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on Dynamic General Equilibrium |
| By: | Richard Dennis |
| Abstract: | This paper describes SolveDSGE, a comprehensive Julia package designed to solve and analyze nonlinear Dynamic Stochastic General Equilibrium models. Although the package supports standard perturbation methods up to the fourth order, its originality and primary contribution resides in its implementation of various projection methods - including Chebyshev, Smolyak, hyperbolic-cross and piecewise linear approximations - to achieve global accuracy. By providing a unified interface that allows interchangeable solution initialization (homotopy) the framework significantly advances our ability to solve nonlinear models. We demonstrate the utility of the package through a series of applications, highlighting its efficiency and ease of use in modern macroeconomic research. |
| Keywords: | DSGE models, projection methods, perturbation methods, Julia |
| JEL: | E42 E44 E52 E58 E61 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2026-79 |
| By: | de Beauffort, Charles; Rannenberg, Ansgar |
| Abstract: | Government spending falls disproportionately on non-tradable services. We show empirically that government spending shocks stimulate private consumption along with sizable spillovers to the goods sector and a relative decline in goods prices. We rationalize these findings with a two-sector open-economy HANK model. Uninsurable income risk and precautionary savings lead to a persistent income-driven expansion in private consumption. In the tradable sector, import intensity and limited labor reallocation dampen wage pass-through to prices, matching observed co-movements. The resulting expenditure switching produces a positive tradable output response despite deteriorating net exports. Household heterogeneity and trade openness jointly shape sectoral fiscal multipliers. JEL Classification: E62, F41, E21, C11, C32 |
| Keywords: | consumption, fiscal policy, government spending, heterogeneous agents, open economy, sectoral spillovers, SVAR, trade |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:ecb:ecbwps:20263279 |
| By: | Kanato Nakakuni |
| Abstract: | Empirical studies suggest that income uncertainty depresses fertility, yet its policy im plications remain underexplored. This paper shows that income-tested education subsidies provide insurance against income risk for households with children, mitigating the negative effects of income uncertainty on fertility. I build and calibrate an incomplete-market general equilibrium lifecycle model with fertility and college enrollment choices, in which altruistic parents make asset transfers to support their children’s college education. Having more children increases the risk that parents may be unable to finance their children’s education after bad income shocks or, if they do finance it, must endure substantially lower lifetime consumption. This mechanism discourages fertility under income uncertainty and generates the observed negative relationship between income risk and fertility. Counterfactual exper iments show that income-tested college subsidies insure households against these risks by reducing education costs contingent on bad income shocks. The resulting fertility responses amplify the aggregate effects of the subsidy, including increases in educational attainment and intergenerational mobility. |
| Keywords: | Fertility, incomplete markets, college subsidy, income risk |
| JEL: | C68 I28 J13 J24 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_780 |
| By: | Joshua Coven (CUNY Baruch College); Sebastian Golder (New York University); Arpit Gupta (New York University); Abdoulaye Ndiaye (New York University, Stern School of Business) |
| Abstract: | Low property taxes amplify lock-in among elderly homeowners, limiting housing access for young families. Raising them reallocates housing toward the young through two channels: capitalization into lower prices reduces required down-payments for financially constrained buyers, a form of embedded leverage, while higher tax obligations raise holding costs for older owners. In our overlapping generations model, raising California's property taxes to Texas levels increases young homeownership while decreasing elderly homeownership. Removing step-up basis also lowers elderly homeownership, suggesting their tenure is sustained by bequest tax advantages. The tax treatment of housing shapes housing allocation across generations. |
| Keywords: | housing affordability, housing inequality |
| JEL: | H71 R21 H24 J11 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:hka:wpaper:2026-010 |
| 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: | chained quantity indices, divisia index, equivalent variation, Fisher-ideal index, Fisher-Shell index, GDP measurements, investment-specific technical change, non-homothetic preferences, structural transformation |
| JEL: | C43 E01 E13 O11 O14 O41 O47 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1592 |
| By: | Jean-Paul K. Tsasa |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:cvi:wpaper:2026-003-02 |
| By: | Aydan Dogan; Ozgen Ozturk |
| Abstract: | We study how the financing of innovation shapes the transmission of monetary policy to productivity. Using US firm balance-sheet data matched to loan contracts, we show that contractionary monetary policy shocks reduce cash flow similarly across firms but lower R&D more among those without access to cash flow-based borrowing, where credit is extended against earnings rather than collateral. In a New Keynesian endogenous growth model with heterogeneous access to external finance, we show that a 25 basis point tightening lowers output persistently by 0.12%. Extending access to all firms reduces this loss by one third. The loss falls disproportionately on firms without access, which are younger and produce more and higher-quality patents. |
| JEL: | E22 E32 E44 E52 G32 |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023581 |
| By: | Bandoni Emil (Central Bank of Ireland and University College Dublin); Fugazza Carolina (University of Turin and CeRP-CCA) |
| Abstract: | A well-documented pattern in US household portfolio data is that the conditional risky share remains broadly stable throughout retirement. We ask whether rare but catastrophic health-expenditure shocks in retirement are sufficient to account for this pattern. We develop a parsimonious life-cycle portfolio-choice model in which rare health disasters, calibrated from Health and Retirement Study (HRS) evidence on severe long-term-care episodes and out-of-pocket medical spending, can absorb a large share of current retirement income and weaken the safe-asset role of pension income. Under this data-driven calibration, the model reproduces the nearly flat risky-share profile observed in the Survey of Consumer Finances and generates a negative health gradient consistent with HRS panel evidence, without bequest motives, housing, annuity choice, endogenous health investment, or recursive preferences. |
| Keywords: | life-cycle portfolio choice, disaster risk, long-term care, health risk, out-of-pocket medical spending |
| JEL: | D15 E21 G11 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:tur:wpapnw:109 |
| By: | Florian Huber; Gary Koop; Christian Matthes |
| Abstract: | Heterogeneous-agent New Keynesian (HANK) models characterize how entire cross-sectional distributions respond to structural shocks. Traditional representative-agent models are routinely disciplined by impulse responses from aggregate vector autoregressions (VARs). HANK models have no comparable established empirical benchmark because they make predictions not only about aggregates, but also about distributions of micro-level data. We propose a Bayesian benchmark that jointly models macroeconomic aggregates and several marginal distributions from repeated cross sections, including distributions observed in different surveys. Our approach can use both standard structural VAR identification approaches on macroeconomic aggregates and identification restrictions imposed on micro-level data. The model delivers a joint posterior of the distributional effects of shocks, without the need for household panel data or a separate first-stage density estimate. |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2609.06827 |
| By: | Canavire Bacarreza, Gustavo (World Bank); Tejada, Mauricio (Universidad Diego Portales) |
| Abstract: | Workers in developing economies spend much of their careers self-employed, yet its consequences are rarely studied over the full career. We ask whether self-employment leads to wage work, how much reflects search frictions rather than preference, and what its removal would mean for employment and inequality. Using an on-the-job search model with endogenous participation, short panels and repeated cross-sections from Ecuador, where half of employment is self-employment, we simulate 50-year careers. Self-employed workers receive wage offers as often as the unemployed, while starting a career in self-employment delays wage employment for years without reducing lifetime income. Yet 79 percent of self-employment time is spent in activities workers would leave for a wage job paying their group’s average wage. Eliminating self-employment triples unemployment, raises non-participation among unskilled women from 42 to 63 percent, and reduces lifetime income by 17 percent overall and 46 percent for unskilled women. Inequality falls among workers but rises 14 percent when the jobless are included and 23 percent over full careers. |
| Keywords: | self-employment, labor-market search, lifetime income inequality |
| JEL: | J46 J64 D31 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18882 |
| By: | Goodhart, Charles (London School of Economics and CEPR); Peiris, M. Udara (Department of Economics, Oberlin College); Tsomocos, Dimitrios (University of Oxford); Wang, Xuan (Vrije Universiteit Amsterdam and Tinbergen Institute) |
| Abstract: | Corporate borrowing creates safe claims for some households and concentrates residual risk in equity for others. This portfolio heterogeneity drives a supply-side channel through which corporate leverage conditions monetary transmission. Tightening erodes equity holders’ wealth while safe-asset holders are cushioned; the resulting income effect makes aggregate labor fall more at high leverage, raising the sacrifice ratio. A static model yields a closed-form hump in leverage, with the US range on the rising side, disciplined by Survey of Consumer Finances portfolio shares. A calibrated dynamic model roughly doubles the sacrifice ratio, and US local projections agree in sign, shape, and timing. |
| Keywords: | Household heterogeneity, Monetary policy, Corporate leverage, Phillips curve, Labor supply |
| JEL: | E31 E32 E52 G11 G51 |
| Date: | 2026–06–30 |
| URL: | https://d.repec.org/n?u=RePEc:cxv:wpaper:2602 |
| By: | Jonathan Acosta-Smith (The Organisation of Economic Co-Operation and Development); Marzio Bassanin (Bank of England); Ivy Sabuga (International Monetary Fund.) |
| Abstract: | We assess the macroeconomic effects of the output floor, a new regulatory constraint introduced as part of the Basel III framework. The output floor is designed to provide a backstop against excessively low risk-weighted assets (RWA) modelled by banks relative to the riskiness of the underlying exposures. Our model shows that it counteracts the downward pressure on modelled RWA during economic expansions and, in turn, reduces the cyclicality of risk-weighted capital requirements. This mitigates increases in the credit-to-GDP ratio and supports the objectives of the macroprudential authority. Our analysis also uncovers important sectoral effects. Estimating the model for the UK economy, we find that during an expansion the output floor dampens the growth of mortgage lending but amplifies the expansion of lending to firms, although the latter effect is more than offset by the former. |
| Keywords: | Capital regulation;output floor;macroprudential policy;DSGE models |
| JEL: | E32 E44 E58 |
| Date: | 2026–09–04 |
| URL: | https://d.repec.org/n?u=RePEc:boe:boeewp:023582 |
| By: | Sauer, Radek (Central Bank of Ireland) |
| Abstract: | The paper explores how a small low-tax economy is affected by foreign corporatetax shocks. To address this question, I develop a dynamic general-equilibrium model, in which multinational firms engage in both tangible and intangible FDI. Intangible assets arise from multinationals’ R&D activities. Each multinational decides whether to place its intangibles in the parent firm or in an overseas affiliate. The placement decision shapes the intra-firm trade in royalties and R&D services. The model reveals that corporate taxes can directly impact arm’s-length prices of multinational firms. I investigate territorial corporate taxation as well as worldwide taxation of intangible income. |
| Keywords: | intangible assets, multinational enterprises, corporate taxation, royalties, R&D services, endogenous markups. |
| JEL: | E22 E62 F23 H25 |
| Date: | 2026–08 |
| URL: | https://d.repec.org/n?u=RePEc:cbi:wpaper:10/rt/26 |