|
on Dynamic General Equilibrium |
| By: | Tatiana Kirsanova; Oyvind Masst; Charles Nolan |
| Abstract: | This paper studies interactions between labour and housing markets in the United Kingdom. We estimate a New Keynesian DSGE model with search frictions in both markets, cross-market spillovers, and regime-switching monetary policy using UK quarterly data from 1971 to 2025. The estimates imply strong two-way interactions: housing-market disturbances affect unemployment, job creation and labour-market tightness, while labour-market shocks propagate into house prices, rents and housing activity. We use the model to study the major structural changes associated with the Thatcher era, including falling public housing construction, rising owner occupation and declining worker bargaining power. The results suggest that the largest effects operated through the labour market: lower bargaining power reduced unemployment substantially, while housing reforms increased owner occupation but did not generate a large lasting improvement in affordability. |
| Keywords: | estimated New Keynesian DSGE model, monetary policy, search-and-matching frictions, labour and housing markets, Thatcher times |
| JEL: | E32 E24 E52 E65 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-66 |
| By: | Sami Alpanda; Serdar Kabaca; Kostas Mavromatis |
| Abstract: | This paper examines the optimal coordination of conventional and unconventional monetary policy tools in an economy with heterogeneous households and mortgage debt. We build a dynamic stochastic general equilibrium (DSGE) model featuring three household types—savers, borrowers, and renters—and include housing investment, long-term fixed-rate mortgages, and a housing production sector. The central bank controls both the short-term interest rate and the long-term rate by adjusting the maturity composition of government bonds. We show that household heterogeneity significantly alters the optimal policy response to macroeconomic shocks. Specifically, after a cost-push shock, optimal policy calls for increasing the short-term rate to contain inflation while simultaneously lowering the long-term rate to ease financial pressures on indebted households and renters. This combination speeds up the recovery of investment and output, stabilizes inflation, but exacerbates consumption inequality. By contrast, in a representative agent model, the optimal response is to raise both rates. Our results underscore the need to consider distributional consequences in monetary policy design and indicate that yield curve control can serve as a valuable tool in heterogeneous economies. |
| Keywords: | Models and tools, Economic models, Monetary policy, Monetary policy framework and transmission, Monetary policy tools and implementation |
| JEL: | E40 E43 E52 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-18 |
| By: | Ursula Berresheim; Marina Hoch |
| Abstract: | The United States faces record-low fertility rates amid persistently high housing costs and a con strained housing supply. One factor may be the limited downsizing of empty-nesters and retirees, which concentrates housing among elderly cohorts and restricts access for young families during their prime childbearing years. This paper investigates the link between low fertility and the high elderly housing concentration. In the U.S. context, we document a strong association between low fertility and both high elderly housing concentration and low housing supply elasticity. To quantify the underlying mechanisms, we develop a general equilibrium overlapping generations model with endogenous fertility and housing. In the model, two channels dominate: liquidity constraints among young households, which prevent them from accessing housing large enough to comfortably raise children, and habit formation amongoldercohorts, whichdiscouragesdownsizingandfosterselderly housing concentration. We conduct counterfactual policy analysis aimed at raising fertility through a reduced elderly housing concentration. An increase in property taxation reduces elderly housing concentration, but depresses fertility and welfare. Liquidity-focused interventions are more effective: a targeted transfer to young parents simultaneously raises fertility, reduces concentration, and gener ates large welfare gains. Yet, the cohort-specific welfare decomposition shows that these gains come partly at the expense of older cohorts. |
| Keywords: | Fertility, Housing Markets, Housing Wealth Concentration, Demographic Change, Housing Affordability, Taxation |
| JEL: | J13 R31 E21 R21 J11 R38 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_771 |
| By: | Gulan, Adam; Silvo, Aino |
| Abstract: | In both the U.S. and the euro area, the share of market finance in aggregate corporate credit has grown over time. To study the implications of the corporate debt structure for the transmission of monetary policy, we develop a New Keynesian DSGE model in which firms differ in productivity and may finance themselves with either bonds or loans. Our setup makes the aggregate corporate debt composition and firms' credit access endogenous and dependent on aggregate economic conditions. The model rationalizes the empirically documented substitution from bank loans to bond finance following a monetary policy contraction. Credit is squeezed for those bank-dependent firms that cannot access the bond market. A structural shift in the aggregate bond-to-loan ratio among credit-eligible firms affects financial market dynamics, but does not materially change the overall impact of monetary policy shocks on the macroeconomy. Instead, in an economy with greater credit access, aggregate demand is less responsive to monetary policy shocks. |
| Keywords: | Monetary policy, corporate debt, bonds, bank credit |
| JEL: | E32 E44 E52 G32 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bofrdp:342406 |
| By: | Anastasiia Antonova; Mykhailo Matvieiev; Céline Poilly |
| Abstract: | Recessions are often accompanied by heightened uncertainty. We build an imperfect-information New Keynesian model in which procyclical information quality generates endogenous countercyclical uncertainty, and the nonlinear structure allows for a precautionary saving motive. We show theoretically that endogenous uncertainty operates entirely through aggregate demand. For negative supply shocks, the induced rise in uncertainty can depress demand enough to dominate the shock's inflationary force, turning the shock deflationary. Monetary policy can fully eliminate the adverse effect of endogenous uncertainty by stabilizing the output gap. We quantify the endogenous uncertainty channel in the US data and find it to be strong enough to generate deflation in response to negative supply shocks. |
| Keywords: | Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission |
| JEL: | D81 D83 E21 E32 E52 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-12 |
| By: | Sahuc, Jean-Guillaume; Smets, Frank; Vermandel, Gauthier |
| Abstract: | Climate change confronts central banks with two inflationary challenges: climateflation and greenflation. We investigate their implications for monetary policy by developing and estimating a tractable nonlinear New Keynesian Climate model featuring climate damages and mitigation policies for the global economy. We find that mitigation policies aligned with the Paris Agreement result in higher, more persistent inflation than laissez-faire policies. Central banks can attenuate this inflationary pressure by accounting for the rising natural rate of interest, at the cost of lower GDP during the transition. This short-term trade-off ensures long-term macroeconomic stability resulting from a net-zero emission world. |
| Keywords: | Climate change; Inflation; Monetary policy; Stochastic growth model; E-DSGE model |
| JEL: | E32 E52 Q50 Q54 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19745 |
| By: | Felipe Alves; Giovanni L. Violante |
| Abstract: | As the economy emerges from a crisis, macroeconomic policy confronts a dilemma: a protracted stimulus can foster a more inclusive labor market recovery, yet risks igniting inflation that ultimately undermines workers’ welfare through real income erosion. This tension amplifies in the presence of the ZLB and aggregate capacity constraints. We embed this insight into a quantitative model of the US economy. We study how monetary and fiscal policies managed this inflation-inclusion trade-off after the pandemic, contrasting actual outcomes with counterfactual scenarios. Our experiments yield five findings: (i) the trade-off was unusually difficult because U.S. policy was squeezed between these two constraints; (ii) inflationary pressures arose from the joint deployment of prolonged U.S. monetary and fiscal stimulus; either policy alone would have produced milder price dynamics; (iii) either inclusive fiscal policy or inclusive monetary policy in isolation would have been sufficient to contain the negative labor market hysteresis at the bottom of the distribution; (iv) inclusive fiscal policy combined with a more traditionally inflation-focused central bank would have achieved higher welfare for the vast majority of U.S. households; (v) welfare effects reflect mostly corrections of incomplete-market inefficiencies rather than gains from aggregate stabilization. |
| Keywords: | Models and tools, Economic models, Monetary policy, Inflation dynamics and pressures, Monetary policy framework and transmission |
| JEL: | E21 E24 E31 E32 E52 J24 J64 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-13 |
| By: | Jakobsen, Katrine; Jørgensen, Thomas H.; Low, Hamish |
| Abstract: | We study how fertility decisions interact with labor supply 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 in our model. Finally, we show that human capital depreciation around childbirth is an important driver of the long-run gender wage gap. |
| Keywords: | Fertility; Labor supply; Human capital accumulation; Gender inequality; Tax reform |
| JEL: | J22 J13 D15 H24 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19713 |
| By: | Boehnert, Lukas; de Ferra, Sergio; Mitman, Kurt; Romei, Federica |
| Abstract: | We investigate how the composition of expenditure shapes the transmission of monetary policy in a currency union. European Monetary Union data reveal three facts: (1) higher inequality countries have larger service expenditure shares; (2) monetary policy has a weaker output impact in these high-service-share, high-inequality countries; and (3) monetary policy induces systematic trade flows between high- and low-service-share countries. We develop a New Keynesian model with non-homothetic preferences and heterogeneous sectoral income that rationalizes these facts. Procyclical inequality, driven by wealthier households’ greater income exposure to services, buffers poorer households’ consumption to contractionary shocks, dampening overall policy transmission. Our findings suggest that accounting for cross-country differences in consumption and income distributions is essential for understanding common monetary policy. |
| Keywords: | Monetary policy; Monetary union; International capital flows; Non-homothetic preferences |
| JEL: | E52 F36 E21 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19872 |
| By: | Yue Hua (International University of Japan); George Kudrna |
| Abstract: | Progressive income-contingent loans (ICLs), in which repayment rates rise with income, provide college students with insurance against post-graduation income risk. We study how ICL repayment size and progressivity jointly shape repayment dynamics, educational choices, and welfare. Using Australian longitudinal survey data, we estimate income processes and parameterize existing ICL repayment rules with repayment-size and progressivity parameters. We then estimate a heterogeneous-agent life-cycle model using the method of simulated moments and evaluate alternative repayment schedules under revenue neutrality. We find that greater repayment progressivity raises welfare only when combined with smaller required repayments. Existing Australian and UK policies are not generous enough given their degree of progressivity. The welfare-maximizing ICL combines moderate progressivity with a high repayment threshold. Free education produces nearly the same aggregate welfare as the optimal ICL, but the optimal policy retains some repayment revenue from high-income workers and requires lower income taxes. |
| Keywords: | Inflation; Student loans, income-contingent loans, progressivity, heterogeneousagent life-cycle model |
| JEL: | E24 D15 H52 I22 J24 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iuj:wpaper:ems_2026_15 |
| By: | Fernández-Villaverde, Jesús; Nuño, Galo; Perla, Jesse |
| Abstract: | We argue that deep learning provides a promising avenue for taming the curse of dimensionality in quantitative economics. We begin by exploring the unique challenges posed by solving dynamic equilibrium models, especially the feedback loop between individual agents' decisions and the aggregate consistency conditions required by equilibrium. Following this, we introduce deep neural networks and demonstrate their application by solving the stochastic neoclassical growth model. Next, we compare deep neural networks with traditional solution methods in quantitative economics. We conclude with a survey of neural network applications in quantitative economics and offer reasons for cautious optimism. |
| Keywords: | Deep learning |
| JEL: | C61 C63 E27 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19636 |
| By: | BoroviÄ ková, Katarína; Shimer, Robert |
| Abstract: | We develop a random search model with two-sided heterogeneity and match-specific productivity shocks to explain why high-productivity workers tend to work at high-productivity firms despite low-productivity workers gaining about as much from such matches. Our model has two key predictions: i) the average log wage that a worker receives is increasing in the worker's and employer's productivity, with low-productivity workers gaining proportionally more at high-productivity firms and ii) there is assortative matching between a worker's productivity and that of her employer. Selective job acceptance drives these patterns. All workers are equally likely to meet all firms, but workers have higher surplus from meeting firms of similar productivity. The high surplus meetings result in matches more frequently, generating assortative matching. Only the subset of meetings that result in matches are observed in administrative wage data, shaping wages. We show that our findings are quantitatively consistent with recent empirical results. Moreover, we prove this selection is not detected using standard empirical approaches, highlighting the importance of theory-guided empirical work. Our results imply that encouraging high-wage firms to hire low-wage workers may be less effective at reducing wage inequality than wage patterns suggest. |
| Keywords: | Search and matching frictions; Wage dispersion; Sorting in labor market |
| JEL: | J31 J64 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19728 |
| By: | Gabriel Montes-Rojas; Fernando Toledo; Juan Manuel Rodr\'iguez Repeti |
| Abstract: | This paper studies what happens when AI gets cheaper, with emphasis on the labor market outcomes, whether it creates formal jobs or whether it pushes workers into informality. We argue that the answer depends on the elasticity of substitution between imported AI capital and formal labor. We build a small open economy DSGE model with a dual labor market, imported AI capital, and country risk, calibrated to an economy where informality is pervasive. The same decline in AI prices produces sharply different labor-market outcomes depending on whether AI substitutes or complements formal workers. Under substitution, cheaper AI weakens formal labor demand and increases the role of the informal sector as an employment buffer. Under complementarity, it expands formal employment and amplifies output, wages, investment, and capital accumulation. The model therefore shows that AI can become either a source of displacement pressure or a driver of formal-sector expansion, depending on how it interacts with human labor. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.15381 |
| By: | Cavalcanti, Tiago; Fernandes, Leticia; Santos, Cezar; Rachter, Laisa |
| Abstract: | We investigate how changes in barriers to female labor force participation and the child penalty impact occupational decisions, human capital, fertility, and income. To this end, we develop a general equilibrium model with men and women, endogenous fertility, human capital investment, and occupational choice. By calibrating the model to US data, we estimate that changes in both gender distortions account for 30% of the US growth observed between 1960 and 2020. While the decline in the child penalty increases fertility, the reallocation of female labor from high-fertility to low-fertility occupations explains approximately 28% of the decline in the fertility rate during this period. Furthermore, reducing existing gender barriers would increase output per capita by 9% in 2020, enhance gender diversity across occupations, increase fertility, and ultimately improve female welfare. |
| Keywords: | Fertility; Occupational choice; Growth |
| JEL: | E25 J13 O10 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19886 |
| By: | Iftikhar, Zainab; Zaharieva, Anna |
| Abstract: | We evaluate the effects of low-skilled immigration on small businesses, wages and employment in Germany. We develop a search and matching model with heterogeneous workers, cross-skill matching, and endogenous entry into entrepreneurship. The model is calibrated using German Socio-Economic Panel (SOEP) data. Quantitative analysis shows that low-skilled immigration benefits high-skilled workers while negatively affecting the welfare of low-skilled workers. It leads to the endogenous expansion of immigrant entrepreneurial activities, generating positive spillovers for all demographic groups except native entrepreneurs. Overall, there is a marginal loss to the economy in terms of per worker welfare. This loss is mitigated with increased skilled migration from India. Policies restricting immigrant entrepreneurship relax competition for native small businesses but reduce welfare for all other worker groups. Ethnic segregation of small businesses benefits low-skill native entrepreneurs. |
| Keywords: | entrepreneurship |
| JEL: | J23 J31 J61 J64 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19657 |
| By: | Marina Hoch |
| Abstract: | Natural disasters destroy substan al parts of homeowners' wealth and o en prompt large-scale government aid. This aid might crowd out private disaster insurance. However, homeowners already hold implicit insurance through the op on to default on mortgages. This op on shapes the welfare effects of government aid in two opposing ways. On the one hand, default already provides par al coverage, reducing the marginal value of aid. On the other hand, an cipa ng default leads households to underinsure. This underinsurance raises their financing costs and generates a commitment problem that the government can resolve. To quan fy the welfare effects of post-disaster government aid, specifically, rebuilding grants and foreclosure moratoria, I develop a structural general equilibrium model. The model embeds natural disaster shocks within an incomplete markets framework, which features two degrees of mortgage default: delinquency and foreclosure. Calibrated to the U.S. economy over 2000-2020, the model yields three main results. First, government aid increases uninsured losses by 36 percentage points and increases owner-occupied housing in disaster-prone areas by 14 percent compared with no aid. Second, government aid generates 0.25 percent aggregate welfare gains in consump on-equivalent terms, mainly benefi ng households in high-risk regions. Third, for equal fiscal cost, the greatest welfare gains occur when rebuilding transfers are provided independently of insurance coverage, thereby limi ng crowding out of private disaster insurance. |
| Keywords: | Government Aid, Mortgage Default, Housing, Natural Disasters, Disaster Insurance, Heterogeneous Agents |
| JEL: | G51 Q54 H84 G21 E21 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_772 |
| By: | Moll, Benjamin |
| Abstract: | The thesis of this essay is that, in heterogeneous agent macroeconomics, the assumption of rational expectations about equilibrium prices is unrealistic, unnecessarily complicates computations, and should be replaced. This is because rational expectations imply that decision makers (unrealistically) forecast equilibrium prices like interest rates by forecasting cross-sectional distributions. The result is an extreme version of the curse of dimensionality: dynamic programming problems in which the entire cross-sectional distribution is a state variable ("Master equation" a.k.a. "Monster equation"). This problem severely limits the applicability of the heterogeneous-agent approach to some of the biggest questions in macroeconomics, namely those in which aggregate risk and non-linearities are key, like financial crises. This troublesome feature of the rational expectations assumption poses a challenge: what should replace it? I outline three criteria that alternative approaches should satisfy: (1) simplification of the computational solution, (2) consistency with empirical evidence, and (3) (some) immunity to the Lucas critique. I then discuss some potentially promising directions, including temporary equilibrium approaches, incorporating survey expectations, least-squares learning, and reinforcement learning. |
| JEL: | E00 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19731 |
| By: | Yurii Sholomytskyi; Nathaniel Butler Blondel; Mr. Mumtaz Hussain |
| Abstract: | This paper investigates the transmission of oil price shocks to the banking sector in oil-dependent economies, using Oman as a case study. We develop a DSGE model featuring an integrated banking block with endogenous credit rationing and a sovereign wealth fund stabilization rule, calibrated to Omani institutional targets and disciplined by Bayesian methods. Our structural approach disentangles two primary transmission channels: the solvency channel, driven by credit risk and non-performing loans (NPLs), and the liquidity channel, driven by pro-cyclical government deposit withdrawals and sovereign debt issuance. The structural variance decomposition attributes over 54% of non-oil GDP variance and 53% of credit variance to oil price shocks, while bank capital shocks account for less than 0.1%, confirming the quantitative dominance of the liquidity channel. We identify a precautionary liquidity motive—a “liquidity buffer trap”—where banks maintain excess liquidity during booms to hedge against hydrocarbon volatility, structurally suppressing credit to the productive sector. Our counterfactual regime analysis reveals the stabilizing power of credit depth: banking conservatism protects long-term physical capital formation, and the ongoing financialization of the corporate sector— including the rapid growth of Islamic banking and sukuk markets—under Vision 2040 further amplifies this structural resilience. We acknowledge identification challenges inherent in small-sample structural estimation and discuss the sensitivity of results to key modeling assumptions. |
| Keywords: | Oil price shocks; DSGE; Credit rationing; Banking liquidity; Sovereign Wealth Fund; Fiscal-financial nexus; Islamic banking; Oman |
| Date: | 2026–07–03 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/142 |
| By: | Park, Seonyoung (Colgate University); Simpson, Nicole (Colgate University) |
| Abstract: | Married women’s labor supply in the United States has increased only slowly since the late 1990s, while married men’s labor supply has continued to decline. This slowdown in married women’s labor supply in recent decades masks substantial heterogeneity across households. From the late 1990s to the early 2020s, married mothers (with at least one child under age 15) experienced large increases in work hours, whereas women without children (non-mothers) saw only small increases. Over the same period, married fathers reduced work hours more than their counterparts without children while increasing time devoted to childcare. To explain these changes, we develop a two-earner life-cycle model in which labor supply and fertility are endogenous and spouses’ childcare time is substitutable. Counterfactuals show that the narrowing gender wage gap is the primary driver of recent shifts: it raises mothers’ work hours and lowers fathers’ work hours, in part by reallocating childcare toward fathers and thereby expanding mothers’ capacity to work and accelerating their human capital accumulation. |
| Keywords: | married women, labor supply, gender wage gap, childcare, heterogeneity, recent trend reversal |
| JEL: | E24 J16 J22 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18828 |
| By: | Bilal, Adrien; Goyal, Shlok |
| Abstract: | This paper proposes an analytic representation of sequence-space Jacobians in heterogeneous agent models with aggregate shocks in continuous time. Our approach is based on a pen-and-paper perturbation of individual policy functions with respect to price changes, rather than numerical or automatic differentiation. We obtain linear partial differential equations that can be solved efficiently. Our continuous time algorithm speeds up computation of Jacobians and impulse responses threefold relative to discrete time. Continuous time is key to take the analytic perturbation in the presence of binding borrowing constraints. We illustrate our approach in leading heterogeneous agent models with and without nominal rigidities. |
| JEL: | C02 C6 E10 |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19986 |
| By: | Le Blanc, Julia; Slacalek, Jiri; White, Matthew |
| Abstract: | Homeownership rates and holdings of housing wealth differ immensely across countries. We specify and estimate a life cycle model with risky labor income and house prices in which households face a discrete–continuous choice between renting and owning a house, whose sale is subject to transaction costs. The model allows us to quantify three groups of explanatory factors for long-run, structural differences in the extensive and intensive margins of housing: the homeownership rate and the value of housing wealth of homeowners. First, in line with survey evidence, we allow for differences in expectations of house prices. Second, countries differ in the institutional set-up of the housing market: maximum loan–value ratio and costs of renting, maintaining, and selling a house. Third, we allow for differences in household preferences: the dispersion in discount factors, the share of housing expenditure, and the bequest motive. We estimate the model using micro data from five large economies and provide a decomposition to interpret what drives the cross-country differences in housing wealth. We find that all three groups of factors matter, although preferences less so. Differences in homeownership rates are strongly affected by (i) house price beliefs and (ii) the rental wedge, the difference between rents and maintenance costs, which reflects the quality of the rental market. Differences in the value of housing wealth are substantially driven by housing maintenance costs. |
| Keywords: | Housing; Homeownership; House price expectations; Housing market institutions; Cross-country comparisons |
| JEL: | D15 D31 D84 E21 G11 G51 |
| Date: | 2025–01 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19838 |
| By: | Bairoliya, Neha; Gallipoli, Giovanni; McKiernan, Kathleen |
| Abstract: | Late-life uncertainty and end-of-life (EOL) motives drive demand for death-contingent liquidity, affecting saving, insurance, and labor decisions. Using data on wills, life insurance, and bequest intentions, we document EOL motives across households. Our life-cycle model incorporates precautionary, survivor, and warm-glow motives, exploiting differences between liquid wealth and life insurance to identify preferences. We analyze how these motives interact with Social Security's illiquid annuity and evaluate reforms, including replacing annuity benefits with guaranteed death-contingent payouts or expanding actuarially fair access to life insurance. Both reforms enable portfolio de-risking by shifting resources toward guaranteed EOL liquidity, generating substantial welfare gains for single, low-wealth individuals. |
| JEL: | D31 G11 G51 G52 J26 E21 H55 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19739 |
| By: | Stefano Carattini; Givi Melkadze; Inès Mourelon |
| Abstract: | Central banks and financial surveillance authorities need to cope with the potential realization of financial stability risks, adopting preventive measures or using liquidity once crises materialize. Transition risk — the stability risk associated with decarbonization — is a case in point. Such risk not only comes from policy changes, but also from preference shocks. Hence, this paper develops an environmental DSGE model with financial frictions and examines responses to shocks, including a novel angle on preference shocks. We show that these market-driven transition shocks generate larger macro-financial instability than carbon pricing for a given change in emissions, while delaying environmental gains. We then compare policy responses according to their timing. Ex-ante macroprudential policies that reduce banks’ exposure to transition risk dampen financial amplification, whereas ex-post interventions, such as quantitative easing, provide only partial stabilization once losses have materialized. Overall, our results indicate that market-led adjustments to transition risk are more destabilizing than carbon pricing, whereas preventive financial measures limit macro-financial instability more effectively than ex-post interventions under the policy comparisons considered, supporting the case for early action. |
| Keywords: | transition risk, financial frictions, climate policy, preference shocks, macroprudential policy, quantitative easing |
| JEL: | E32 E60 G18 Q43 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12844 |
| By: | Kumhof, Michael |
| Abstract: | The Chicago Plan, proposed by leading economists during the Great Depression, envisaged the separation of banks into money banks with 100% reserve backing for deposits and credit banks financed through non-monetary liabilities. Fisher (1936) claimed four advantages: (1) Reduction of public debt through a debt-to-equity swap. (2) Reduction of private debts as money creation no longer requires debt creation. (3) Elimination of runs on the payment system. (4) Better control of credit-driven business cycles. Using a DSGE model of the US economy, we find strong support for all four claims. Furthermore, steady state output gains approach 17 percent and monetary policy is much more effective in response to every shock. Monetary policy improves welfare by combining a conventional Taylor rule with a countercyclical rule for the interest rate on treasury loans to credit banks. |
| Keywords: | 100% reserve banking |
| JEL: | E44 E52 G21 |
| Date: | 2024–10 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19603 |
| By: | Ms. Natasha X Che; Weining Xin; Taichi Yoshida |
| Abstract: | Using a small open economy overlapping generations model, this paper examines how AI can drive economic divergence across and within Asian economies. While AI adoption may promise sizable productivity gains, it could create temporary but potentially longlasting divergence across countries. Structurally-prepared advanced economies tend to adopt AI earlier and see immediate growth gains while emerging markets and developing economies (EMDEs) face delayed adoption and initial growth headwinds from rising costs of capital. Structural reforms that boost productivity and strengthen human capital not only accelerate adoption in EMDEs but also amplify the growth gains. Within countries, AI adoption could widen inequality along multiple dimensions: across skill groups, as high-skilled workers benefit disproportionately from complementarity with the more capital-intensive technology, and across generation, as the shift of national income toward capital favors asset-rich older households relative to younger workers who rely primarily on labor income. Redistributive policies can help mitigate these distributional pressures, though they entail equity efficiency trade-offs that vary with country-specific fiscal and demographic conditions. |
| Keywords: | Artificial Intelligence; Automation; Technological Change; Economic Divergence; Structural Reform; Inequality; Redistribution; Asia; Overlapping Generations Model; IMF working papers; equity-efficiency trade-off; growth gain; productivity gain; capital share; Capital productivity; Income; Income inequality; Global; Asia and Pacific |
| Date: | 2026–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/166 |
| By: | Aditya Aladangady; Ricardo Duque Gabriel; Carlo Wix |
| Abstract: | We introduce a novel monthly county-level consumption dataset constructed from spending data on over 350 million credit cards in the Federal Reserve's Y-14M reports, covering over 3, 000 U.S. counties since 2014. We first show that the data closely approximate traditional consumption measures, explaining 92 percent of the variation in monthly adjusted personal consumption expenditures (PCE) growth at the national level and capturing meaningful cross-sectional variation in annual adjusted PCE growth at the state level. As a proof of concept, we use the county-month panel to estimate heterogeneous consumption responses to monetary policy shocks across the county-level income distribution, an analysis infeasible with traditional consumption data. We find that low-income counties exhibit larger spending declines than high-income counties, consistent with heterogeneous agent New Keynesian models. Finally, we provide practical guidance for researchers working with similar data, discussing coverage, sample composition, and the approximation of credit card spending from credit bureau data. |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2607.08759 |
| By: | Mátyás Farkas; Zoltan Jakab; Jesper Lindé |
| Abstract: | We study how policy expectations affect the estimated natural rate of interest (r*) for the United States and the euro area. To discipline policy expectations, we incorporate information on future policy rates and long-term yields in episodes when the Fed and ECB provided forward guidance. For the post-Covid period, we find that r* rises much more than in an otherwise standard specification that omits yield-curve observables. By implication, the post-Covid tightening of the monetary policy stance was not nearly as large as standard r* models imply, which helps explain why economic activity did not slow much when nominal policy rates were raised dramatically in 2022 to fight inflationary pressures. Yield-curve information pins down anticipated policy innovations and alters r* estimates and, thus, the monetary policy stance. |
| Keywords: | Natural Rate of Interest; Bayesian Inference; DSGE Model; Monetary Policy Stance; Convenience Yield; Forward Guidance; Covid tightening; IMF working papers; yield-curve information; Policy expectation; Covid period; Central bank policy rate; COVID-19; Inflation; Dynamic stochastic general equilibrium models; Global |
| Date: | 2026–08–07 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/168 |
| By: | Bontemps, Christian; Cherbonnier, Frédéric; Magnac, Thierry |
| Abstract: | The existence of transaction taxes reduces transactions, and in the case of housing, reduces household mobility and affects the costs of downsizing in dire times. We construct and estimate an overlapping generation model in which households are heterogeneous in age and earnings, and prudential regulation and the tax system are modeled in fine detail. These housing and public policies are likely to affect markets globally, and clearing both rental and property markets is important when evaluating them. We use the institutional and data setting of France, where transactions taxes are some of the highest in Europe, and evaluate the counterfactual impact of reducing transaction taxes from 14% to 6%, similar to US levels. The impact on transactions is strong, but the impact on welfare remains limited. |
| Keywords: | Heterogenous agents |
| JEL: | C68 D15 D58 H31 R21 R31 |
| Date: | 2024–11 |
| URL: | https://d.repec.org/n?u=RePEc:cpr:ceprdp:19647 |
| By: | Mr. Francesco Grigoli |
| Abstract: | I study how the production network shapes monetary policy transmission to prices. Using U.S. data, I show that industries farther upstream from final demand exhibit larger cumulative price responses to monetary shocks, while downstream industries absorb shocks through output. A calibrated multi-sector New Keynesian model rationalizes these patterns: upstream sectors, which sell predominantly to other firms, reprice more frequently and therefore exhibit less price rigidity. A counterfactual decomposition of the price response shows that this heterogeneity in price rigidity---rather than cost-cascade propagation through input-output linkages---is the primary driver of the cross-sectional responses. The upstreamness differential is strongly asymmetric, large following expansionary shocks but nearly absent following contractionary ones, consistent with asymmetric price rigidity compounding across production stages. Together, these findings suggest that monetary policy's potency depends on the production network's architecture. |
| Keywords: | production networks; price rigidity; monetary policy transmission; input-output linkages; asymmetric price adjustment |
| Date: | 2026–06–26 |
| URL: | https://d.repec.org/n?u=RePEc:imf:imfwpa:2026/127 |
| By: | Jonathan Chiu; Cyril Monnet; Oliver Junye Xu |
| Abstract: | This paper develops a general equilibrium model to assess central bank digital currency (CBDC) design in a monetary system where traditional banks and “crypto banks” (i.e., banks that issue stablecoins) coexist. We compare tokenized and non-tokenized CBDC, showing that their desirability depends on the reliability of private money provision, the availability of collateral assets and the features of the crypto sector. Crucially, we show that the tokenization decision of CBDC matters for the equilibrium outcomes only when collateral use differs across sectors, identifying conditions under which tokenization is necessary to improve welfare. Tokenized CBDC can crowd out stablecoins and improve efficiency when crypto banks are not that trustworthy and crypto assets are scarce. Non-tokenized CBDC may be preferred when crypto transactions are less desirable or when reallocating reserves from traditional to crypto banks is beneficial. Our results highlight a trade-off between gains in payment efficiency and potential reductions in bank lending. These findings offer new policy insights on CBDC design under evolving financial conditions. |
| Keywords: | Money and payments, Digital assets and fintech, Payment and financial market infrastructures |
| JEL: | E50 E58 |
| Date: | 2026–05 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-14 |
| By: | Wibisana, Putu Sanjiwacika; Rubinyi, Steven Louis |
| Abstract: | Thailand's transition to high-income status is, at its core, an urban challenge. Bangkok generates nearly half of the national gross domestic product, yet its dominance is increasingly constrained by congestion, environmental stress, and diminishing returns to further concentration. Successive National Spatial Development Strategies have called for a more multi-nodal urban hierarchy, but the analytical basis for evaluating that ambition has remained thin. This paper builds and calibrates a Dynamic Recursive Spatial Quantitative General Equilibrium model for Thailand's urban system from 2025 to 2050, and uses it to evaluate three counterfactual policy portfolios that allocate the same aggregate productivity-investment envelope (roughly 2.3 percent of 2030 urban gross domestic product) across Bangkok and the eleven designated secondary cities in different proportions: a Bangkok-leaning portfolio (80/20), a balanced portfolio (50/50), and a secondary-leaning portfolio (20/80). The Bangkok-leaning portfolio leads through 2045, but the secondary-leaning portfolio overtakes it between 2045 and 2050, delivering a 12.38 percent gain in national gross domestic product per capita above the no-investment baseline against 11.62 percent for the Bangkok-leaning alternative. The balanced portfolio is dominated by both skewed alternatives in 2050, reflecting a threshold property of agglomeration economies. A two-dimensional envelope-by-split sweep shows that the relative ranking is genuinely contingent on the scale and horizon of the commitment: below a certain tipping point, the Bangkok-leaning portfolio dominates; above it, the secondary-leaning portfolio does. A modest, well-allocated spatial-investment program is unlikely to be the engine of Thailand's high-income transition; sufficient scale of commitment is a precondition. |
| Date: | 2026–08–10 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:11437 |
| By: | Alon, Titan (University of California, San Diego); Doepke, Matthias (London School of Economics); Olmstead-Rumsey, Jane (London School of Economics and Political Science); Symons-Hicks, James (London School of Economics and Political Science); Tertilt, Michèle (University of Mannheim) |
| Abstract: | We study the transmission of macroeconomic shocks in a model of the household sector featuring single and married households, joint labor-supply decisions of women and men, and childcare needs that interact with the availability of remote work. Recessions concentrated among women are deeper and more persistent than those concentrated among men, reflecting weaker within-family insurance and a new empirical finding that women re-enter employment more slowly after job loss. Yet recovery from the pandemic recession, which had a disproportionate impact on working women due to school closures and the sectoral distribution of job losses, was surprisingly rapid. We show that in our model, the expansion of remote work and shifting caregiving norms after the pandemic raise female labor supply and men's share of childcare, thereby accounting for the observed recovery. These changes permanently increase female participation and narrow the gender earnings gap, but their effect on future recessions is limited: greater labor force attachment among women weakens the added-worker effect but also accelerates labor market re-entry, leading to offsetting effects on aggregate recession dynamics. |
| Keywords: | recessions, business cycle, he-cession, she-cession, pandemic recession, job loss, added worker effect, gender equality, female employment, school closures, childcare, gender wage gap |
| JEL: | D13 E32 J16 J20 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18830 |