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on Dynamic General Equilibrium |
| By: | Collard, Fabrice; Fève, Patrick; Wangner, Philipp |
| Abstract: | This paper explores how the persistence of demand shocks interacts with monetary policy in New Keynesian frameworks. We identify two key propagation channels: a permanent income channel, which amplifies the effects of persistent shocks, and a real interest rate channel, which goes in the opposite direction. The balance between these forces depends critically on the aggressiveness of the central bank’s response to inflation, giving rise to distinct monetary policy regimes. Under accommodative policies, persistence magnifies the response of output, while aggressive policies dampen these effects. In the intermediate regime, a hump-shaped relationship emerges between persistence and the response of output. Our analysis extends to medium-scale DSGE models, featuring capital accumulation, household heterogeneity, behavioral frictions, working capital, nominal wage and price rigidities, revealing that these dynamics are remarkably robust. |
| Keywords: | Persistence; Demand Shocks; Monetary Policy; New Keynesian Model |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:tse:wpaper:130328 |
| By: | Marta García Rodríguez (BANCO DE ESPAÑA) |
| Abstract: | High volatility in the U.S. labor market, coupled with a low correlation between labor market variables and productivity, presents a challenge for traditional search and matching models. This paper develops a search and matching model with internally rational agents who hold subjective wage expectations. This approach significantly improves alignment with U.S. labor market data, outperforming the standard rational expectations model. The model’s wage expectations are consistent with data from European Commission professional forecasters, adding a dynamic source that enhances the model’s fit to labor market moments. |
| Keywords: | internal rationality, wage expectations, labor markets, subjective expectations, belief shock |
| JEL: | E24 E32 D83 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2507 |
| By: | Bruno R. Delalibera; Pedro Cavalcanti Ferreira; Rafael Machado Parente |
| Abstract: | In many countries, the regulations governing pension systems, hiring procedures, and job contracts differ between the public and private sectors. Public sector employees tend to have longer tenures and higher wages compared to workers in the private sector. As such, social security reforms can affect both retirement decisions and sectoral choices. We study the effects of social security reforms on retirement and sectoral behavior in an economy with multiple pension systems. We develop a general equilibrium life-cycle model with heterogeneous agents, three sectors - private formal, private informal and public - and endogenous retirement. We quantitatively assess the long-run effects of reforms being discussed and implemented around the world. Among them, we study the unification of pension systems and increasing the minimum retirement age. We calibrate our model to Brazil, where several of the retirement conditions resemble those of other countries. We find that these reforms lower the likelihood of individuals to apply to a public job and increase the profile of savings over the life cycle. In the long run, these reforms lead to higher output and capital, reduced informality, and average welfare gains. They also drastically reduce the social security deficit. |
| Keywords: | Social security reform; Public employment; Public deficit; Informality |
| Date: | 2025–01–31 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/032 |
| By: | Lucía López (BANCO DE ESPAÑA); Florens Odendahl (BANCO DE ESPAÑA); Susana Párraga (EUROPEAN CENTRAL BANK); Edgar Silgado-Gómez (BANCO DE ESPAÑA) |
| Abstract: | This paper uses a Bayesian Structural Vector Autoregressive (BSVAR) framework to estimate the pass-through of unexpected gas price supply shocks to HICP inflation in the euro area and its four largest economies. Compared with oil price shocks, gas price shocks have an approximately one-third smaller pass-through to headline inflation. Country-specific results indicate that 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 price regulations. 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 rationalised 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’s structural shocks reveals a larger contribution of gas shocks compared with oil shocks. |
| Keywords: | natural gas and oil shocks, inflation, Bayesian VARs, New Keynesian DSGE |
| JEL: | C11 C32 E31 Q41 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2512 |
| By: | R. Anton Braun; Daisuke Ikeda |
| Abstract: | Household net worth portfolios vary significantly over the lifecycle. Young households typically have low net worth and hold leveraged long positions in illiquid tangible assets like homes, cars and appliances. Older households, in contrast, tend to have high net worth and significant holdings of liquid assets in their portfolios. Monetary policy alters the interest rate on deposits and the spread on liquid and illiquid assets. Consequently, changes in monetary policy are likely to impact portfolio returns and investment opportunities of young and old households differently. We propose a quantitative model of monetary policy over the lifecycle that formalizes this insight. Households make endogenous portfolio choices and the age profile of their choices in our model is consistent with Japanese data. Our model has different microeconomic foundations and propagation channels of monetary policy compared to previous New Keynesian models, yet it reproduces the empirical responses of aggregate variables, and the microeconomic responses of different age groups to a tighter monetary policy. Net worth, consumption, and welfare increase, for older households but decrease for younger households, leading to higher wealth inequality. Additionally, monetary policy, by altering investment opportunities, has persistent and varied impacts on what different age groups can achieve over their remaining lives. Our results imply that aggregate consumption is a poor metric for assessing the impact of monetary policy on households because the large consumption declines of young households are offset by gains from older and more affluent households. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:25-006e |
| By: | Charles Labrousse (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INSEE - Institut national de la statistique et des études économiques (INSEE)); Yann Perdereau (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | What are the effects of central bank balance sheet expansion, and should we worry about central bank losses? Using a Heterogeneous Agent New Keynesian model incorporating money in utility and an endogenous zero lower bound (ZLB), we study the fiscal-monetary interaction of central bank balance sheet policies. We find that the overall efficiency of QE and QT policies depends on the combination of the expected future size of the balance sheet and the fiscal transmission of central bank losses. First, permanent balance sheet expansions stimulate the economy in the long-run and, by anticipation, increase inflation and output during the ZLB episode, as they interact with distortionary taxes and imperfect capital markets. Second, at the end of the ZLB, the central bank incurs losses: issuing securities to offset these losses is more welfare-enhancing than raising taxes. |
| Keywords: | Monetary policy, Heterogeneous agents, Balance sheet, Quantitative Easing, Quantitative Tightening, CB losses, Fiscal and monetary policy mix |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04577286 |
| By: | Charles Labrousse (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, INSEE - Institut national de la statistique et des études économiques (INSEE)); Yann Perdereau (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement) |
| Abstract: | Distributive effects of carbon taxation are key for its political acceptability. We introduce geographical heterogeneity into a calibrated dynamic general equilibrium heterogeneous-agent model, where energy is both a consumption good and an intermediate input. We evaluate the aggregate and distributive effects of carbon taxation and obtain three key results. First, the distributive effects of carbon taxation are driven by geography more than income, with rural households suffering larger welfare losses. Second, taxing households' direct emissions is regressive, while taxing firms' direct emissions is progressive. Third, we simulate various revenue-recycling policies using targeted transfers. We find that it is possible to reduce emissions and mitigate welfare losses associated with the green transition. |
| Keywords: | Carbon taxes, Energy, Fiscal policy, Emissions, Macroeconomic effects, Inequalities, Geography |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04464900 |
| By: | Peter Karadi (EUROPEAN CENTRAL BANK AND CEPR); Anton Nakov (EUROPEAN CENTRAL BANK AND CEPR); Galo Nuño (BANCO DE ESPAÑA AND CEPR); Ernesto Pastén (CENTRAL BANK OF CHILE); Dominik Thaler (EUROPEAN CENTRAL BANK) |
| Abstract: | We study the Ramsey optimal monetary policy within the Golosov and Lucas (2007) state-dependent pricing framework. The model provides micro-foundations 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. 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: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2510 |
| By: | Cosmin L. Ilut; Ralph Luetticke; Martin Schneider |
| Abstract: | This paper studies a HANK model with agents who respond to both idiosyncratic and aggregate uncertainty. Since aggregate uncertainty is modeled as ambiguity, it affects the steady state and linearized dynamics, allowing for fast computation and estimation. The interaction of aggregate uncertainty shocks and portfolio frictions generates a high capital premium as well as most cyclical comovement in macroeconomic aggregates. Heterogeneity in portfolios is crucial: when it is shut down, the model fails to explain investment dynamics and the capital premium disappears. Cautious price and wage setting by firms in anticipation of aggregate uncertainty shapes employment and inflation dynamics. |
| JEL: | C11 D31 D81 E32 E63 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:33331 |
| By: | Kim, Seula (Pennsylvania State University) |
| Abstract: | This paper investigates how worker beliefs and job prospects impact the wages and growth of young firms, as well as the aggregate economy. Building a heterogeneous-firm directed search model where workers gradually learn about firm types, I find that learning generates endogenous wage differentials for young firms. High-performing young firms must pay higher wages than equally high-performing old firms, while low-performing young firms offer lower wages than equally low-performing old firms. Reduced uncertainty or labor market frictions lower the wage differentials, thereby enhancing young firm dynamics and aggregate productivity. The results are consistent with U.S. administrative employee-employer matched data. |
| Keywords: | Wage Differentials, Firm Dynamics, Learning, Search Frictions, Uncertainty |
| JEL: | E20 E24 J31 J41 J64 L25 L26 M13 M52 M55 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17655 |
| By: | Jean-Paul Barinci (EPEE - Centre d'Etudes des Politiques Economiques - UEVE - Université d'Évry-Val-d'Essonne - Université Paris-Saclay); Hye-Jin Cho (Durham University); Jean-Pierre Drugeon (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, CNRS - Centre National de la Recherche Scientifique) |
| Abstract: | This article considers a three-period-lived pure exchange overlapping generations economy and clarifies the role of market complementarities in the scope for Kehoe & Levine's convergence criterion in order to reduce the size of continuation equilibria and establish uniqueness and determinacy. The argument is based upon the price-relatedness of dated goods and the way the law of demand, gross substitutability and the scope for asymmetric complementarities come into play when three periods lifespans are considered. The nature of these restriions is clarified in the context of stationary economies and the way it relates to equilibrium continuation and Kehoe & Levine's determinacy is made precise. A detailed articulation between complementarities and determinacy is finally provided in the context of Samuelson intermediate economies. The key role of dated goods spaced one period apart and entering in an additive way is emphasised in the determinacy result while the importance of asymetric complementarities between isolated goods spaced two periods apart is also pointed out. |
| Keywords: | Continuation equilibria and Kehoe &, Levine's convergence criterion, Determinacy, Indeterminacies, Robustness, Overlapping generations, Gross substitutability, Complementarity, Aggregate demand, Comparative statics |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:psewpa:halshs-04850529 |
| By: | Christian Bittner; Rustam Jamilov; Farzad Saidi |
| Abstract: | We develop a quantitative macroeconomic framework with heterogeneous financial intermediaries and active liquidity management. In the model, banks manage uninsured, idiosyncratic deposit withdrawal risk through an iterative over-the-counter interbank market with endogenous intensive and extensive margins and equilibrium assortative matching based on balance sheet size. We validate our framework using administrative data from Germany encompassing the universe of bank-to-bank exposures. Our findings strongly support the presence of assortative matching in the data, thereby confirming the model's key mechanism. We show that assortative matching can inefficiently lead to reduced trading volumes and a broader region of inaction in the interbank market, a smaller and riskier banking sector, and a macroeconomy characterized by lower aggregate output. Using our empirically validated framework, we explore secular trends in interbank trading, the roles of liquidity and interest rate corridor policies, and the impact of deposit market power. |
| Keywords: | heterogeneous banks, interbank markets, monetary policy, liquidity policy |
| JEL: | E44 E52 G20 G21 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_642 |
| By: | Thomas Breda (PSE - Paris School of Economics - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement, PJSE - Paris Jourdan Sciences Economiques - UP1 - Université Paris 1 Panthéon-Sorbonne - ENS-PSL - École normale supérieure - Paris - PSL - Université Paris Sciences et Lettres - EHESS - École des hautes études en sciences sociales - ENPC - École nationale des ponts et chaussées - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement); Luke Haywood (MCC Berlin - Mercator Research Institute on Global Commons and Climate Change (, DIW Berlin - Deutsche Institut für Wirtschaftsforschung = German Institute for Economic Research); Haomin Wang (Cardiff Business School - Cardiff University) |
| Abstract: | We quantify the unintended effects of a low-wage payroll tax reduction using an equilibrium search model featuring bargaining, worker and firm productivity heterogeneity, labor taxes, and a minimum wage. The decentralized economy is inefficient due to search externalities and labor market policies. We estimate the model using French data and find that a significant reduction in low-wage payroll taxes in 1995 leads to an overall improvement in economic efficiency by increasing employment and correcting existing policy distortions that disincentivize labor force participation. However, the tax reduction, by increasing labor force participation among low-productivity workers and vacancy postings by low-productivity firms, results in negative but minor spillover and reallocation effects due to congestion. We find that the optimal policy mix is a lower minimum wage and lower payroll taxes compared to the policies in place in the early 1990s. |
| Keywords: | Payroll tax, Minimum wage, Equilibrium job search, Worker and firm heterogeneity |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:halshs-04805291 |
| By: | Henrique S. Basso (BANCO DE ESPAÑA); Myroslav Pidkuyko (BANCO DE ESPAÑA); Omar Rachedi (ESADE, UNIVERSITAT RAMON LLULL) |
| Abstract: | With multiple types of public capital, the aggregate implications of public investment crucially depend on the sum of the output elasticities of public capital across types. Abstracting from this heterogeneity and considering a single homogeneous type underestimates the effects of public investment. This is because the output elasticity of aggregate public capital is biased: it does not coincide with the sum of output elasticities of the different types. A quantitative model with public investment in equipment, structures, and intangibles implies substantial negative bias. Heterogeneity in public investment roughly doubles the long-run fiscal multiplier and optimal scale of public investment. |
| Keywords: | public capital, intellectual property products, equipment, structures, fiscal multiplier |
| JEL: | E22 E62 H54 |
| Date: | 2024–01 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2501 |
| By: | Stefan Niemann (University of Konstanz); Timm M. Prein (University of Helsinki Graduate School of Economics) |
| Abstract: | This paper studies the consequences of overreaction to news in the context of a quantitative model of sovereign debt and default. Overreaction is formalized in terms of diagnostic expectations that excessively extrapolate from current condi-tions. Examining historical IMF growth forecasts, we find empirical evidence for this behavior and incorporate it into an otherwise standard model of long-term sovereign debt. The model successfully matches salient business cycle statistics, including the distribution of sovereign spreads, and also predicts an empirically plausible default frequency. Counterfactual experiments indicate that diagnostic expectations induce sizeable welfare losses, the bulk of which could be eliminated under rational behavior of the sovereign borrower. Fiscal rules, which restrict bor-rower behavior via limits on admissible levels of debt or spreads, can therefore be used in a welfare-enhancing way. Although spread-brake rules may be subject to distortions from diagnostic market sentiment, they o˙er robustness and generally perform better than debt-brake rules. |
| Keywords: | sovereign debt; diagnostic expectations; fiscal rules |
| JEL: | E44 E62 F34 H63 |
| Date: | 2025–02–04 |
| URL: | https://d.repec.org/n?u=RePEc:knz:dpteco:2502 |
| By: | Le Blanc, Julia; Slacalek, Jiri; White, Matthew N. |
| Abstract: | Homeownership rates and holdings of housing wealth differ immensely across countries. Using micro data from five economies, we estimate a life-cycle model with illiquid housing in which households face a discrete–continuous choice between renting and owning a house. We use the model to decompose the cross-country differences in the homeownership rate and the value of housing wealth into three groups of explanatory factors: house price expectations, the institutional set-up of the housing market and preferences. We find that all three groups of factors matter, although preferences less so. Differences in homeownership rates are strongly affected by (i) house price beliefs and (ii) the rental wedge, the difference between rents and housing maintenance costs, which reflects the quality of the rental market. Differences in the value of housing wealth are substantially driven by maintenance costs. JEL Classification: D15, D31, D84, E21, G11, G51 |
| Keywords: | cross-country comparisons, homeownership, house price expectations, housing, housing market institutions |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20253021 |
| By: | Damián Pierri (Universidad Autónoma de Madrid); Fernando García-Belenguer (Universidad Autónoma de Madrid) |
| Abstract: | Economies experience periods of countercyclical borrowing in which the stock of external private debt is negatively correlated with output growth rates but also undergo periods of procyclical borrowing in which debt shows a positive correlation with growth.We find that a group of middle-income countries spend around one-half of the time in each of the two states. Weconstruct an open economy model with endogenous growth and stochastic productivity shocks to investigate this evidence, exhibiting a stochastic balanced growth path.We prove the existence of an invariant distribution for the debt-capital ratio and characterize its dynamical properties, stating the conditions under which the normalized debt stock is sustainable. In this economy, periods with high debt levels are consistent with decreasing and increasing debt patterns depending on the aggregate growth rate. The model is calibrated to Argentinian data, and the fit is surprisingly good.Our results also allow us to rationalize the variability of the correlation between the trade balance and output growth since the global approach used in the paper allows us to unravel the underlying dynamics of the stock of private debt. |
| Keywords: | Endogenous growth, Debt Sustainability, Open Economies |
| JEL: | C62 E62 O41 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:353 |
| By: | Almar, Frederik (Aarhus University); Friedrich, Benjamin (Northwestern University); Reynoso, Ana (University of Michigan); Schulz, Bastian (Aarhus University); Vejlin, Rune Majlund (Aarhus University) |
| Abstract: | This paper studies how family and firm investments interact to explain gender gaps in career achievement. Using Danish administrative data, we first document novel evidence of this interaction through a “spousal effect” on firm-side career investments. This effect is accounted for by family labor supply choices that shape worker characteristics, which then influence firms’ training and promotion decisions. Our main theoretical contribution is to develop a quantitative life cycle model that captures these family-firm interactions through household formation, families’ joint career and fertility choices, and firms’ managerial training and promotion decisions. We then use the estimated model to show that the interaction between families and firms in the joint equilibrium of labor and marriage markets is important when evaluating firm-side and family-side policy interventions. We find that gender-equal parental leave and a managerial quota can both improve gender equality, but leave implies costly skill depreciation, whereas the quota raises aggregate welfare, in part through adjustments in marital sorting towards families that invest in women. |
| Keywords: | Gender inequality, career investments, firm training, management promotions, marriage market matching |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17653 |