a notion of supplier capital and investigate the effect of supply disruptions on firms’ investment decisions. In the data, firms tend to increase investment in supplier capital following the shock, however, financially distressed firms exhibit a much weaker response. We develop a general equilibrium model with heterogeneous firms and with investment in supplier capital. We show that firms’ ability to accumulate supplier capital by making costly investment is an important margin of adjustment in the aftermath of such crises. Financial constraints help account for the heterogeneous treatment effect observed in the data. Two supply chain initiatives proposed by the U.S. government to mitigate disruptions are evaluated. Finally, we document a significant rise in supply disruptions in sectors critical to the U.S. economy and build an index of critical supply disruptions. We show quantitatively that firms relying heavily on imports of critical products experience a much larger decline in output following a disruption shock relative to firms which are not engaged in critical supply chains. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:cwl:cwldpp:2402 |
| By: | Piergallini, Alessandro |
| Abstract: | I develop flexible- and sticky-price general equilibrium models that embody corporate financing decisions affecting firm value because of distortionary taxes. Nominal interest-rate variations impact costs of debt and equity capital asymmetrically and induce firms to modify the financial structure, altering the gap between the (optimization-based) weighted average cost of capital and the real interest rate. Under these circumstances, I demonstrate that passive or mildly active monetary policies ensure aggregate stability. Overly aggressive inflation-fighting actions are destabilizing under sticky prices. Macroeconomic dynamics following either interest-rate normalization or temporary monetary tightening critically depend upon the tax structure and the steady-state debt-equity ratio. |
| Keywords: | Corporate Finance; Firm Financial Structure; Corporate and Personal Taxation; Interest Rate Policy; Equilibrium Dynamics; Monetary Policy Shocks. |
| JEL: | E31 E52 G32 H24 H25 |
| Date: | 2024–09–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:122021 |
| By: | Ryo Sakamoto; Katsunori Minami |
| Abstract: | Sustainable growth has emerged as a critical policy challenge worldwide. We investigate the influence of conventional gender norms on fertility and economic growth to explain the phenomena recently observed across high-income countries. To this end, we construct an overlapping generations model with endogenous fertility and labor supply, incorporating gender norms and R&D activities. We demonstrate that conventional gender norms can impede fertility and economic growth. Specifically, when gender norms are sufficiently conservative, income growth stagnates and population erosion eventually occurs. Conversely, when gender norms are sufficiently less conservative, the economy follows a sustained growth path characterized by simultaneous growth in both population and income per capita. Our results underscore the need to address and correct gender norms to achieve sustainable growth and improve welfare. |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1255 |
| By: | Jeremy Pearce; Liangjie Wu |
| Abstract: | We study the interaction of customer capital and productivity through brand reallocation across firms. We develop a firm dynamics model with brands as transferable customer capital, heterogeneous firm productivity, and variable markups. We study the matching process between transferable brand capital and core productivity, which can be inefficient with significant welfare implications. We link USPTO trademark data with Nielsen sales data to study the prevalence of brand reallocation and the response of sales and prices to reallocation. Quantitatively, brand reallocation reduces welfare. Optimal policies deviate substantially from the literature due to the complementarity between brand capital and productivity. |
| Keywords: | firm dynamics; productivity; market concentration; product innovation; reallocation; Mergers & acquisitions; brands; Trademarks; intangible assets |
| JEL: | O31 O32 O34 O41 D22 D43 L11 L13 L22 |
| Date: | 2024–08–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fednsr:98772 |
| By: | Andre, Peter; Haaland, Ingar; Roth, Christopher; Wiederholt, Mirko; Wohlfart, Johannes |
| Abstract: | We provide evidence on narratives about the macroeconomy-the stories people tell to explain macroeconomic phenomena-in the context of a historic surge in inflation. In surveys with more than 10, 000 US households and 100 academic experts, we measure economic narratives in open-ended survey responses and represent them as Directed Acyclic Graphs. Households' narratives are strongly heterogeneous, coarser than experts' narratives, focus more on the supply side than on the demand side, and often feature politically loaded explanations. Households' narratives matter for their inflation expectation formation, which we demonstrate with descriptive survey data and a series of experiments. Informed by these findings, we incorporate narratives into an otherwise conventional New Keynesian model and demonstrate their importance for aggregate outcomes. |
| Keywords: | Narratives, Expectation Formation, Causal Reasoning, Inflation |
| JEL: | D83 D84 E31 E52 E71 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:safewp:302567 |
| By: | Simone Cima (Central Bank of Ireland; Trinity College Dublin); Joseph Kopecky (Trinity College Dublin) |
| Abstract: | Policymakers are reckoning with widening disparities in income and wealth. Perhaps no set of policies have the potential impact the distribution of wealth than those that affect home ownership. In most countries, wealth held by all but the top of the distribution is predominantly housing wealth. Many governments have undertaken measures aimed at helping lower to middle-income households to get on the housing ladder. However, the housing market is very complicated, and such policies could end up hurting households through different channels. We aim to provide guidance on the relative impact of various housing policies and macroeconomic conditions on inequality. To do this we build a life-cycle model where households endogenously choose between buying and renting houses. In this framework we quantify how distributions of income, wealth and consumption, as well as homeownership rates, are affected by a wide range of housing policies or features, specifically: borrower-based macroprudential limits, the presence of institutional investors, taxation of rental income, and measures targeted at the construction sector. We find that all of these policies, and the interactions between them, can lead to substantial movements in inequality and homeownership rates, with supply-side policies being the most impactful. This paper also provides a solid modelling framework for future analysis in this area. |
| Keywords: | Housing policy; Macroprudential policy; Wealth inequality; Inequality; Housing; Renting |
| JEL: | E21 G51 R21 R28 R31 |
| Date: | 2024–09 |
| URL: | https://d.repec.org/n?u=RePEc:tcd:tcduee:tep0724 |