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on Dynamic General Equilibrium |
| By: | Anning Xie |
| Abstract: | This paper studies the role of intrahousehold bargaining in shaping women’s fertil ity decisions over the life cycle. I develop and estimate a quantitative life-cycle model featuring a dynamic feedback loop between fertility and bargaining power: childbirth low ers women’s wages and outside options, weakening their bargaining position within the household and further constraining their autonomy over future fertility decisions. These bargaining concerns are quantitatively important in depressing marriage incentives, gener ating inefficient divorce, and consequently lower fertility at the household level. Exploiting the relaxation of the One-Child Policy in China, I show that couples with misaligned fer tility preferences exhibit smaller fertility responses and higher divorce rates than couples with aligned preferences. The estimated model further indicates that such couples are less likely to form marriages and tend to marry at later ages. Removing bargaining frictions encourages earlier childbearing, increases completed fertility, and strengthens fertility re sponse to family policies. |
| Keywords: | fertility, intrahousehold bargaining, marriage and divorce, female labor supply, human capital |
| JEL: | D15 J12 J13 J16 |
| Date: | 2026–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_760v2 |
| By: | Nikolay Hristov; Dominik Menno |
| Abstract: | We study how long-run inflation affects systemic bank-run risk in a medium-scale New Keynesian model with banks and endogenous financial panics. In the benchmark calibration, the bank-run probability more than doubles when annual trend inflation increases from zero to six percent. Higher trend inflation makes price-setting firms more forward-looking, thereby muting expected real-rate declines and amplifying the fall in asset prices during crises. The zero lower bound raises run risk only at low long-run inflation rates. Disinflationary transitions can sharply increase short-run risk, especially if a "cold turkey" disinflation is pursued. Finally, we discuss implications for monetary and macroprudential policy trade-offs. |
| Keywords: | long-run inflation, bank runs, financial panics, crisis probability |
| JEL: | E12 E23 E31 E32 E44 E52 G01 G21 G33 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12918 |
| By: | Francesco Ferrante; Andrea Prestipino; Andrea Raffo; Michael E. Waugh |
| Abstract: | U.S. tariff rates in 2025 rose to levels not seen since the Great Depression, yet imports increased. To account for the missing trade collapse, we develop an open-economy New Keynesian model with tariff heterogeneity, inventories, and shocks to investment that capture the AI-driven boom. The model matches the untargeted paths of imports, output, and inflation; we use it to decompose the effects of tariffs and the investment boom. Absent the investment boom, imports would have fallen by 10 percent and activity would have contracted by 0.7 percent. The effects of tariffs depend on which goods are tariffed: tariffs on consumption and intermediates act like shocks to supply; tariffs on capital goods act like shocks to demand. The concentration of the 2025 tariff increases on consumption goods and the relative sparing of capital goods limited the damage to output while amplifying the inflationary impulse. |
| JEL: | E12 E52 F13 F41 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35630 |
| By: | Yves Achdou; Johannes Brumm; Lukas Frank |
| Abstract: | We propose a comprehensive framework for solving overlapping-generations (OLG) models in continuous time with both idiosyncratic and aggregate risk. Our general characterization of equilibrium through the master equation operates on the joint distribution over the continuous idiosyncratic states, age and wealth. Our computational strategy is to take a finite-dimensional representation of this distribution as an input of a neural net which in turn outputs a finite-difference representation of the (conditional) value function. This idea can be applied generally to heterogeneous agent models with aggregate risk, and we call it finite-difference neural operator. Our method combines advantages from modern neural nets and traditional finite-difference methods: It is grid-free in the high-dimensional distribution, and retains control on boundary conditions in low-dimensional state variables. Moreover, our method is able to enforce shape constraints. We showcase its flexibility by solving a continuous-time OLG model with aggregate risk alone where we characterize the distribution by its supporting function; and to an OLG model with both types of risk. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.11134 |
| By: | Andrew Binning; Christie Smith; Vu, Hanna (The Treasury) |
| Abstract: | In this paper, we use the Treasury’s overlapping generations (OLG) model to describe the macroeconomic, fiscal, and distributional effects of three policy reforms that reduce superannuation expenditure pressures: i) changing NZS indexation methods, ii) adjusting the pension replacement rate, and iii) combining changes to indexation with an increase in the age of eligibility. The scenarios presented are hypothetical analytical exercises designed to illustrate the mechanisms at play within the model rather than represent specific policy proposals. The analysis highlights the macroeconomic effects of these reforms on aggregate income, capital accumulation, and labour supply, as well as the fiscal implications for government expenditure and revenue. In our OLG model, reforms aimed at reducing the fiscal costs of superannuation would enhance aggregate labour supply, capital accumulation, and income by alleviating tax distortions. The OLG framework also enables us to examine how alternative strategies affect people with different lifetime income profiles and those born in different years. The results illustrate that different households respond differently to the policies considered, and that the strategies have different consequences for wellbeing, across generations and for people with different income profiles. The distributional impacts are complex. While future generations stand to benefit from lower tax burdens and stronger transitional economic growth, some current generations and lower-income individuals would be made worse off compared to a Baseline scenario where additional taxes fund the existing NZS scheme. The scenarios examined in this paper consider only one dimension of the broader set of policy choices discussed in the LTFS. Governments have a range of potential tools available to address long-term fiscal pressures, including changes to spending programmes, eligibility settings, the mix of taxes used to raise revenue, and policies that influence economic growth and labour force participation. The purpose of this Note is to provide technical insight into how alternative superannuation policies can be used to address some of the fiscal pressures that are expected to arise in future decades. |
| JEL: | H24 H3 |
| Date: | 2026–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztans:an26/06 |
| By: | Shigeto Kitano (Research Institute for Economics and Business Administration, Kobe University, JAPAN; Fuculty of International Studies, Hiroshima City University, JAPAN) |
| Abstract: | Using a DSGE model, we examine the effects of financial repression policies on the Lao economy. Facing a high level of external debt, the Lao government is likely to rely increasingly on domestic financing, thereby creating incentives to use financial repression. We consider two types of financial repression policies: requiring domestic banks to increase their holdings of government bonds and repressing the government's interest payments through a tax on banks' returns on government bonds. Our numerical experiments show that both policies crowd out capital investment, reduce output, and ultimately worsen the government's primary balance. These results suggest that financial repression may worsen the government's fiscal condition despite its intended purpose of easing the fiscal burden. |
| Keywords: | Financial repression; Crowding out; Emerging economies; Laos; DSGE model |
| JEL: | E32 E44 G28 H63 O29 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:kob:dpaper:dp2026-24 |
| By: | Daniela Hauser; Stefano Gnocchi; Laure Simon |
| Abstract: | This paper documents large heterogeneity in the cyclicality of expenditure items within aggregate consumption and shows that a substantial part of this heterogeneity can be explained by differences in the household time required to consume. Combining data from the American Time Use Survey and Personal Consumption Expenditures, we construct a set of consumption activities and establish new stylized facts. We show that in a recession consumption expenditures fall to a greater extent for those activities to which households reallocate a larger share of foregone market hours, suggesting that time and expenditures are substitutes. We develop a two-sector New Keynesian model that rationalizes these patterns. Disciplining the model with microeconomic estimates of the elasticity of substitution between time and expenditures and of price stickiness, we find that our model accounts for roughly forty percent of the impact expenditure response to monetary policy shocks. |
| Keywords: | Models and tools; Economic models; Monetary policy; Inflation dynamics and pressures; Monetary policy framework and transmission |
| JEL: | D D1 D12 E E2 E21 E3 E32 E5 E52 J J2 J22 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:bca:bocawp:26-29 |
| By: | Alex Clymo; Piotr Denderski; Yusuf Mercan; Benjamin Schoefer |
| Abstract: | Job mobility is risky, workers are risk averse, and insurance markets are incomplete. This paper studies how these features curb and distort job-to-job transitions by making workers excessively cautious, placing too much weight on job safety over wage and productivity gains. We demonstrate this tradeoff by eliciting employed workers’ wage-safety indifference curves in a custom, representative survey. On average, employed U.S. workers require a 1.63 percent pay raise to accept each additional percentage point of annual unemployment risk in a new job. We assess the macroeconomic consequences of our mechanism by embedding it into a general equilibrium search model. Jobs differ in both wages (productivity) and unemployment risk, and risk-averse workers self-insure against unemployment risk through a non-state-contingent bond while searching on and off the job. We find that a complete markets counterfactual would boost job mobility by 12 percent and productivity by 0.19 percent. We also highlight a new role for unemployment insurance—encouraging employed workers to accept risky but high-productivity offers, thereby increasing productivity (by 1.3 percent) and job creation, as well as job loss and unemployment. |
| JEL: | J62 J64 E24 |
| Date: | 2026–08–19 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedkrw:103670 |
| By: | Andrew Binning; Murat Özbilgin; Christie Smith; Vu, Hanna (The Treasury) |
| Abstract: | In this paper we use the Treasury’s overlapping generations (OLG) model to describe the macroeconomic, fiscal, and distributional effects that arise when New Zealand’s superannuation scheme is amended to moderate increases in superannuation expenditure. In this Note, we focus specifically on changing the age of eligibility from 65 years of age to higher ages. We also consider automatic rules for adjusting the age at which people become eligible for superannuation. We illustrate the macroeconomic effects of these changes for income, capital accumulation and labour supply, and consider the fiscal implications for expenditure and revenue. Lastly, we describe the welfare (wellbeing) implications of these alternative pension policies for people of five different income types, encompassing low-, median-, and three higher-income levels. This welfare analysis allows us to trace out how such policy changes would affect people born before and after any policy change, including those born in the more distant future. Our analysis shows that policy changes to reduce the fiscal costs of NZS would increase aggregate labour supply, capital accumulation, and income by moderating the tax increases required for fiscal sustainability and reducing the distortionary effects of taxes on private behaviour. We also show that the distributional outcomes of these policies are fairly complex: generations several decades ahead would benefit but some earlier generations and some people with lower incomes would be better off under a baseline fiscal strategy in which additional taxes fund the current NZS scheme. The magnitude and timing of policy changes also affects the costs and benefits of such policy change. We show that pre-announcing policy changes and spreading changes out over time reduces the burden felt by people from these changes because they have more time to adapt their lifetime behaviour, including consumption, saving, and labour supply. Our analysis implies that the age of eligibility would need to be raised to very high levels to stabilise pension expenditure as a share of gross domestic product, raising the possibility that other policy adjustments might be needed to support changes in the age of eligibility. Additional policy changes would also be required to meet the expenditure pressures affecting health expenditure. Governments have a range of potential tools available to address long-term fiscal pressures, including means-testing of pension eligibility to target support, changes to the magnitude of pensions, changes to other spending programmes, the mix of taxes used to raise revenue, and policies that influence public productivity, economic growth and labour force participation. This Analytical Note and the other background papers released alongside the LTFS contribute to the evidence base underpinning public discussion of New Zealand’s long-term fiscal sustainability. |
| JEL: | H3 H55 |
| Date: | 2026–07–30 |
| URL: | https://d.repec.org/n?u=RePEc:nzt:nztans:an26/05 |
| By: | Laura Liu; Mikkel Plagborg-M{\o}ller; Nelson Matthew P. Tan |
| Abstract: | We develop a method for estimating and testing a single block of a macroeconomic model with heterogeneous agents, without placing assumptions on the structure of the rest of the economy. In a large class of models, individual agents' decisions depend on the macroeconomy only through their expectations of the evolution of a finite-dimensional vector of "sufficient statistics" (e.g., asset returns or aggregate earnings). Our estimator selects the structural parameters that provide the best model-consistent fit between empirical impulse responses with respect to identified macro shocks of (a) cross-sectional moments of agent choices (e.g., moments of consumption) and (b) the vector of sufficient statistics. In a simulation illustration, we estimate a two-asset heterogeneous household model block without restricting production, firm investment, financial intermediation, monetary policy, trade, etc. |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2608.13953 |
| By: | Alex Clymo; Piotr Denderski; Yusuf Mercan; Benjamin Schoefer |
| Abstract: | Job mobility is risky, workers are risk averse, and insurance markets are incomplete. This paper studies how these features curb and distort job-to-job transitions by making workers excessively cautious: they place too much weight on job safety over wage and productivity gains. We demonstrate this tradeoff by eliciting employed workers’ wage-safety indifference curves in a custom, representative survey. On average, employed US workers require a 1.63% pay raise to accept each additional percentage point of annual unemployment risk in a new job. We assess the macroeconomic consequences of our mechanism by embedding it into a general equilibrium search model. Jobs differ in both wages (productivity) and unemployment risk, and risk-averse workers self-insure against unemployment risk through a non-state-contingent bond while searching on and off the job. We find that a complete markets counterfactual would boost job mobility by 12% and productivity by 0.19%. We also highlight a new role for unemployment insurance: it encourages employed workers to accept risky but high-productivity offers, thereby increasing productivity (by 1.3%) and job creation—as well as job loss and unemployment. |
| JEL: | E24 H20 J2 J62 J64 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35580 |
| By: | Omar Licandro; Juan Ignacio Vizcaino |
| Abstract: | This paper examines how to measure welfare-relevant growth in economies undergoing structural transformation, where persistent changes in relative prices and expenditure patterns can lead to aggregation biases in standard output measures. We address this issue within a continuous-time dynamic general equilibrium model featuring non-homothetic preferences, sector-specific productivity trends, and investment-specific technical change. We compare two welfare-based measures of real income growth: a current-base equivalent variation measure and a chained Fisher-Shell index. The chained Fisher-Shell index coincides with the chained Divisia index, providing strong theoretical foundations for national accounting methodology and requiring the growth rates and nominal expenditure shares of major expenditure components as sufficient statistics for a welfare-based output index. In contrast, the current-base index is more informationally demanding, requires systematic revisions, and introduces base-dependent biases that distort the evaluation of past growth. Our quantitative analysis reveals that these biases are substantial, increase over time, and conflict with key stylized facts in the structural transformation literature. |
| Keywords: | structural transformation, non-homothetic preferences, investment-specific technical change, chained quantity indices, GDP measurement, equivalent variation, divisia index, Fisher-Ideal Index, Fisher-Shell Index |
| JEL: | C43 E01 E13 O11 O14 O41 O47 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12946 |
| By: | Thomas S. Gundersen; Ewoud Quaghebeur; Håkon Tretvoll (Statistics Norway) |
| Abstract: | Commodity price shocks can be a key driver of business cycles in resource-rich small open economies. We assess their importance for the Norwegian economy by estimating a structural VAR model and measuring the contribution of oil price shocks to fluctuations in economic activity. Focusing on the oil price collapse of 2014–2016, the VAR evidence indicates sizable spillovers from oil prices to the non-resource economy. We develop and estimate a small open economy DSGE model with a resource extraction sector that demands both materials and investment goods from the rest of the economy. Investment adjustment costs in the oil sector generate gradual and persistent spillovers to mainland activity following oil price shocks. Hence, the model is consistent with the empirical responses obtained from the VAR. Applying the framework to the COVID-19 pandemic, we find that while pandemic-specific shocks dominated the contraction, oil price movements also contributed non-negligibly to the downturn. |
| Keywords: | business cycles; small open economy; commodity prices |
| JEL: | E32 F41 F44 Q43 |
| URL: | https://d.repec.org/n?u=RePEc:ssb:dispap:1039 |
| By: | Titan Alon; Matthias Doepke; Jane Olmstead-Rumsey; James Symons-Hicks; Michèle Tertilt |
| 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:crm:wpaper:26203 |
| By: | Katsuyuki Shibayama |
| Abstract: | Applying Arrow and Hurwicz fs (1958a) classical notional-time (NT) stability analysis to dynamic general equilibrium models, we ask whether local Hamiltonian gradients, often interpreted as prices and shadow prices, provide correct signals to restore equilibrium following a deviation. Under some assumptions, a gduality h emerges between reduced real-time (RT) dynamics and the corresponding NT adjustment, both involving only dynamic variables. Let m denote RT indeterminacy (stable roots minus state variables), and n the number of unstable roots in this reduced NT adjustment (n . 0). We show that m and n have the same parity. Thus, in this reduced system, odd RT indeterminacy (e.g., m = 1) implies that the specified local NT adjustment has at least one unstable direction. Under concavity, boundary, and regularity conditions, we also establish global NT convergence for finite-horizon planner problems. |
| Keywords: | Dynamic General Equilibrium Models; Blanchard and Kahn Condition; Indeterminacy; Stability of General Equilibrium; Notional Time Adjustment |
| JEL: | C62 E3 E5 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:ukc:ukcedp:2603 |