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on Dynamic General Equilibrium |
| By: | Ferrari Minesso, Massimo; Frenzel, Carla |
| Abstract: | This paper develops a sequential deep learning algorithm for solving dynamic stochastic general equilibrium (DSGE) models. The algorithm trains a deep neural network to approximate the model’s policy functions across four progressive phases: steady-state anchoring, exploration around the steady state, simulation on the ergodic set, and Monte Carlo integration of stochastic expectations. Training requires no pre-computed starting approximation: the network initialises from the analytically known steady state and constructs its training data endogenously, resolving the circularity between the training distribution and the solution. A systematic comparison across network architectures shows that shallow, moderately wide networks with an intermediate steady-state penalty consistently deliver the best accuracy at the lowest computational cost. We apply the method to a two-country open-economy model and show that large tariff shocks generate non-linearities that local methods cannot reproduce even at higher orders. JEL Classification: C45, C63, C68, E13, F13 |
| Keywords: | deep neural networks, DSGE models, non-linear solution, policy function approximation, solution methods |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263236 |
| By: | Yeo Joon Yoon (Pusan National University); Wongi Kim (SUNGSHIN WOMEN'S UNIVERSITY) |
| Abstract: | We analyze how the size and composition of official development assistance (ODA) shape aggregate performance and informality in the Philippines using a small open-economy dynamic general equilibrium model with a formal and informal sector. Two main scenarios are considered: (i) an increase in total ODA and (ii) a higher share of tied aid, given a fixed amount of ODA. Both scenarios raise capital, output, and consumption in steady state, but through distinct mechanisms. The first scenario primarily increases demand and appreciates the relative price of informal goods, expanding informality. By contrast, the second scenario expands public capital, crowds in formal investment, lowers the relative price of informal good, and shifts resources toward the formal sector, despite short-run reallocation costs. |
| Keywords: | Foreign Aid;Official Development Aid;Informal Sector;Philippines;APEC |
| JEL: | E26 O17 O53 |
| Date: | 2025–12–05 |
| URL: | https://d.repec.org/n?u=RePEc:ris:kiepas:022540 |
| By: | Maebayashi, Noritaka |
| Abstract: | I develop an endogenous growth model with overlapping generations in which individuals choose their schooling and retirement lengths, reflecting the complementarity between physical and human capital. I propose a public pension system that promotes active aging and lengthens schooling without increasing income inequality. In the baseline model, this system does not raise social welfare because additional labor supplied by the elderly reduces leisure and depresses wages, while the Ben-Porath–type human capital gains are negligible. However, if greater elderly labor participation generates even small positive externalities—such as stronger senior work communities, better working environments for older individuals, and reduced loneliness or illness—then such the pension system encouraging active aging can improve welfare for all generations. |
| Keywords: | Active aging, Retirement, Education, Public pension, Heterogeneous agents, Endogenous growth, Overlapping generations |
| JEL: | E62 H55 J24 J26 |
| Date: | 2026–04–15 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128720 |
| By: | Ruopu Hu (Graduate School of Economics, Kobe University) |
| Abstract: | We construct and estimate a small open economy DSGE model featuring a regime-switching reserve requirement (RR) ratio rule within a banking sector that has access to foreign assets. The model incorporates key financial characteristics of the Chinese economy and examines the implications of changes in the RR-ratio. Estimation results reveal that the RR-ratio follows a feedback rule with a regime-dependent coefficient on net foreign lending during two distinct phases between 2006 and 2017. The state-contingent rule is temporarily suspended during the Global Financial Crisis, but is reactivated in the post-crisis period amid recovered capital inflows. On the one hand, the RR-ratio has almost negligible real effects on output and inflation; but on the other hand, it proves effective as a macroprudential instrument by mitigating financial instability through a reduced risk of self-fulfilling bank runs by about 25%. |
| Keywords: | Reserve Requirement Ratioï¼› Macroprudential Policyï¼› Financial Stabilityï¼› Capitalï¼› Flow, Regime-switching DSGE |
| JEL: | C11 E58 F41 G18 |
| Date: | 2025–05 |
| URL: | https://d.repec.org/n?u=RePEc:koe:wpaper:2609 |
| By: | Quaicoe, Nana |
| Abstract: | In economies where a portion of the population transacts through mobile money and the other portion strictly uses only cash, can any single interest rate rule serve both groups well? I develop a two-agent New Keynesian model calibrated to Ghana in which included households manage liquidity through mobile money under Baumol– Tobin demand, while excluded households depend on government transfers under fiscal dominance. I find a critical threshold at approximately 70 percent financial exclusion.Below it, aggressive inflation targeting is optimal for both household types. Above it, the welfare surface for included households develops an interior optimum, the optimal Taylor rule diverges across groups, and no single rule resolves the conflict. The distributional cost of monetary policy is convex in exclusion: the welfare variance ratio between household types rises from 7.6:1 at 50 percent exclusion to 98:1 at 80 per- cent, the range observed across Sub-Saharan Africa. Aggregate welfare statistics mask this entirely. The trade-off is reducible only through financial inclusion, not through monetary policy design. |
| Keywords: | monetary policy, financial inclusion, mobile money, TANK model, fiscal dominance, Taylor rule, distributional effects, Sub-Saharan Africa |
| JEL: | E52 E58 G23 O16 |
| Date: | 2026–04–18 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128793 |
| By: | NAKATANI, Ryota; MIYAMOTO, Hiroaki |
| Abstract: | This paper studies the optimal tax-and-transfer policy when automation raises productivity but displaces unskilled workers. Using a general equilibrium model calibrated to the U.S. economy, we compute the steady-state social welfare-maximizing rate of each of four tax instruments: capital income taxation, unskilled wage taxation, taxation on automation capital (i.e., a robot tax), and consumption taxation. Following an increase in the productivity of automation-related capital, the welfare-maximizing capital income tax rate and robot tax rate are zero, as their long-run investment distortions outweigh their redistributive social benefits. In the baseline simulation, aggregate welfare is maximized by cutting the unskilled wage tax rate and, especially, the consumption tax rate. However, when unskilled labor and automation-related capital are highly substitutable, the optimal consumption tax rate increases, and the additional government revenue is redistributed to displaced unskilled workers. |
| Keywords: | Automation, Optimal Taxation, Capital Income Tax, Labor Income Tax, Consumption Tax, Robot Tax |
| JEL: | H21 H24 H25 C68 E25 O31 O40 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:hit:cisdps:710 |
| By: | Merino Troncoso, Carlos |
| Abstract: | This paper analyzes the macroeconomic effects of global oil price shocks in a small open economy DSGE framework with an endogenous logistics sector. Using Panama as a case study, we estimate the model using Bayesian techniques and identify exogenous oil supply shocks through fluctuations in global oil prices. We find that oil shocks generate stagflationary dynamics, characterized by higher inflation and lower output. Importantly, higher global shipping costs induce endogenous trade reallocation toward shorter maritime routes, increasing activity through the Panama Canal. This logistics channel partially offsets output losses but does not prevent a decline in welfare due to inflation distortions and consumption volatility. The results highlight the role of trade infrastructure as a partial stabilizer in highly open and dollarized economies, while underscoring the limits of real adjustment mechanisms in the absence of independent monetary policy. |
| Keywords: | Oil price shocks, DSGE model, small open economy, trade reallocation, logistics sector, Panama Canal, Bayesian estimation |
| JEL: | C11 E32 F41 Q43 |
| Date: | 2026–04–20 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128814 |
| By: | Matthew Fink (Reserve Bank of Australia); Jonathan Hambur (Reserve Bank of Australia) |
| Abstract: | The sharp rise in inflation following the COVID-19 pandemic has renewed interest in how firms adjust prices after large economic shocks and the implications for modelling inflation and setting monetary policy. Using a large dataset of web-scraped Australian retail prices, we document an increase in the frequency of price changes in 2022 and 2023, alongside strong goods price inflation. We incorporate these microdata-based estimates of price-setting frequency into the Reserve Bank of Australia's dynamic stochastic general equilibrium model to assess their macroeconomic implications. We find that failing to account for higher rates of price adjustment during the high-inflation period leads to inflation forecasts that are up to 1.2 percentage points too low, even when the underlying shocks are known. The increase in the frequency of price resets also steepens the Phillips curve, reducing the policy trade-off between inflation and output. Given knowledge of this change in price-setting behaviour, a hypothetical central bank with unchanged preferences would tend to raise interest rates more aggressively than in a scenario where price rigidity was stable. Our findings highlight the importance of accounting for shifts in price-setting behaviour when interpreting inflation and setting monetary policy. |
| Keywords: | inflation; price setting; monetary policy |
| JEL: | E31 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:rba:rbardp:rdp2026-02 |
| By: | Sally Dubach |
| Abstract: | The literature on rational asset price bubbles has grown substantially, yet its internal logic is difficult to trace without reading across a large and technically demanding body of work. This paper provides a guide to the literature on rational asset price bubble theory, tracing its evolution from early overlapping generations models to environments with financial frictions, infinitely lived agents, and dividend-paying assets. Two mechanisms consistently sustain rational bubbles across these frameworks. The first is resale: investors buy above fundamental value, expecting to sell to subsequent buyers. The second is savings pressure that pushes the bubbleless equilibrium interest rate below the economy’s growth rate. Despite substantial theoretical progress, a gap remains between theoretical insights and the frameworks policymakers need. |
| Keywords: | Rational bubbles; asset prices; dividend-paying assets |
| JEL: | E12 E44 G12 D84 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:ube:dpvwib:dp2604 |
| By: | Xavier Mateos-Planas (Queen Mary University of London, Centre for Macroeconomics); Sean McCrary (Ohio State University); Jose-Victor Rios-Rull (University of Pennsylvania, University College London, CAERP, CEPR, NBER); Adrien Wicht (University of Basel) |
| Abstract: | We characterize the equilibrium of the standard sovereign default model with long-term, non-contingent debt. We show existence of the Markov equilibrium and uniqueness of equilibria that are the limit of finite economies. In general, the price and policy functions exhibit jumps and kinks; a suitable choice of arbitrarily small noise yields price and policy functions that are differentiable everywhere, which allows us to characterize the equilibrium using only the agents’ decision rules by means of a set of functional equations. We further describe the equilibrium objects via an Euler equation with derivatives on future actions—a Generalized Euler Equation (GEE) that disentangles the effects of default from those of dilution. The GEE yields computational strategies that search for continuous policy functions. A sufficient scale of the noise ensures concavity and a unique solution of the GEE. Applied to a calibrated model following Chatterjee and Eyigungor (2012), the GEE combined with the endogenous grid method delivers residuals orders of magnitude smaller than standard value function iteration, at roughly an order of magnitude lower computational cost. |
| Keywords: | Long-term debt, Sovereign default, Generalized Euler Equation, Computational methods |
| JEL: | F34 E44 C63 G12 |
| Date: | 2026–01–06 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:26-009 |
| By: | R. Jason Faberman; Andreas I. Mueller; Aysegul Sahin |
| Abstract: | This paper studies gender gaps in labor-market outcomes, with a focus on job ladder dynamics. We show that women experience substantially lower wage growth conditional on prior wages despite nearly identical job-to-job transition rates for men and women. To reconcile these observations, we document gender differences in the valuation of nonwage job amenities and in job search behavior, and develop a multi-dimensional job-ladder model with endogenous search effort where workers value both wages and amenities. The model allows for gender heterogeneity in separation rates, search effort, the value of nonemployment, amenity valuations, and bargaining power, enabling a joint analysis of gender wage and employment gaps. A quantitative decomposition shows that differences in preferences for nonwage amenities account for nearly 40 percent of the gender pay gap. Differences in the value of nonemployment and bargaining power explain most of the remainder, with only a limited role for differences in separation rates and search behavior. Finally, we show that increases in job amenities—such as the expansion of remote work—raise the gender wage gap while reducing gender differences in employment. |
| Keywords: | Gender wage gap; Job search; job amenities; On-the-job search |
| JEL: | J16 J60 |
| Date: | 2026–03–30 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103282 |
| By: | Louphou Coulibaly; Abdoulaye Ndiaye |
| Abstract: | Hidden public liabilities can reprice sovereign risk abruptly upon revelation. We study optimal default following such a revelation in a quantitative sovereign default model and apply the framework to Senegal’s 2024 debt audit, which revised government debt upward by 50 percentage points of GDP. The revelation enters as an exogenous upward shift in the inherited debt stock within a small open economy with long-duration debt and default costs disciplined by Senegal’s monetary-union constraints. Under our baseline calibration, the corrected debt stock exceeds the model’s repayment region, implying that default would have been optimal from 2023 onward—before the audit was conducted. Since Senegal has continued to repay, we also consider a no-default calibration that matches post-revelation spread dynamics. Rationalizing repayment requires income dynamics more volatile and less persistent than historical estimates, consistent with optimism about mean reversion or gambling for redemption. This calibration places Senegal near the default boundary, where a 3 percent adverse income shock would make restructuring optimal within a year. Both calibrations yield the same conclusion: the hidden-debt revelation moved Senegal from moderate fiscal risk to acute vulnerability. |
| Keywords: | sovereign default, hidden debt, debt transparency, monetary union, sovereign spreads, fiscal crises, debt sustainability |
| JEL: | F34 F41 H63 E44 O55 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12698 |
| By: | Myeongju Kim (Yonsei University); Eunseong Ma (Yonsei University) |
| Abstract: | This paper studies how the macroeconomic effects of tax cuts depend on occupational targeting—toward entrepreneurs versus wageworkers. Using a new state-level panel of occupation specific federal tax shocks for the United States from 1981 to 2017, we find that entrepreneur targeted tax cuts generate substantially larger increases in output, consumption, and employment than revenue-equivalent worker-targeted cuts. These effects coincide with increases in both entrepreneurship and wage employment, pointing to business formation and firm expansion as key transmission channels. An incomplete-markets model with occupational choice attributes these findings to earnings-based borrowing constraints and demand-driven amplification that jointly produce large entrepreneur multipliers. |
| Keywords: | Tax policy, Entrepreneurship, Earnings-based constraints, Occupational choice |
| JEL: | E62 H25 J23 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-291 |
| By: | Justinas Markauskas (University College London); Morten O. Ravn (University College London & CEPR); Jose-Victor Rios-Rull (University of Pennsylvania, University College London, CAERP, CEPR, NBER) |
| Abstract: | We study whether firms in medium-scale New Keynesian models would voluntarily satisfy demand at their posted prices, or whether nominal rigidities may push prices below marginal costs. In the Altig et al (2011) framework, which features full indexation of non-adjusting prices and wages to steady-state inflation and near constant returns to scale at the firm level, we find that violations of firms’ willingness-to-supply condition are negligible: fewer than one percent of firms are ever constrained, and the associated output losses are tiny. Two features of the model drive this result: marginal costs that are nearly unresponsive to output, and prices that adjust more frequently than wages. When the short-run marginal-cost schedule is sufficiently steep, willingness-to-supply violations become quantitatively relevant. Our findings thus characterize the conditions under which the standard demand-determination assumption is a reliable approximation and those under which it may not be. |
| Keywords: | Willingness-to-supply, New Keynesian macro. |
| JEL: | E32 E52 E62 E63 |
| Date: | 2026–05–28 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:26-007 |
| By: | Patrick Coate; Kyle Mangum |
| Abstract: | This paper shows the declining trend in internal migration in the United States is primarily due to increasing home attachment in “fast locations, ” areas with relatively high rates of population turnover. These locations were population growth destinations in the 20th century, with transient populations that settled as regional population growth converged. The qualitative patterns of the U.S. experience can be generated by a model of location choice in heterogeneous regions with overlapping generations when the population has a home bias that varies endogenously with the history of population change. Using a novel measure of home attachment, this paper estimates a structural model of migration that distinguishes moving frictions from home utility. Simulations quantify channels of the mobility decline. Rising home attachment accounts for much of the decline, predominantly in fast locations. Population aging explains most of the remainder but in a more spatially neutral way. |
| Keywords: | declining internal migration; labor mobility; home attachment; rootedness; local ties; conditional choice probability estimation |
| JEL: | J61 R23 R11 C50 |
| Date: | 2026–05–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedpwp:103268 |
| By: | Yang K. Lu (Hong Kong University of Science and Technology); Eunseong Ma (Yonsei University) |
| Abstract: | This paper investigates how human capital responses to anticipated advances in artificial intelligence (AI) reshape aggregate and distributional consequences of AI. We develop an incomplete-markets model with endogenous human capital and asset accumulation in general equilibrium, featuring three skill sectors and uninsurable idiosyncratic risk. AI enters as an anticipated, sector-biased shock that narrows middle-skill wage premiums and boosts returns to top expertise. We find that human capital responses to AI (i) drive voluntary job polarization, shifting workers from the middle toward both lower and higher skill sectors; (ii) magnify AI’s positive effects on aggregate output and consumption, while dampening its impact on employment; and (iii) alter inequality: even as polarization increases disparities in income and consumption, precautionary saving by middle-sector households reduces the rise in wealth inequality. In an extension (AI+), where AI raises the human-capital threshold for high-skill jobs, additional training and saving become concentrated among high-sector households, further increasing wealth inequality. |
| Keywords: | AI, Human Capital, Job Polarization, Inequality |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-290 |
| By: | Mutita Ariyavutikul; Minchung Hsu; Trang Le; Trisukon Sawatrukkiat |
| Abstract: | This paper examines life-cycle patterns of earnings and consumption inequality in a developing economy, focusing on employment informality, risk sharing, and the impacts of the COVID-19 pandemic. Using household survey data from Thailand, with robustness checks for Indonesia and Vietnam, we find that in Thailand both earnings and consumption inequality rise with age during prime working years, and earnings inequality continues to increase after retirement. Inequality patterns differ by employment status: formalworker- headed households show limited risk sharing at younger ages, while informal-worker-headed households display flatter consumption-inequality profiles, with consumption inequality generally below earnings inequality. During the COVID-19 period, overall inequality declined, but consumption inequality increased among younger households. Finally, a standard life-cycle model calibrated to match earnings inequality fails to replicate the observed age profile of consumption inequality, suggesting that key developing-economy features, such as informal insurance mechanisms, are not fully captured. |
| Keywords: | Life-cycle inequality; Risk sharing; Informal employment; Developing economy; COVID-19 crisis |
| JEL: | D31 E21 J46 O15 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:251 |
| By: | Kunze Li (Beijing Normal University); Kanda Naknoi (University of Connecticut); Kai Zhao (University of Connecticut) |
| Abstract: | We provide empirical evidence that asset returns are correlated across genera-tions and that this correlation has significant consequences for the distribution of wealth. Using the Panel Study of Income Dynamics and asset price databases, we find that a 10-percentile increase in a father’s wealth return rank is associated with an approximately 3-percentile increase in his child’s corresponding rank. Next, we construct an overlapping-generations model in which dynasties are linked through returns, earnings, and bequests. Our counterfactual experiments show that the intergenerational correlation in returns (ICR) accounts for a significant fraction of top wealth shares and the ICR is an important driver of persistence at the top of the wealth distribution. Thus, incorporating the ICR alters predictions about the aggregate and distributional effects of estate taxation, with important policy implications. |
| Keywords: | wealth inequality, returns, intergenerational persistence, estate tax |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:uct:uconnp:2026-02 |