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on Dynamic General Equilibrium |
| By: | Juan Pablo Di Iorio (UDESA); Javier García-Cicco (UDESA) |
| Abstract: | A salient feature of many emerging and developing economies is that a substantial fraction of government debt is denominated in foreign currency. We study the implications of the Fiscal Theory of the Price Level (FTPL) in a standard New Keynesian small and open economy model, with an explicit role for the currency denomination of public debt. We show that, while the classical FTPL characterization of equilibrium existence and uniqueness extends largely independently of debt composition, the propagation of shocks does not. The currency denomination of public liabilities alters the effects of monetary and fiscal policy, including the possibility that a monetary tightening leads to a depreciation under active fiscal regimes. More broadly, the interaction between the fiscal-monetary policy mix and the share of foreign-currency debt also plays a central role in shaping the response to external shocks. |
| Keywords: | Fiscal theory of the price level; inflation; exchange rate; fiscal and monetary policy interactions; currency composition of government debt. |
| JEL: | E31 E52 E63 F41 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:aoz:wpaper:390 |
| By: | Caitlin Hegarty (Williams College); Mishita Mehra (University of Richmond); ; |
| Abstract: | "The U.S. H-1B program helps firms hire high-skilled foreign workers, but increasingly faces a binding annual cap that is allocated through lottery-based rationing. When candidates differ in productivity and firms face imperfect information at hiring, workforce productivity and domestic outcomes become endogenous to policy design. We document higher average wages among foreign-born workers in H-1B intensive occupations, consistent with positive selection among applicants. We rationalize this pattern with a quantitative general equilibrium search and matching model with heterogeneous worker productivity, noisy screening, H-1B filing costs, and an endogenously binding cap. The calibrated model explains half of the wage gap we observe in the data. We use the model to evaluate recent reforms that replace uniform lottery selection with wage-weighted selection. Under the existing cap, wage-weighted reallocation increases average foreign-hire productivity by about 4.7%, raises skilled-sector output by about 0.09%, has limited negative impacts on domestic skilled wages, while slightly increasing domestic skilled employment and unskilled wages. Matching the same foreign productivity gain through higher filing costs or a tighter cap instead reduces vacancy creation and generates negative effects on domestic skilled employment and wages. The gains from reallocation are attenuated when the foreign applicant pool shrinks and when firms can strategically bunch wages at tier cutoffs." |
| Keywords: | High-skilled immigration, Immigration policy, Search and matching, Worker heterogeneity |
| JEL: | F22 |
| Date: | 2026–02–17 |
| URL: | https://d.repec.org/n?u=RePEc:wil:wileco:2026_107 |
| By: | Kul B. Luintel (Cardiff Business School, Cardiff University); Jose L. Torres (Department of Economics, University of Malaga) |
| Abstract: | We develop a general equilibrium framework in which a commercial banker constrained by capital adequacy requirements creates a special purpose vehicle (SPV) to hold securitized assets off its balance sheet. By separating the bank and SPV, the banker circumvents regulation, creating a gap between statutory and effective capital ratios. The model incorporates loan-to-value and collateral constraints with credit risk to examine interactions between financial and real sectors over the business cycle. Securitization is expansionary, increases off-balance-sheet lending under tighter regulation, amplifies credit risk, and raises welfare in the steady state. |
| Keywords: | Financial crisis; securitization; special purpose vehicles; DSGE models; credit risk |
| JEL: | E32 E44 G2 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:cdf:wpaper:2026/2 |
| By: | Kota Yamada (Tokoha University); Masaya Yasuoka (Kwansei Gakuin University) |
| Abstract: | This paper analyzes the effects of immigration on host countries' labor markets and capital accumulation using a dynamic general equilibrium model with two host countries and one sending country. Higher productivity or greater capital accumulation in a country raises wages and attracts more immigrants, whereas an increase in the labor force lowers wages and suppresses inflows. These results have been demonstrated in the existing literature. When we consider capital mobility between two countries that both accept immigrants, how is the number of immigrants admitted by each country determined? If we consider not only labor mobility but also capital mobility, the inflow of immigrants raises the marginal product of capital, thereby promoting capital inflows. In turn, capital inflows increase the marginal product of labor, which further encourages additional immigration. The findings provide useful policy implications for OECD countries facing declining fertility, population aging, and concerns over future labor shortages. |
| Keywords: | Capital Mobility, Immigration, Multi Immigration-Receiving Countries |
| JEL: | J15 E24 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:kgu:wpaper:307 |
| By: | Ruopu Hu (Graduate School of Economics, Kobe University); Junior Maith (Norges Bank); Shin-Ichi Nishiyama (Graduate School of Economics, Kobe University) |
| Abstract: | We revisit U.S. trend inflation dynamics since the 1960s by estimating a nonlinear, nonstationary Markov-switching New Keynesian model in which trend inflation evolves as a latent Markov process. Our estimation (i) confirms the Volcker disinflation as a regime shift from high to mid-level trend inflation between 1980 and 1987; (ii) shows that trend inflation remained stable around 2.8% during the Great Moderation and beyond, despite major disruptions such as the Global Financial Crisis and the COVID-19 pandemic; and (iii) identifies a persistent hawkish monetary policy regime after 1982, with temporary weakening during periods of policy rate reductions at the zero lower bound—while inflation expectations remained well anchored. |
| Keywords: | Trend Inflation, Markov-Switching DSGE, Volcker Disinflation, Great Moderation. |
| JEL: | E31 E52 C54 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2604 |
| By: | Gleb Kozliakov; Emile A. Marin; Sanjay R. Singh (Department of Economics, University of California Davis) |
| Abstract: | Can idiosyncratic risk explain the equity premium? We revisit this question using a novel measure of imperfect risk sharing, implied by a large class of heterogeneous agent models, constructed using household-level panel data. We identify a group of households - with relatively high income but low net-worth - whose consumption is sufficiently volatile and risky to explain 94% of the observed U.S. Sharpe ratio for an elasticity of intertemporal substitution of 0.2. In contrast, the consumption dynamics of high net-worth individuals predict a negative Sharpe ratio so do not constitute the relevant pricing factor, consistent with models featuring wealth motives. |
| Keywords: | uninsurable idiosyncratic risk, heterogeneous agents, wealth dynamics, equity premium |
| JEL: | G12 B52 E21 |
| Date: | 2026–03–12 |
| URL: | https://d.repec.org/n?u=RePEc:cda:wpaper:377 |
| By: | Patrice Pieretti; Giuseppe Pulina; Benteng Zou |
| Abstract: | We study dynamic fiscal competition when mobile capital responds to the stock of public infrastructure, not contemporaneous expenditure flows. Two governments choose taxes and public investment in a differential game with gradual accumula tion and investment frictions. In the unique Nash equilibrium, long-run dynamics depend on discounting, erosion of advantages, the share of public investment that effectively adds to infrastructure, the private productivity effects of infrastructure, and adjustment/acquisition costs on public investment. The model delivers conver gence to a symmetric steady state, and “invest–then–stop” behavior. Large initial gaps can rationally delay the laggard’s investment, generating distinct transition paths and persistent asymmetries. |
| Keywords: | Fiscal competition; public capital stock; infrastructure investment; differential games; mobile capital. |
| JEL: | F21 F23 H25 H54 H73 C73 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:bcl:bclwop:bclwp204 |
| By: | Burak Uras (Williams College); Tulio Bouzas (Tilburg University); ; |
| Abstract: | "Why do firms continue to rely on cash in economies where digital payments are widespread and electronic transaction costs are low? This paper shows that the an- swer lies in the interaction between payment technologies and tax enforcement. Us- ing randomized experimental evidence from Kenyan small and medium-sized firms, we establish that the adoption of electronic payments causally increases tax com- pliance by raising transaction traceability. Moreover, SME survey evidence shows that tax evasion is associated with cash discounts. Motivated by these findings, we develop a microfounded general equilibrium model in which heterogeneous firms choose prices, payment acceptance, and tax evasion jointly. Cash facilitates eva- sion but exposes buyers to transaction risk, while electronic payments are safer yet traceable by third parties. These trade-offs generate endogenous cash discounts, selective rejection of digital payments, and coexistence of payment instruments in equilibrium. The calibrated model shows that when electronic payments are non–interest-bearing, inflation increases cash usage and tax evasion, overturning the standard prediction that inflation reduces cash use. We characterize the op- timal policy mix and show that financial development, enforcement intensity, and inflation are tightly intertwined in maximizing government revenues and welfare." |
| Keywords: | E-Money, Pricing Heterogeneity, Tax Compliance, Macro Policy |
| JEL: | E44 G23 H26 |
| Date: | 2026–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:wil:wileco:2026_102 |
| By: | Mahbuba Aktar (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Makram El-Shagi (Center for Financial Development and Stability at Henan University, and School of Economics at Henan University, Kaifeng, Henan); Florian Gerth (Asian Institute of Management, Philippines) |
| Abstract: | Financial frictions are a key determinant of monetary policy transmission. Using provincial Chinese data for 2011–2019, we examine this question through the lens of regional variation in traditional and digital financial inclusion. We combine high-frequency monetary policy shocks with state-dependent local projections, in- terpreting traditional inclusion as a proxy for liquidity constraints and digital inclusion as a proxy for search frictions. Regions with stronger liquidity constraints exhibit weaker output and price responses, in line with the predictions of New Keynesian models with heterogeneous agents. Lower search frictions instead tend to amplify transmission over medium horizons, though short-run effects are mixed. |
| Keywords: | monetary policy transmission; regional differences; financial frictions; financial inclusion; high-frequency identification |
| JEL: | E5 E4 C2 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:fds:dpaper:202604 |
| By: | Federico Mandelman; Yang Yu; Francesco Zanetti |
| Abstract: | Immigration has become a central driver of U.S. labor force growth. We document new empirical findings that shed light on the relationships between immigration, labor shortages, wage growth, and job openings during the high-immigration period of 2021-2024. The textbook search-and-matching model implies highly counterfactual labor market dynamics: it predicts that a surge in immigration lowers hiring costs and stimulates vacancy posting, leaving labor market tightness and wages largely unchanged. This prediction contradicts the data, which shows a negative correlation between immigration and vacancy growth. To reconcile the evidence, we extend the framework to incorporate complementarities between native and immigrant workers together with a Leontief-type production technology that generates labor shortages similar to those observed in the post-pandemic period. In this environment, immigration alleviates these shortages by helping fill vacancies and dampening wage growth, consistent with the data. |
| Keywords: | immigration, labor shortages, search-and-matching models |
| JEL: | E24 E32 J63 J64 F22 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-18 |
| By: | Savoia, Ettore (Research Department, Central Bank of Sweden) |
| Abstract: | This paper studies household consumption behavior when saving motives differ due to preference or income risk heterogeneity. I show that self-insurance operates along two margins: a standard liquidity margin determined by the level of current resources and an intertemporal margin governed by target savings. Stronger saving motives imply higher target savings, which tilt consumption toward the future. This forward-looking behavior lowers marginal propensities to consume (MPCs) independently of current resources. Canonical incomplete-markets models confound these margins because saving motives and resources co-move. I provide conditions under standard preferences and rational expectations that overturn this mapping. When saving motives and saving capacity (such as income) are negatively related, higher-income households can be wealthier yet exhibit higher MPCs because their target savings are lower. Cross-sectional MPC–resource profiles can therefore be non-monotonic due to type sorting along the resource distribution. Empirical and quantitative applications to income-risk heterogeneity support the mechanism and highlight a new perspective in which affluent households shape aggregate demand beyond standard borrowing-constraint channels. |
| Keywords: | Incomplete Markets; Self-Insurance; Sorting; Marginal Propensity to Consume. |
| JEL: | D12 D81 E21 |
| Date: | 2026–03–01 |
| URL: | https://d.repec.org/n?u=RePEc:hhs:rbnkwp:0464 |