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on Dynamic General Equilibrium |
| By: | Vîntu, Denis |
| Abstract: | This paper studies the relation between two widely used macroeconomic frameworks: the infinite-horizon general equilibrium model with infinitely-lived agents (GEILA) and the overlapping generations (OLG) model. We show that a two-cycle equilibrium of the GEILA model is an equilibrium of the OLG model, and conversely, an equilibrium of the OLG model can be viewed as a two-cycle equilibrium of the GEILA model. Using this equivalence, we explore the existence of equilibrium indeterminacy and rational asset price bubbles in both frameworks. Our results provide a unified perspective on these important economic phenomena across the two modeling approaches. |
| Keywords: | Infinite-Horizon Model; Overlapping Generations Model (OLG); Intertemporal Optimization; Unemployment Dynamics; Labor Market Frictions; Generational Economics; Lifecycle Consumption; Savings Behavior; Macroeconomic Modeling; Employment Risk; Stochastic Employment; Fiscal Policy and Unemployment; Demographic Economics; Intergenerational Transfers; Economic Growth Models |
| JEL: | D91 E21 E24 E40 E61 H55 J11 J64 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125711 |
| By: | Vanessa Schmidt; Hannah Seidl |
| Abstract: | We study the effects of movements in aggregate lending standards on macroeconomic aggregates and inequality. We show in a New Keynesian model with heterogeneous households and housing that a looser loan-to-value (LTV) ratio stimulates housing demand, nondurable consumption, and output. Our model implies that the LTV shock transmits to macroeconomic aggregates through higher household liquidity and a general-equilibrium increase in house prices and labor income. We also show that a looser LTV ratio redistributes housing wealth from the top 10% of the housing wealth distribution to the bottom 50%, indicating an overall decrease in inequality. |
| Keywords: | Heterogeneous Agents, Incomplete Markets, Housing, Macroprudential Policies |
| JEL: | E12 E21 E44 E52 |
| Date: | 2025–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:bdp:dpaper:0071 |
| By: | Lilia Maliar; Christopher Naubert |
| Abstract: | We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank’s response and decreases with the horizon of the innovation. |
| Keywords: | Economic models; Interest rates; Monetary policy; Monetary policy transmission |
| JEL: | C61 C62 C63 E31 E52 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-21 |
| By: | Greg Kaplan |
| Abstract: | I describe nine implications of the interconnectedness of fiscal and monetary policy that surface in Heterogeneous Agent New Keynesian (HANK) models. Not all are unique to HANK models. (i) Long run fiscal changes force monetary adjustments. (ii) Sustainable permanent deficits are feasible. (iii) Monetary policy leaves fiscal footprints, even with passive fiscal policy. (iv) Fewer controversies around active fiscal policy. (v) Equilibria are unique under a wider class of fiscal and monetary rules. (vi) With short-term debt, raising nominal rates without a fiscal contraction raises inflation. (vii) Unfunded fiscal stimulus is more inflationary. (viii) Even fully funded fiscal stimulus is inflationary. (ix) Fiscal transfers can substitute for monetary policy in the aggregate. |
| JEL: | E2 E3 E4 E5 E6 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34117 |
| By: | Alok Johri |
| Abstract: | I build a sovereign default model in which importing economies must cover intermediate imports using accumulated foreign exchange (reserves). This occasionally-binding constraint: explains why imports and production fall during defaults; complements models with simultaneous holdings of debt and reserves; generates endogenous default costs that increase with output; and motivates defaults for reserve conservation. The model is less reliant on ad-hoc default costs prevalent in prior quantitative sovereign default models seeking to match the data. Simulations from the model reveal average output losses in default that are greater than 10%, and a 17% fall in imports and a large reserve-to-gdp ratio. |
| Keywords: | Sovereign default; imports and default costs; sovereign spreads; foreign exchange-in-advance constraints; international reserves |
| JEL: | F34 F41 E32 G15 H63 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:mcm:deptwp:2025-06 |
| By: | Nurlan Turdaliev (Department of Economics, University of Windsor); Yahong Zhang (Department of Economics, University of Windsor) |
| Abstract: | There was a significant increase in housing prices and household debt during the Covid-19 pandemic in Canada, even though both output and consumption experienced severe contractions. While a shift in household preferences toward housing---largely driven by increased demand for work-from-home arrangements---appears to be the primary driver of rising housing demand, various pandemic-related policy interventions may also have contributed to these trends. In this paper, we employ a medium-scale DSGE model calibrated to Canadian data to assess the contribution of pandemic-related support policies, including fiscal, monetary, and credit measures. Our findings indicate that these policies played a key role in driving the housing market boom during the pandemic, accounting for approximately 45 percent of the observed increase in household debt. In the case of housing prices, the model explains about 40 percent of the observed rise, although it fails to replicate the gradual increase observed in the data, instead predicting a more immediate rise. |
| Keywords: | pandemic, household debt, housing prices, fiscal policy, monetary policy |
| JEL: | E32 E44 E52 E62 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:wis:wpaper:2503 |
| By: | Benjamin Schwanebeck (FernUniversität in Hagen, Germany); Luzie Thiel (University of Kassel, Germany) |
| Abstract: | The financial situation of households differs substantially across countries, but the implications of this heterogeneity are still vastly understudied. We examine the implications of this asymmetry for optimal monetary policy in a currency union. We build a two-country monetary union model with heterogeneous households leading to inequality due to imperfect insurance. Money is introduced through central bank digital currency (CBDC) as a liquid asset to self-insure against idiosyncratic risk. CBDC is a new instrument which allows the central bank to target heterogeneity within a monetary union. We derive a welfare function with two additional objectives, consumption inequality within and across countries. The more heterogeneous households are, the less important inflation stabilization becomes in favor of stabilizing consumption inequality through providing money. Our research provides important policy implications as we show that it is beneficial for a monetary union to have a country-specific instrument to compensate for country differentials. |
| Keywords: | Heterogeneous Households, Imperfect Insurance, Optimal Monetary Policy, Monetary Union, Two-Country Model |
| JEL: | E52 E61 F45 |
| Date: | 2025–04–08 |
| URL: | https://d.repec.org/n?u=RePEc:mar:magkse:202512 |
| By: | Felix K\"ubler; Simon Scheidegger; Oliver Surbek |
| Abstract: | We develop a computational framework for deriving Pareto-improving and constrained optimal carbon tax rules in a stochastic overlapping generations (OLG) model with climate change. By integrating Deep Equilibrium Networks for fast policy evaluation and Gaussian process surrogate modeling with Bayesian active learning, the framework systematically locates optimal carbon tax schedules for heterogeneous agents exposed to climate risk. We apply our method to a 12-period OLG model in which exogenous shocks affect the carbon intensity of energy production, as well as the damage function. Constrained optimal carbon taxes consist of tax rates that are simple functions of observables and revenue-sharing rules that guarantee that the introduction of the taxes is Pareto improving. This reveals that a straightforward policy is highly effective: a Pareto-improving linear tax on cumulative emissions alone yields a 0.42% aggregate welfare gain in consumption-equivalent terms while adding further complexity to the tax provides only a marginal increase to 0.45%. The application demonstrates that the proposed approach produces scalable tools for macro-policy design in complex stochastic settings. Beyond climate economics, the framework offers a template for systematically analyzing welfare-improving policies in various heterogeneous-agent problems. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.01704 |
| By: | Mr. Tobias Adrian; Christopher J. Erceg; Marcin Kolasa; Mr. Jesper L Linde; Pawel Zabczyk |
| Abstract: | Quantitative easing (QE) has been criticized for helping fuel the post-COVID inflation boom and causing large central bank losses. In this paper, we argue that QE should be evaluated mainly on its ability to achieve core macro-objectives as well for its effects on the consolidated fiscal position of the government and central bank, although central bank losses can matter to the extent that they may weaken central bank credibility. Using a DSGE model with segmented asset markets, we show how QE can provide a sizeable boost to output and inflation in a deep liquidity trap and can reduce public debt substantially. This contrasts to the rise in public debt that occurs under fiscal expansion and makes QE an attractive tool in a high debt environment. There is more reason for caution in using QE in a “shallow" liquidity trap in which the notional interest rate is only slightly negative: QE runs more risk of causing the economy to overheat, especially if forward guidance has a strong element of commitment, and is more likely to generate sizeable central bank losses. Some refinements in strategy, including the use of escape clauses, can help mitigate overheating risks. |
| Keywords: | Monetary Policy; Effective Lower Bound; Quantitative Easing; Central Bank Balance Sheet; Government Debt; New Keynesian Model |
| Date: | 2025–08–08 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/158 |
| By: | Rujiwattanapong, W. Similan |
| Abstract: | This paper investigates the general equilibrium effects of endogenous unemployment insurance (UI) extensions on the dynamics of unemployment and its duration in the US. Using a stochastic random-search-and-matching model with worker heterogeneity, I allow for the maximum UI duration to endogenously depend on unemployment, and for UI benefits to depend on worker characteristics replicating the US benefit system. The model is able to generate the observed incidence of (long-term) unemployment over the past six decades. Responses of job search to UI extensions (microeconomic effect of UI) are important for both long-term and total unemployment whilst responses of job separations (general equilibrium effect of UI) is important for total unemployment. Worker heterogeneity in terms of benefit levels is crucial for the unemployment duration dynamics via heterogeneous job finding rates. Disregarding the rational expectations of UI extensions may overestimate unemployment by almost 2 percentage points. |
| Keywords: | business cycles; long-term unemployment; rational expectations; search and matching; unemployment duration; unemployment insurance; worker heterogeneity |
| JEL: | E24 E32 J24 J64 J65 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:129058 |
| By: | Satadru Das; Chetan Ghate; Subhadeep Halder; Debojyoti Mazumder; Sreerupa Sengupta; Satyarth Singh |
| Abstract: | A predominant share of employment in EMDEs is in the informal sector. In 2019-2020, approximately 72% of total employment was in the informal sector in India, with casual employment comprising 22% and self-employment comprising 50%. How does informality in labor markets affect inflation stabilization and monetary policy setting? To address this, we build a medium-scale NK-DSGE model with segmented labor markets and search and matching frictions. We calibrate the model to India. As in the data, we divide informal employment into self-employment and casual employment. We show that more formality improves the transmission of monetary policy. We show that a contractionary monetary policy shock leads to a decline in both formal and informal employment (self and casual), suggesting that monetary policy's impact on output and inflation works through informal labor markets as well. Our paper highlights the mechanism behind the transmission of monetary policy in the presence of heterogeneous labor markets. |
| Keywords: | business cycles, informal labor markets, monetary policy, inflation targeting, NK-DSGE models |
| JEL: | E52 E24 E26 E32 E63 E61 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2025-47 |
| By: | Athanasios Geromichalos; Kuk Mo Jung; Ioannis Kospentaris; Changhyun Lee; Sukjoon Lee (Department of Economics, University of California Davis) |
| Abstract: | Central banks around the world routinely engage in asset purchases in secondary markets as part of implementing monetary policy or enhancing market liquidity, but the effects of such interventions are not yet fully understood. We develop a multi-asset general equilibrium model in which the liquidity of an asset is endogenous and depends on the terms of trade in each asset's respective secondary market, which are, in turn, driven by agents' market entry decisions and the possibility of central bank intervention. We use our model to qualitatively and quantitatively rationalize the superior liquidity of U.S. Treasuries over corporate bonds of comparable safety. Our model highlights and quantifies an unexplored link between fiscal and monetary policy: central bank interventions in the market for Treasuries increase secondary market liquidity for these securities, thus indirectly aiding the Treasury to borrow at lower rates. Our results also reveal that central bank interventions can have spillover effects on markets where the bank does not participate, offering a cautionary note to both policymakers and empirical researchers. |
| Keywords: | monetary-search models, OTC markets, liquidity, central bank asset purchases |
| JEL: | E31 E43 E52 G12 |
| Date: | 2025–08–16 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:373 |
| By: | Huang, Guangming |
| Abstract: | Embedding seigniorage and transaction process into the RBC model, this paper proposes a new monetary economy, seigniorage channeled monetary economy, briefly SCME, in which monetary shocks can affect the real variables effectively and persistently in flexible price conditions. The mechanism of the effectiveness is the resource occupation effect of money issuance, in other words, money is a public goods and new money issuance is a form of taxation. The preliminary applications of SCME have clearly explained some notable puzzles or hotly debated issues in empirical studies, such as the price puzzle, the missing liquidity effect, the best inflation rate, the negative movement of hours under a positive technology shock, and the Friedman rule. In addition, we obtained interactive pricing, origin of money market interest rate, the best money market interest rate, and the best tax rate (in other words, the best government debt level) in this paper, and there is no forward guidance puzzle in SCME. Because resource allocation in the unique equilibrium of SCME is Pareto optimal, which is starkly different from the existing theories' sub-optimal result for the monetary and fiscal economy, a profound consequence of SCME is that it is a proof of the Invisible Hand Conjecture of Adam Smith in the economy with tax and money. |
| Keywords: | Effectiveness of Monetary Shock, Seigniorage, Transaction Side of Economy, Interactive Pricing, Nonneutrality of Inflation, Liquidity Effect, Price Puzzle, Forward Guidance Puzzle, Monetary Transmission Mechanism, Money Market Interest Rate, Friedman Rule, Reactive Monetary Policy, Neoclassical Macroeconomics, New Keynesian Economics, Invisible Hand Conjecture |
| JEL: | E1 E3 E4 E5 E6 |
| Date: | 2025–08–12 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125728 |
| By: | Pham, Ngoc Sang; Le Van, Cuong; Bosi, Stefano |
| Abstract: | We study an overlapping generations (OLG) exchange economy with an asset that yields dividends. First, we derive general conditions, based on exogenous parameters, that give rise to three distinct scenarios: (1) only bubbleless equilibria exist, (2) a bubbleless equilibrium coexists with a continuum of bubbly equilibria, and (3) all equilibria are bubbly. Under stationary endowments and standard assumptions, we provide a complete characterization of the equilibrium set and the associated asset price dynamics. In this setting, a bubbly equilibrium exists if and only if the interest rate in the economy without the asset is strictly lower than the population growth rate and the sum of per capita dividends is finite. Second, we establish necessary and sufficient conditions for Pareto optimality. Finally, we investigate the relationship between asset price behaviors and the optimality of equilibria. |
| Keywords: | exchange economy, overlapping generations, asset price bubble, fundamental value, low interest rate, Pareto optimal |
| JEL: | C6 D5 D61 E4 G12 |
| Date: | 2025–08–04 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125605 |
| By: | Ahmet Kaya; Hailey Low; Stephen Millard |
| Abstract: | This paper investigates the macroeconomic impacts of increased non–tariff trade costs resulting from Brexit on UK business investment and productivity growth. We develop a three–country Dynamic Stochastic General Equilibrium model that accounts for differences in country sizes as well as tariff and non–tariff trade costs. Our results suggest that the increased trade costs resulting from Brexit led to a sharp decline in trade between the United Kingdom and the European Union, with imports decreasing by 23.7 per cent and exports by 18.6 per cent. Following an initial decline of around 2.5 per cent, business investment gradually recovers but ultimately remains 1.2 per cent lower in the long term. We further provide simulations of the same shock using the National Institute Global Econometric Model, NiGEM, which suggests comparable macroeconomic effects. The long-term impact on per capita output is estimated at 1.2 per cent in our model, attributed solely to the rise in non-tariff trade barriers. |
| Keywords: | Brexit, business investment, non-tariff barriers, productivity |
| JEL: | C50 C68 E37 F41 |
| URL: | https://d.repec.org/n?u=RePEc:nsr:niesrd:572 |
| By: | Mahdi Ebsim; Miguel Faria-e-Castro; Julian Kozlowski |
| Abstract: | We study how aggregate shocks shape the joint dynamics of credit spreads, debt, and liquid asset holdings for nonfinancial firms, focusing on the Great Financial Crisis (GFC) and COVID-19. Both episodes saw sharp credit spread increases and investment declines, but debt and liquidity fell during the GFC and rose during COVID-19. Cross-sectionally, leverage drove spreads and investment in the GFC, while liquidity dominated during COVID-19. We build a macro-finance model of firm capital structure with a liquidity motive for working capital. Calibrated to data, it attributes the GFC to real and financial shocks, and COVID-19 to an additional liquidity shock. |
| Keywords: | credit spreads; liquidity; Great Recession; COVID-19 |
| JEL: | E6 G2 |
| Date: | 2025–08–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:101435 |
| By: | Vîntu, Denis |
| Abstract: | This paper examines the rational expectations hypothesis, a central concept in modern macroeconomics. It explores the theoretical foundations, methodological implications, applications in macroeconomic models, empirical evidence, criticisms, and relevance for contemporary policy analysis. The analysis highlights both the strengths and limitations of rational expectations, situating it as a benchmark assumption that continues to shape modern economic thought. |
| Keywords: | Rational Expectations; New Classical School; Dynamic Stochastic General Equilibrium (DSGE); Inflation Targeting; Macroeconomic Policy; Monetary Policy Credibility; Forward-Looking Behavior; New Keynesian Phillips Curve; Microfoundations; Policy Ineffectiveness Proposition; Expectations Formation; Central Bank Policy; Price Stability; Policy Rules vs. Discretion; Economic Forecasting |
| JEL: | C68 E12 E31 E32 E52 E58 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125823 |
| By: | Luis I. Jacome; Nicolas E. Magud; Samuel Pienknagura; Martín Uribe |
| Abstract: | This paper shows the key, yet overlooked, role played by the legacy of a high inflation history on the strength of the monetary policy response to inflationary shocks. To rationalize this, we propose a New Keynesian model that diverges from the existing workhorse model by adding path-dependence (to a forward-looking model) and potentially imperfect central bank credibility. We show that achieving low inflation (hitting the target) requires more aggressive monetary policy reactions, and is costlier from an output point of view, when individuals’ past inflationary experiences shape their inflation expectation formation. In turn, we provide empirical evidence of the need for these two theoretical additions. Countries that experienced a high level of inflation before adopting the IT regime tend to respond more aggressively to deviations of inflation expectations from the central bank’s target. We also point to the existence of a credibility puzzle, whereby the strength of a central bank’s monetary policy response to deviations from the inflation target remains broadly unchanged even as central banks gain credibility over time. Put differently, a country’s inflationary past casts a long and persistent shadow on central banks. |
| JEL: | E43 E52 E58 |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34107 |
| By: | Christian Conrad; Zeno Enders; Gernot Müller |
| Abstract: | Under inflation forecast targeting, central banks such as the ECB adjust policy to keep expected inflation on target. We evaluate the ECB’s inflation forecasts: they are unbiased and efficient but contain little information at forecast horizons beyond three quarters. In a New Keynesian model with transmission lags, inflation forecast targeting is indeed effective in stabilizing inflation—provided there is no forward-looking behavior—though the information content of forecasts is unrealistically high. In the presence of forward-looking behavior, the information content declines because monetary policy becomes more effective in meeting the target, but inflation is best stabilized by targeting current inflation. |
| Keywords: | inflation targeting, inflation forecast targeting, monetary policy, inflation forecast, information content, target horizon, ECB |
| JEL: | C53 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12006 |
| By: | Noda, Hideo; Fang, Fengqi |
| Abstract: | In this study, we attempt to construct an overlapping generations model designed to theoretically analyze the macroeconomic situation of sub-Saharan African countries. Our aim is to examine the conditions necessary for the effective functioning of infrastructure development financed by seigniorage and monetary control policies in some sub-Saharan African countries with stagnant macroeconomic performance. We also consider the implications of our model in terms of inflation and population aging. As a result, when the government selects the monetary growth rate that maximizes the long-term growth rate of gross domestic product (GDP), the absolute value of the monetary growth rate elasticity of the private capital--public capital ratio must be equal to the reciprocal of the private capital elasticity of GDP, which is greater than 1. Thus, seigniorage per se is not the cause of economic stagnation in some sub-Saharan African countries. If maximizing social welfare is equivalent to maximizing the long-term growth rate of GDP in terms of selecting the public investment share, then the public investment share elasticity of the private capital--public capital ratio is zero. Moreover, when the initial value of the private capital--public capital ratio is sufficiently low (high) level, inflation (deflation) occurs during the transition process to a steady state. Furthermore, population aging does not necessarily constitute a bottleneck for economic growth in sub-Saharan African countries. |
| Keywords: | Economic growth, Inflation, Infrastructure, Seigniorage, Sub-Saharan Africa |
| JEL: | E0 H5 O4 |
| Date: | 2025–08–06 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:125632 |
| By: | Mr. Zamid Aligishiev; Daria Kolpakova |
| Abstract: | Peru is highly exposed to periodic El Niño Costero events, which impair production in the country’s fishing, agriculture, and construction sectors, as well as inflict sizeable damages to physical assets. Moreover, rising average temperatures are expected to diminish productivity in agriculture, fisheries, and energy. Without efforts to strengthen its adaptive capacity, the country remains highly vulnerable to such acute and chronic physical risks in the long term. This paper combines a Markov-switching DSGE model with empirical estimates of losses from such risks to conduct a scenario analysis of their macro-fiscal implications. We find that cumulative income losses could reach up to 18.6 percent by 2050 and 50.6 percent by 2100. The analysis further shows that scaling up investments in structural resilience and adaptation can partially mitigate these losses—raising output by up to 12.3 percent by 2050 and 31 percent by 2100—while also generating long-term fiscal savings. |
| Keywords: | El Niño; Weather shocks; Structural resilience; Acute physical risk; Chronic physical risk; El Niño shock; scenario analysis; anomaly in El Niño; temperature anomaly; building macroeconomic resilience; investment needs; Climate change; Natural disasters; Potential output; Global; Caribbean |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/144 |
| By: | Ricardo Alves Monteiro; Stelios Fourakis |
| Abstract: | In this paper, we build a model of sovereign borrowing and default, disciplined with proprietary bid level data, to study the impact that alternative ways of issuing sovereign debt have on borrowing decisions, the cost of debt, and welfare. We focus on the two most common types of auctions used for sovereign debt issuances: uniform and discriminatory price auctions. We calibrate the model to the Portuguese economy and find that the type of auction used has quantitative implications. In particular, discriminatory auctions generate spreads that provide a better fit to the data. In a counterfactual, we find that switching to a uniform protocol constitutes a Pareto improvement, and that the difference in welfare is highest during crises (0.6 percent of permanent consumption). Finally, we find that accounting for dynamic effects is crucial. In a single auction setting, a risk averse government prefers the discriminatory protocol. However, with repeated auctions, the properties of the discriminatory protocol incentivize over-borrowing. The anticipatory effect it has on prices makes the uniform protocol a better option. |
| Keywords: | Sovereign debt auctions; default risk; discretion; dilution |
| Date: | 2025–07–25 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/151 |
| By: | Stefano Bosi (UEVE); Cuong Le Van (CNRS, PSE, CES); Ngoc-Sang Pham (EM Normandie) |
| Abstract: | We study an overlapping generations (OLG) exchange economy with an asset that yields dividends. First, we derive general conditions, based on exogenous parameters, that give rise to three distinct scenarios: (1) only bubbleless equilibria exist, (2) a bubbleless equilibrium coexists with a continuum of bubbly equilibria, and (3) all equilibria are bubbly. Under stationary endowments and standard assumptions, we provide a complete characterization of the equilibrium set and the associated asset price dynamics. In this setting, a bubbly equilibrium exists if and only if the interest rate in the economy without the asset is strictly lower than the population growth rate and the sum of per capita dividends is finite. Second, we establish necessary and sufficient conditions for Pareto optimality. Finally, we investigate the relationship between asset price behaviors and the optimality of equilibria. |
| Date: | 2025–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2508.03230 |
| By: | Yongheng Hu |
| Abstract: | This paper constructs a clean and efficient representative agent model of the data economy from a macroeconomics perspective, in order to analyze the impact of dataization and technological progress on the dynamic general equilibrium of 'consumption-capital', and the catalysis effect of dataization on technological progress. We first set the data in production comes from dataization of the total output of the society and is exponentially functionally related to the technology. Secondly, the data production function is used to solve the optimization problem for firms and households and to construct a dynamic general equilibrium of 'consumption-capital' based on the endogenous interest rate solved by maximizing the returns of firms. Finally, by using numerical simulation and phase diagram analysis, we find that the effects of increasing dataization and encouraging technological progress each exhibit different nonlinear characteristics for equilibrium capital and equilibrium consumption, we thus conclude that dataization enables the positive effects of technological progress on economic development to be more rapid and persistent. We select two types of Chinese policies regarding data openness to represent the role of dataization, and demonstrate the catalysis role of datatization for the development of the digital economy by setting up difference in difference (DID) experiments, which provide persuasive evidence for the theoretical interpretation of the paper. |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2507.13274 |