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on Dynamic General Equilibrium |
| By: | Eirik E. Brandsaas |
| Abstract: | Housing is the largest asset in U.S. household portfolios, and first-time homebuyers increasingly rely on parental transfers. This paper quantifies the contribution of parental transfers to the homeownership rate of young households. I build and estimate a life-cycle overlapping generations model with housing, where adult children and parents interact without commitment. I find that parental transfers account for 13 percentage points (27%) of young households' homeownership. Transfers from wealthy parents not only help households overcome borrowing constraints, but also help sustain homeownership, mitigating the drawbacks of illiquidity. Surprisingly, policies lowering entry barriers to homeownership generally increase the reliance on parental wealth, whereas increased liquidity reduces it. Finally, I show that children of wealthy parents strategically use the illiquidity of housing as a commitment device to encourage transfers, resulting in a preference for illiquidity. |
| Keywords: | Homeownership; Parental transfers; Altruism; Life-cycle models |
| JEL: | D14 D15 E21 G51 R21 |
| Date: | 2025–09–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-94 |
| By: | Sami Alpanda; Serdar Kabaca |
| Abstract: | We quantify the effects of large-scale stock purchases by a central bank and compare these to bond purchases, using an estimated dynamic stochastic general equilibrium macro-finance model with nominal and real rigidities and portfolio rebalancing effects. The latter arise from imperfect substitutability between stocks and short- and long-term government bonds in mutual funds’ portfolios. Since households’ consumption-savings decisions are tied to expected portfolio returns, the required returns on all three assets affect overall demand in the economy. The model shows that the central bank’s equity purchases would lower the risk and term premiums on stocks and long-term bonds, respectively, and thereby stimulate economic activity. Since stocks comprise a larger share in asset portfolios and are less substitutable for short-term securities than long-term bonds are, the effects of stock purchases on aggregate demand are larger than those of similar-sized bond purchases. |
| Keywords: | Business fluctuations and cycles, Economic models, Monetary policy transmission |
| JEL: | E32 E44 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-38 |
| By: | Ting Lan; Lerong Li; Mr. Minghao Li |
| Abstract: | This paper documents that households with higher marginal propensities to consume (MPCs) tend to consume goods with more flexible prices. Consequently, they face more cyclical and volatile inflation and experience higher inflation following an expansionary monetary policy shock. We embed this MPC-price stickiness relationship into a tractable multi-sector Two-Agent New Keynesian (TANK) model and analytically demonstrate that it dampens the effectiveness of monetary policy, reducing its efficacy by about 15% relative to a benchmark model with homogeneous consumption baskets. Introducing heterogeneous baskets also generates an inherently inefficient flexible-price equilibrium, which gives rise to a novel trade-off between stabilization and redistribution. The optimal monetary policy therefore differs qualitatively from the standard TANK policy prescription. |
| Keywords: | TANK; HANK; Monetary transmission; Redistribution channel; Price stickiness; Optimal monetary policy; Inequality; Multi-sector model |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2025/264 |
| By: | Elvio Accinelli; Laura Policardo; Edgar J. Sanchez Carrera |
| Abstract: | This paper develops a dynamic general equilibrium (DGE) model with heterogeneous agents to connect three macroeconomic phenomena: persistent poverty traps, sluggish real growth, and rising wealth inequality. The model achieves this by allowing agents, who differ in patience and face a subsistence consumption constraint, to choose portfolios between productive capital and a fixed-supply, unproductive asset susceptible to rational speculative bubbles. The analysis reveals that these bubbles, while rational, induce a positive wealth effect for asset-holders, which, through optimal consumption-smoothing (via agents’ Euler equations), reduces the aggregate savings rate, permanently “crowding out†productive capital that crowds out productive investment, leading to lower real wages and output, which in turn exacerbates wealth inequality by pushing constrained agents closer to the poverty trap. A calibration exercise, disciplined by real-world stylized facts, illustrates the model’s path-dependence and highlights the particular vulnerability of middle-income economies to such collapses |
| Keywords: | Poverty Traps, Wealth Inequality, Speculative Bubbles, Endogenous Savings, Portfolio Choice, Heterogeneous Agents, General Equilibrium, Subsistence Consumption. Jel Classification:D31, E21, E44, G12, O11, O40 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:usi:wpaper:936 |
| By: | Juan Pablo Di Iorio (Department of Economics, Universidad de San Andrés) |
| Abstract: | This study examines the effects of incorporating fiscal dominance, based on the Fiscal Theory of the Price Level, into a New Keynesian Small Open Economy (NK-SOE) model. This framework enables a comparison between the responses of an economy characterized by fiscal dominance and those of canonical NK-SOE models when faced with monetary or external shocks. Notable differences emerge in nominal variables, such as inflation rates and nominal devaluation, as well as in household consumption and the real exchange rate. I show that introducing fiscal dominance into an otherwise standard NK-SOE model can help explain two important puzzles in the literature:the “price puzzle” and the “exchange rate response puzzle.” Furthermore, the model is expanded to account for government debt issued in foreign currency, introducing a fiscal channel related to the currency composition of the government’s debt.Additionally, the structure of taxes and government expenditures—particularly fiscal revenues tied to the non-tradable sector—plays a significant role in shaping the economic response when the government issues debt in foreign currency. |
| Keywords: | - |
| JEL: | E31 E43 E62 F31 |
| Date: | 2025–07 |
| URL: | https://d.repec.org/n?u=RePEc:sad:ypaper:19 |
| By: | Thomas Winberry; Adrien Auclert; Matthew Rognlie; Ludwig Straub |
| Abstract: | The Heterogeneous-Agent New Keynesian literature has revisited the transmission of monetary and fiscal policy to consumption using models where heterogeneous households face idiosyncratic income risk and borrowing constraints. We show that the key lessons from this literature also apply to investment using a model where heterogeneous firms face idiosyncratic productivity risk and financial frictions: constrained firms’ investment depends on their free cash flow, generating indirect effects of monetary policy and implying that transfer payments stimulate investment demand. Quantitatively, the strength of these new mechanisms is governed by firms’ marginal propensities to invest (MPIs), similar to the role of marginal propensities to consume (MPCs) for households. But unlike MPCs, we currently lack quasi-experimental evidence about MPIs that we can use to directly discipline the new mechanisms. |
| JEL: | D1 D2 E21 E22 E31 E32 E43 E52 E62 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34611 |
| By: | Katrine M. Jakobsen; Thomas H. Jorgensen; Hamish W. Low |
| Abstract: | We study how fertility decisions interact with labor supply and human capital accumulation of men and women. First, we use longitudinal Danish register data and tax reforms to show that increases in wages of women decrease fertility while increases in wages of men increase fertility. Second, we estimate a life-cycle model to quantify the importance of fertility adjustments for labor supply and long-run gender inequality. Wage elasticities of women are more than 10% lower if fertility cannot be adjusted. Finally, we show that the long-term consequences of human capital depreciation around childbirth are an important driver of the long-run gender wage gap in the model. |
| Keywords: | Fertility; Labor supply; human capital accumulation; Gender inequality; Tax reform |
| JEL: | D15 H24 J13 J22 |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:102277 |
| By: | Federico Ravenna |
| Abstract: | We study the implications for the business cycle and monetary policy of loan securitization in a DSGE model where information asymmetries lead to adverse selection across financial intermediaries. Securitization is an endogenous equilibrium outcome when the resources saved by acquiring incomplete information about some risk-classes of borrowers outweigh the cost of being selected against by mortgage originators. Adverse selection results in a time-varying market share of individually risk-priced loans held by banks, and of securitized loans held by the secondary market. We analyze the impact of conventional monetary policies and credit market policies in response to an increase in default risk, and discuss its welfare implications. Overall securitization allows more efficient funding of loans, at the expense of increased volatility in risky interest rates, consumption, and inflation over the business cycle. |
| Keywords: | Securitization, Credit market imperfections, Monetary policy. |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:cca:wpaper:751 |
| By: | Jing Cynthia Wu; Shihan Xie; Yinxi Xie; Ji Zhang |
| Abstract: | We conduct a large-scale information randomized controlled trial to study fiscal policy impacts. Surveying approximately 9, 000 households across five eurozone countries with varying debt-to-GDP ratios enables a clean cross-country comparison. The key finding is that the fiscal multiplier depends jointly on the financing method and the country’s debt burden: multipliers are smaller in high-debt countries when debt-financed but remain similar across countries when tax-financed. Finally, we develop a New Keynesian model featuring fiscal discipline, which reproduces the empirical patterns observed in the survey and highlights their underlying economic mechanisms. |
| Keywords: | survey RCT, fiscal multiplier, financing method, debt-to-GDP ratio |
| JEL: | C83 D84 E62 H60 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12321 |
| By: | Jorge Miranda-Pinto; Eugenio I. Rojas; Felipe Saffie; Alvaro Silva |
| Abstract: | We study how production networks shape the severity of Sudden Stops. We build a small open economy model with collateral constraints and input–output linkages, derive a sufficient statistic that maps network structure into the amplification of tradable shocks, and show that a planner optimally introduces sectoral wedges to reduce amplification. Using OECD input–output data and Sudden Stop episodes, we document systematic network differences between emerging and advanced economies and show they predict crisis severity. A calibrated three-sector DSGE model disciplined by these differences reveals that endowing an advanced economy with an emerging-market production network moves most of the way toward the observed emerging–advanced Sudden Stop gap. |
| JEL: | E32 F32 G01 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34604 |
| By: | Nicol\'as Blampied; Alessia Cafferata; Marwil J. Davila-Fernandez |
| Abstract: | Can constantly comparing ourselves to others lead to overconsumption, ultimately increasing the ecological footprint? How do social comparisons shape green preferences over time? To answer these questions, we develop an environmental Overlapping Generations (OLG) model that explicitly accounts for Veblen effects and allows green preferences to be updated asynchronously, influenced by past environmental conditions and relative status considerations. We show that, along the optimal path, positional spending leads to overconsumption, which is detrimental to the environment. Taxing consumption is counterproductive as it does not directly address the social comparisons issue, leaving the problem unchanged. When the Veblenian mechanism is weak, the introduction of a materialistic ``secular trend'' -- that lowers the importance placed on the public good -- gives rise to two stable equilibria separated by a saddle: one in which agents care about environmental quality as much as consuming, and the other in which they derive utility solely from the latter. Studying the basins of attraction reveals that green investments are highly fragile. Our numerical experiments further indicated that, when Veblen effects are strong, the model depicts endogenous, persistent, aperiodic oscillations. In this case, green preferences fluctuate close to zero, and environmental quality is very low. Taken together, these findings suggest environmental vulnerability grows in parallel with status-driven consumption. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2512.16806 |
| By: | Juan C. Córdoba; Anni T. Isojärvi; Haoran Li |
| Abstract: | This paper revisits the conditions under which search models generate balanced growth paths (BGPs)—equilibria where unemployment, vacancies, and job flows remain steady as search frictions decline. Martellini and Menzio (2020) claim that such paths exist only when matches are “inspection goods” and match quality follows a Pareto distribution. We show that these conditions are sufficient but not necessary. Their implementation assumes a strong form of stationarity—requiring the endogenous distribution of match qualities to remain invariant under proportional scaling. This restriction forces the reservation quality to grow at a constant, strictly positive rate, mechanically tying declining frictions to long-term growth and yielding counterfactual implications of eliminating search frictions—persistent unemployment and infinite welfare gains. Relaxing this restriction, balanced growth can arise under alternative forms of scaling, such as additive transformations that restore stationarity without Pareto tails or inspection. We further show that biased technological progress, when vacancies and unemployed workers are complementary inputs, also generates well-behaved BGPs with finite welfare gains and vanishing unemployment as search frictions disappear. |
| Keywords: | Search frictions; Balanced growth; Inspection models; Pareto tails; Biased technological change |
| JEL: | E24 J64 O41 |
| Date: | 2025–10–31 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:2025-98 |
| By: | Emil Holst Partsch (Danmarks Nationalbank, Copenhagen K, DK-2100 Denmark); Petrella Ivan (Department of Economics, Social Studies, Applied Mathematics and Statistics, and Collegio Carlo Alberto, University of Turin, Torino, Italy; CEPR); Emiliano Santoro (Department of Economics and Finance, Catholic University of Milan) |
| Abstract: | Durables' interest-rate sensitivity and their persistent comovement with nondurable spending are hallmarks of monetary policy transmission. We develop a two-sector HANK model that replicates this pattern-both across spending categories and among households sorted by liquid asset holdings, consistent with empirical evidence. Direct effects of real interest rate changes are quantitatively important in reproducing sectoral expenditure comovement, while infrequent information updating is crucial to match the hump-shaped dynamics of sectoral and aggregate expenditures. Income effects are essential to preventing counterfactual declines in nondurable spending resulting from fiscal interventions specifically aimed at stimulating durable purchases. |
| Keywords: | Durable goods, Sectoral Comovement, Monetary Policy, HANK |
| JEL: | E21 E31 E40 E44 E52 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:102 |
| By: | Ziran Ding (University of St Andrews); Adam Hal Spencer (University of Bonn); Zinan Wang (Tianjin University) |
| Abstract: | Amid ongoing geoeconomic tensions, industrial policy has emerged as a prominent tool for policymakers. What are the dynamic and welfare effects of these policies? How does the short-sightedness of policymakers influence their choice of instruments? What are the distributional consequences of these protectionist measures? We address these questions with a dynamic two-country general equilibrium framework that incorporates firm heterogeneity, trade, and the offshoring of tasks. By calibrating the model to the contexts of the US and China, we explore the effects of three popular industrial policies: import tariffs, domestic production subsidies, and entry subsidies. Our findings indicate that, from an initial state free of interventions, myopic policymakers are incentivized to subsidize production, while more forward-looking ones favor imposing import tariffs. Although all of these policies initially reduce wage inequality, some result in aggregate welfare losses, either in the short run or the long run. |
| Keywords: | Macroeconomic dynamics; Firm heterogeneity; Trade; Trade-in-tasks; Industrial policies; Welfare; Global value chains |
| JEL: | F23 F41 F51 F62 L51 |
| Date: | 2024–11–26 |
| URL: | https://d.repec.org/n?u=RePEc:san:econdp:2504 |
| By: | Hamish W. Low; Costas Meghir; Luigi Pistaferri; Alessandra Voena |
| Abstract: | The 1996 U.S. welfare reform introduced time limits on welfare receipt. We use quasi-experimental evidence and a rich life cycle model to understand the impact of time limits on different margins of behavior and well-being. We stress the impact of marital status and marital transitions on mitigating the cost and impact of time limits. Time limits cause women to defer claiming in anticipation of future needs and to work more, effects that depend on the probabilities of marriage and divorce. They also cause an increase in employment among single mothers and reduce divorce, but their introduction costs women 0.7% of lifetime consumption, gross of the redistribution of government savings. |
| Keywords: | Welfare; Welfare reform; Limited commitment |
| JEL: | D91 H53 J12 J21 |
| Date: | 2025–12–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:102278 |
| By: | Jan David Schneider |
| Abstract: | This paper quantifies the contribution of sector-specific supply and demand shocks to personal consumption expenditure (PCE) inflation. It derives identification restrictions that are consistent with a large class of dynamic stochastic general equilibrium models with production networks. It then imposes these restrictions in structural factor augmented vector autoregressive models with sectoral data on PCE inflation and consumption growth. The identification scheme allows the study to remain agnostic on theoretical modeling assumptions yet still gain structural empirical results: sectoral shocks cannot explain the initial inflation increases that followed the COVID-19 pandemic. This changed from the end of 2021 onward when shocks originating in non-services sectors became a major source of the post-pandemic inflation surge. |
| Keywords: | Business fluctuations and cycles; Econometric and statistical methods; Inflation and prices |
| JEL: | C50 E31 E32 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:25-37 |
| By: | Suleyman Faruk Gozen; David Hong; Mehmet Furkan Karaca |
| Abstract: | We study how non-rival intangible capital interacts with borrowing structure and financial frictions to shape firm dynamics over business cycles. We show: (i) the positive and significant association between intangible-capital growth and labor productivity growth becomes smaller in recessions; (ii) the non-rivalry of intangible capital is evident such that intangible growth predicts faster sales growth and broader firm scope, yet this relationship declines in recessions; (iii) intangible-intensive firms carry less total and secured debt, and substitute toward earnings-based covenant (EBC) borrowing over asset-based covenant (ABC) borrowing; and (iv) intangible-intensive firms with EBC have tightening financially constraints in recessions, which mitigates the productivity payoff of non-rival intangibles. We rationalize these patterns in a general-equilibrium model in which firms draw EBC/ABC constraints at entry and intangibles are non-rival in the firm production technology. The model yields a creditamplification mechanism with heterogeneous borrowing types, reconciling the productivity slowdown despite rising intangibles |
| Date: | 2025–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:bri:uobdis:25/815 |
| By: | Cristina Badarau (University of Bordeaux); Eleonora Cavallaro (Sapienza University of Rome); Stefania Stancu (University of Bordeaux,) |
| Abstract: | We analyse how corporate debt structure can shape the transmission of monetary policy in a general equilibrium model. We endogenise firms’ choice between bond and loan financing in a dynamic setting, building on the analytical framework of the financial accelerator and show that the corporate structure of firms is not irrelevant. We assume that banks have an informational advantage over other market participants in evaluating firms’ projects. This results in a lower cost of bank finance compared to market finance in a steady state, given institutional factors and market size. Over time, shocks to the cost of finance or liquidity shocks feed back into the dynamics of firms’ net worth, investment and output. In our framework, monetary policy can have asymmetric effects. On one hand, higher banks’ refinancing costs due to more stringent conventional monetary policies have a greater impact on firms that cannot easily substitute loans for bonds. Firms with easier access to the bond market have a competitive advantage over firms that can only rely on bank financing. On the other hand, shocks that increase the liquidity in the bond markets, such as unconventional monetary policies, benefit firms with a more diversified corporate debt structure. From this perspective, the development of bond markets can have important macroeconomic implications for building resilience. |
| Keywords: | Corporate debt structure, investment, monetary policy transmission |
| JEL: | E |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:inf:wpaper:2025.21 |
| By: | Peter S. Arcidiacono; Attila Gyetvai; Arnaud Maurel; Ekaterina Jardim |
| Abstract: | This paper applies some of the key insights of dynamic discrete choice models to continuous-time job search models. Our framework incorporates preference shocks into search models, resulting in a tight connection between value functions and conditional choice probabilities. In this environment, we establish constructive identification of the model parameters, including the wage offer distributions off-and on-the-job. Our framework makes it possible to estimate nonstationary search models in a simple and tractable way, without having to solve any differential equations. We apply our method using Hungarian administrative data. Longer unemployment durations are associated with lower offer arrival rates, resulting in accepted wages falling over time. Counterfactual simulations indicate that increasing unemployment benefits by 90 days results in a 14-day increase in expected unemployment duration. |
| Keywords: | job search, Identification, dynamic discrete choice |
| JEL: | J64 C31 C41 J31 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12320 |
| By: | Sekyu Choi; Benjamin Villena-Roldan; Nincen Figueroa |
| Abstract: | We estimate high real wage cyclicality using over a decade of online job ads. Our unique, high-quality data—featuring reliable wage rates, firm identifiers, job titles, hiring standards, vacancy counts, and applicant demographics— provides an accurate measure of firms’ marginal labor cost due to its demand-side and ex ante nature and leads to dependable estimates. Crucially, omitting countercyclical hiring standards leads to underestimating real wage procyclicality. A search and matching model with endogenous hiring standards rationalizes these findings, showing how highquality data is crucial for understanding labor market dynamics |
| Date: | 2025–04–02 |
| URL: | https://d.repec.org/n?u=RePEc:bri:uobdis:25/812 |