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on Dynamic General Equilibrium |
| By: | Yohann Berthelin (Université Lumière Lyon 2, CNRS, Université Jean-Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France); Lise Clain-Chamosset-Yvrard (Université Lumière Lyon 2, CNRS, Université Jean-Monnet Saint-Etienne, emlyon business school, GATE, 69007, Lyon, France) |
| Abstract: | We address the question of whether macroprudential policy can extend its mandate beyond correcting financial frictions to also internalizing environmental externalities. We analyze a dynamic general equilibrium model with two externalities: financial frictions and pollution from using brown capital. Our model features heterogeneous agents with infinite lifetimes, of two kinds of capital, polluting and non-polluting, and of a macroprudential policy represented by differentiated loan-to-value (LTV) through a credit constraint faced by entrepreneurs. First, we derive closed-form expressions for optimal differentiated LTV ratios that replicate the social planner’s allocation. Second, the green LTV internalizes financial frictions only, while the brown LTV additionally accounts for pollution externalities, which can turn negative when environmental costs are sufficiently high, indicating that the first-best allocation instead requires a tax-like penalty on the financing of dirty capital rather than a conventional non-negative loan-to-value ratio. Third, the LTV associated with polluting capital becomes more stringent when environmental quality directly affects agents’ utility rather than total factor productivity. |
| Keywords: | Environmental policy, Macroprudential policy, Environmental transition |
| JEL: | E32 Q50 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:gat:wpaper:2608 |
| By: | Maarten Meeuwis; Dimitris Papanikolaou; Lawrence D.W. Schmidt |
| Abstract: | We study how aggregate financial conditions shape firm insurance and, through it, labor income risk. In a directed search model with dynamic wage contracts and two-sided limited commitment, firm insurance against idiosyncratic shocks erodes when risk premia rise. Using U.S. administrative data, we document new evidence supporting the model: pass-through of firm shocks to earnings rises in bad times, especially for lower-paid workers near the separation margin. The model reproduces many untargeted time-series and cross-sectional features of earnings risk and implies substantial welfare costs of idiosyncratic risk, high private discount rates on human capital, and large gains from recession-contingent transfers. |
| JEL: | D52 E0 E24 E32 E44 G0 G12 J0 J08 J31 J41 J63 J64 J65 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35781 |
| By: | Alexander Hansak (University of Graz, Austria) |
| Abstract: | This paper studies how endogenous tax compliance changes the incidence of capital taxation when households earn heterogeneous returns. I develop an incomplete-markets heterogeneous-agent model in which households save, invest in entrepreneurial activities, and can conceal capital-side tax liabilities. Disciplined by U.S. evidence, the model quantifies how concealment creates a wedge between statutory and effective capital taxation and how this wedge interacts with return heterogeneity, the statutory tax rate, and the choice of tax base. Changing the tax base generates a substantial endogenous compliance response: replacing the capital-income tax with a revenue-equivalent wealth tax reduces the liability-weighted concealment rate from 15.9% to 3.3% and raises long-run welfare. The difference between statutory and effective taxation also becomes increasingly important at high capital-income tax rates. At a 40% statutory rate, output is nearly 7% higher with endogenous evasion than under perfect compliance, while capital-tax revenue is about one third lower. Finally, transition dynamics under a balanced-budget fiscal closure reveal a distinct fiscal-timing margin. Abolishing capital-income taxation raises long-run welfare but lowers welfare of households alive at implementation, whereas the wealth-tax replacement raises welfare both at implementation and in the long run. The incidence of capital taxation therefore depends jointly on statutory tax policy, endogenous compliance, and the dynamics of fiscal adjustment. |
| Keywords: | Tax evasion, Tax enforcement, Capital income taxation, Wealth taxation, Heterogeneous returns, Wealth inequality |
| JEL: | H21 H22 H26 E21 E22 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-20 |
| By: | Hassan Afrouzi (Columbia University Department of Economics and NBER); Andres Blanco (Federal Reserve Bank of Atlanta and Emory University); Andrés Drenik (University of Texas at Austin Department of Economics and NBER); Erik Hurst (The University of Chicago Booth School of Business and NBER) |
| Abstract: | We study how an automating technology affects career dynamics, human capital, and welfare in an economy where workers acquire skill through the tasks they perform. In a continuous-time general equilibrium model, learning-by-doing is determined jointly with the share of tasks automated, the frontier of tasks managers maintain, and the worker-to-manager career transition. Economies with high learning capacity admit pairs of stationary equilibria strictly ranked by the aggregate learning rate. Cheaper technology has opposite effects across the two: in the high-learning equilibrium, it raises welfare through the learning channel itself; in the low-learning equilibrium, it tips the economy into a human-capital trap. The planner's first-best combines a tax on automation profits with a subsidy on frontier-maintenance expenditures at a common rate. |
| JEL: | E23 E24 J24 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:bfi:wpaper:2026-61 |
| By: | Anat Assoratgoon |
| Abstract: | This paper examines the role of misperception in shaping the inflation dynamics of Thailand following the 2022 energy price shock. For this purpose, I evaluate whether a New Keynesian model of a small open economy featuring a signal extraction problem can replicate the inflation and broader macroeconomic dynamics observed in Thailand during this episode. The signal extraction problem arises because agents observe the terms-of-trade shock but cannot distinguish its constituent components, transitory versus persistent, and must therefore infer the underlying state via the Kalman filter. Four information regimes are compared: full information, symmetric limited information in which both the central bank and the private sector misperceive, and two asymmetric cases in which only one agent misperceives while the other correctly identifies the shock. A simple distance-based comparison against Thai data indicates that the symmetric limited information regime most plausibly characterizes the prevailing dynamics of the 2022 Thai economy. The asymmetric cases further reveal that the consequences of misperception depend critically on who gets it wrong. Central bank misperception produces a prolonged inflation surge alongside a relatively muted output contraction, while private-sector misperception keeps inflation contained at the cost of a sharper and more persistent output decline – a stark illustration of the inflation–output trade-off in action. |
| Keywords: | Monetary policy; Signal extraction; Energy price shocks; Small open economy; New Keynesian model; Misperception; Inflation dynamics; Bank of Thailand |
| JEL: | E31 E52 E58 F41 Q43 D84 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:pui:dpaper:263 |
| By: | Riccardo Degasperi (Bank of Italy); Tara Hamadi (Queen Mary University of London); Filippo Natoli (Bank of Italy); Valerio Nispi Landi (Bank of Italy); Kevin Pallara (Bank of Italy) |
| Abstract: | We examine the macroeconomic implications of the green transition, focusing on the role of carbon policy. Using high-frequency surprises around regulatory events in the EU Emissions Trading System and a Proxy-SVAR framework, we identify two distinct shocks: one to the current policy stance (current stance shocks) and another to the expected path of the green transition (expected path shocks). Both types of shocks reduce greenhouse gas emissions and economic activity, but differ in their inflationary effects. Current stance shocks raise inflation, while expected path shocks are deflationary. A structural scenario analysis shows that monetary policy easing following a path shock substantially mitigates output losses and moderates the decline in inflation. Moreover, path shocks lower expected growth, depress economic sentiment and increase uncertainty, while also encouraging a reallocation towards greener assets and reducing climate-related risks. These findings align with the predictions of an environmental New Keynesian model. Our results highlight the importance of forward guidance in climate policy, emphasizing its role in shaping macroeconomic expectations and accelerating the transition to a low-carbon economy. |
| Keywords: | climate policy, forward guidance, inflation, green transition |
| JEL: | C3 E3 H23 Q58 |
| Date: | 2026–07 |
| URL: | https://d.repec.org/n?u=RePEc:bdi:wptemi:td_1540_26 |
| By: | Kaiji Chen; Hanming Fang; Yang Tang |
| Abstract: | Rapid economic growth creates large differences in lifetime incomes across generations. This paper examines the intergenerational redistribution generated by subsidized access to appreciating public assets in rapidly growing economies. We show that providing incumbent generations with subsidized access to these assets before future growth is fully capitalized into market values gives them an early claim on subsequent economic growth, thereby redistributing resources from future to incumbent generations. In the context of housing privatization, subsequent capital gains on privatized housing enable homeowners to trade up, further amplifying housing demand, house prices, and intergenerational redistribution. We evaluate the early ownership and capital gains channels of asset-based redistribution in a quantitative equilibrium model calibrated to China's housing privatization. Relative to more standard pension-based redistribution, we show that asset-based redistribution delivers higher welfare for future cohorts while substantially reducing long-run fiscal burdens once economic growth unexpectedly slows. |
| JEL: | E02 G11 G28 H2 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35754 |
| By: | Drechsel, Thomas; McLeay, Michael; Tenreyro, Silvana; Turri, Enrico |
| Abstract: | We show that the optimal monetary and exchange rate frameworks depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions depend on the commodity cycle. Stabilizing domestic prices is optimal for commodity exporters, in line with standard open-economy policy prescriptions. But when economies import commodities as production inputs, optimal policy largely ‘looks through’ their direct and indirect effects on domestic prices. In emerging economies, where financial conditions are closely related to commodity cycles, trade-offs are starker and limited credibility may make implementing optimal policy challenging. |
| Keywords: | monetary policy;exchange rates;inflation targeting;commodity prices;small open economy |
| JEL: | E31 E52 E58 F41 Q30 |
| Date: | 2026–09–07 |
| URL: | https://d.repec.org/n?u=RePEc:ehl:lserod:140771 |
| By: | Henrik Kleven; Owen M. Zidar |
| Abstract: | We characterize optimal labor and capital income taxation in a task-based model of automation. Workers and machines are perfect substitutes in automatable tasks, which run from the bottom of the skill distribution up to a threshold. Workers supply labor on the extensive margin. Capitalists supply machines at a finite elasticity. In this general-equilibrium automation economy, optimal tax formulas take canonical partial-equilibrium forms. Yet automation substantially changes optimal tax rates because wages and capital returns are endogenous. We calibrate the model to the US wage distribution and automation exposure. In equilibrium, the middle class is the most automated, with machine intensity peaking around the 40th wage percentile. Relative to a no-automation benchmark, the optimal labor tax schedule is more progressive: a larger EITC subsidy at the bottom, lower taxes in the middle, and higher taxes at the top. The optimal capital tax is sizable but unaffected by automation. |
| JEL: | H21 H31 H32 J21 J31 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35747 |
| By: | Xiwen Bai (Tsinghua University); Jesús Fernández-Villaverde (University of Pennsylvania); Yiliang Li (Peking University); Ricardo Marto (Federal Reserve Bank of St. Louis); Francesco Zanetti (University of Oxford) |
| Abstract: | We study the macroeconomic and trade-policy implications of disruptions to U.S.-bound shipping routes. Standard models treat them as iceberg-cost shocks, conflating the shock with the response to it. Using satellite vessel-tracking data, we construct route-level measures of potential and effective capacity for all U.S.-bound container ships from 2016 to 2025. Utilization losses in recent disruptions ran 20 to 40 percentage points, and began months before port congestion became visible. We embed these measures in a general equilibrium model in which firms reallocate a common fleet without internalizing the congestion they create and price above marginal cost, while importers’ sourcing responds to route profitability. The reallocation triggered by a disruption then has first-order welfare effects, and the route’s Domar weight is not a sufficient statistic for its welfare cost. The 2021 West Coast crisis and the 2023–2024 Red Sea attacks cost 0.69% and 0.35% of output. Naval protection of Red Sea shipping generated benefits of 0.04–0.08% of output at a fiscal cost of 0.02%. Tariffs decongest the routes they tax, offsetting or even reversing their conventional welfare cost. |
| Keywords: | AIS, shipping disruptions, shipping capacity, maritime transportation, general equilibrium, supply chains, trade policy |
| JEL: | E23 F12 L91 R40 |
| Date: | 2026–09–18 |
| URL: | https://d.repec.org/n?u=RePEc:pen:papers:26-015 |
| By: | Radek Sauer; Radek Šauer |
| Abstract: | The paper explores how a small low-tax economy is affected by foreign corporate-tax 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 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12957 |
| By: | Cahuc, Pierre (Sciences Po, Paris); Carry, Pauline (Princeton University); Malherbet, Franck (Paris Graduate School of Economics, ENSAE); Martins, Pedro (Universidade Nova de Lisboa) |
| Abstract: | Employment protection legislation often varies with firm or establishment size and age, and many evaluations of EPL reforms exploit these thresholds. This paper develops a search-and-matching model with multi-establishment firms to disentangle direct effects from general-equilibrium spillovers. We combine the model with quasi-experimental evidence from a 2009 Portuguese reform that restricted fixed-term contracts in young establishments of large firms. Spillovers barely distort the reduced-form estimate, yet they overturn the aggregate conclusion: extrapolating the reduced-form estimate implies a 1.51% employment decline, compared with a 0.11% increase in general equilibrium. Counterfactuals show that conditioning EPL on size versus age can yield opposite welfare effects, even when employment effects are similar, and that fixed-term contract and firing restrictions must be evaluated jointly. |
| Keywords: | employment protection legislation, general-equilibrium spillovers, fixed-term contracts, contingent regulation, directed search, structural estimation |
| JEL: | E24 D58 J41 J63 J68 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp18909 |