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on Dynamic General Equilibrium |
| By: | Alessandro Saccal |
| Abstract: | The present work provides the first structural decomposition of business cycle fluctuations in Uzbekistan using a Real Business Cycle (RBC) Structural Vector Auto-Regression (SVAR). Employing a recursive identification scheme on a core vector of macroeconomic variables one is to recover the inaugural set of Orthogonalised Impulse Response Functions (OIRFs) and Forecast Error Variance Decompositions (FEVDs) for the Uzbek economy. The findings furnish a critical empirical benchmark for Uzbekistan, scrutinise the theoretical relevance of the RBC framework for transition economies and lay the essential empirical foundation for the subsequent development and parametrisation of a structural Dynamic Stochastic General Equilibrium (DSGE) model. The analysis thereby bridges a significant gap in the scientific literature, moving the study of Central Asian business cycles from empirical causality to structural explanation. |
| Keywords: | capital, consumption, labour, RBC, TFP, VARs, Uzbekistan. |
| JEL: | C22 C60 E13 E32 E37 |
| Date: | 2026–01–10 |
| URL: | https://d.repec.org/n?u=RePEc:eei:rpaper:eeri_rp_2026_10 |
| By: | Jean Toupouvogui (CY Cergy Paris Université, THEMA) |
| Abstract: | This paper examines how fiscal policy uncertainty shapes macroeconomic stabilization, public debt dynamics, and inequality in an economy with household heterogeneity and sovereign debt constraints. I develop a Two-Agent New Keynesian (TANK) framework featuring hand-to-mouth (H2M) households, Ricardian asset-holders, distortionary taxation, countercyclical targeted transfers, and fiscal uncertainty shocks, disciplined by a structural VAR on four decades of U.S. data. Unlike first-order fiscal demand shocks, fiscal uncertainty triggers a conditional comovement—a joint slump in output, consumption, investment, and employment— matching empirical patterns. The framework delivers novel distributional insights: while sharp declines in equity prices, corporate dividends, and Tobin’s Q compress top-tier financial income and temporarily narrow gross income inequality, liquidity constraints severely amplify the consumption drop at the bottom, driving a sharp expansion in consumption inequality. Countercyclical targeted transfers provide effective public insurance by sustaining high-MPC disposable income and generating positive demand spillovers. Quantitatively, over an eight-quarter horizon (h = 8), a 1 percentage point reduction in income inequality requires a cumulative debt expansion of 0.336 percentage points of GDP, with 74.5% of the transfer outlay directly absorbed into real economic activity and targeted consumption. Crucially, targeted fiscal support absorbs 34.94% of the total cumulative GDP slump observed in the unmitigated counterfactual economy, preserves the tax base, albeit at the cost of a temporary public debt expansion. Finally, this paper shows that initial fiscal space is a critical determinant of policy effectiveness, underscoring a structural trade-off between redistributive stabilization and fiscal sustainability. |
| Keywords: | public debt, inequality, uncertainty shocks, business cycle, heterogeneous agents |
| JEL: | E12 E23 E30 E32 E44 E50 E62 D31 H63 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ema:worpap:2026-18 |
| By: | George Alogoskoufis; Vasilki Dimakopoulou; George Economides; Apostolis Philippopoulos |
| Abstract: | This paper provides a quantitative study of the prospects of the Greek macroeconomy in the medium and long term. The vehicle of analysis is a medium-scale dynamic general equilibrium model calibrated to Greek data. The model includes the main sectors: households, private firms, private banks, the National Central Bank in the Eurosystem and the public sector. We work in three steps. First, we solve the model when policy and other exogenous variables are set as in the most recent data. This solution serves as a departure point for the simulations that follow next. In the second step, we study the transition path of this economy when dynamics are driven by the repayment of the official loans taken from EU institutions since Greece's sovereign debt crisis in the previous decade. Our simulations show that this repayment, other things equal, will have long-lasting recessionary implications and will require systematic primary fiscal surpluses. Third, we search for structural and policy reforms that can mitigate, and hopefully more than offset, these recessionary effects. Following the literature on policy reforms, we change structural parameters and policy variables so as to reduce the gap between Greece and best practice in the EU in key areas. We close with policy takeaways. |
| Keywords: | international loans, structural reforms, macroeconomic policy |
| JEL: | F34 E62 E42 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_13083 |
| By: | Dhamija, Vedanta (Centre for Macroeconomics); Fusari, Francesco (Newcastle University Business School); Tara, Roshni (Centre for Macroeconomics) |
| Abstract: | Fiscal policy is often anticipated before implementation, yet little is known about how fiscal foresight shapes inequality. We study the distributional effects of government spending shocks, distinguishing between anticipated (news) and unanticipated (surprise) components. We show that positive surprise shocks reduce U.S. consumption inequality, whereas positive news shocks increase it. A two-agent New Keynesian (TANK) model rationalises these findings and highlights the role of monetary-fiscal regimes: in a monetary-led regime, news and surprise shocks have opposite distributional effects similar to the empirical findings, while in a fiscally-led regime both reduce consumption inequality. Our results demonstrate that the distributional impact of fiscal policy depends critically on fiscal foresight and the prevailing policy regime. |
| Keywords: | consumption inequality, fiscal policy, news shocks, monetary-fiscal interaction, TANK model |
| JEL: | C32 E21 E61 E62 E63 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nwc:wpaper:2026-01 |
| By: | Youngsoo Jang (Yonsei University); Minchul Yum (Virginia Commonwealth University and CEPR) |
| Abstract: | We study how fertility and parental investment shape the value of mortality improvements in a quantitative dynastic life-cycle model. Households choose fertility, saving, education spending, and inter-vivos transfers under earnings risk and borrowing constraints. We distinguish the own-life component of survival valuation from the dynastic value of a statistical life, which also incorporates the value parents assign to survival benefits received by their descendants. Calibrating the model to the prebaby-boom United States, we find that the dynastic premium accounts for a substantial share of young households' valuation of a common survival improvement. Most of this premium arises from dynastic continuation, while education and financial transfers increase it further. Historical declines in maternal mortality and improvements in old-age survival both raise fertility. Lower maternal mortality reduces average investment per child, whereas improved old-age survival leaves it nearly unchanged. Investment rises in both cases among households whose fertility remains unchanged. The dynastic premium responds more strongly to improved old-age survival, while endogenous fertility materially changes both total dynastic valuation and its division between own-life and dynastic components. These findings connect the valuation of mortality improvements to the quantity-quality trade-off and show why the scope of a mortality change across generations matters for willingness to pay. |
| Keywords: | Value of a Statistical Life, Mortality Risk, Fertility, Intergenerational Transmission, Education Investments |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:yon:wpaper:2026rwp-297 |
| By: | Corey Feldman; Thomas B. King |
| Abstract: | We quantify the effects of uncertainty about the conduct of monetary policy on asset prices. Nominal yields, real yields, stock returns, and implied volatilities all vary more on days with FOMC communication than on FOMC “blackout” days, consistent with policy communication being a source of risk. Furthermore, these asset prices all respond significantly to changes in interest-rate uncertainty around FOMC announcements, consistent with that risk being priced. A New Keynesian model with stochastic variation in the policy rule quantitatively matches this evidence. Our model shows that monetary-policy risk contributes to excess returns on equities and nominal bonds and accounts for much of the risk premium on inflation-indexed bonds. Transitory increases in monetary-policy risk lower stock and bond prices, reduce inflation-risk premia, and generate macroeconomic weakness similar to that produced by aggregate-demand shocks. The effective lower bound on interest rates reduces the size of monetary-policy risk in the model but magnifies its asset-pricing consequences, consistent with the data. We use our model to assess the effects of the increase in monetary-policy risk that occurred following the rapid tightening of policy in 2022. |
| Keywords: | monetary policy risk; Monetary policy uncertainty; Asset pricing; Risk premia; interest rate volatility; Monetary policy communication |
| JEL: | E43 E44 E52 E58 G12 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103966 |
| By: | Marcelo Veracierto |
| Abstract: | This paper analyzes the cyclical properties of the optimal labor wedges in a Mirrleesean business cycle model. Agents value consumption and leisure and receive persistent idiosyncratic shocks to their value of leisure, which are private information. The production structure is identical to a standard real business cycle model with aggregate productivity shocks. Solving the mechanism design problem for a version of this economy calibrated under logarithmic preferences, I find that the optimal labor wedges are approximately constant over the business cycle. |
| Keywords: | Optimal taxation; business cycles; Private information; Social insurance |
| JEL: | D39 D82 E32 H21 |
| Date: | 2026–09 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedhwp:103967 |
| By: | Carli, Marco; Diluiso, Francesca; Hoffmann, Mathias |
| Abstract: | How should monetary policy respond to climate policy shocks? We develop an Environmental New-Keynesian model with green and fossil energy to assess the macroeconomic impacts of carbon pricing and green subsidy shocks and to identify the optimal monetary policy responses. Our findings indicate that these shocks create a policy trade-off between stabilizing inflation and the output gap. This trade-off is resolved in favor of output-gap stabilization, with optimal monetary policy focusing on dampening real output fluctuations while temporarily looking through inflation movements. Dual mandate Taylor rules yield lower welfare costs than inflation-only targeting rules and align the welfare performances of core and headline inflation targeting regimes. |
| Keywords: | climate policy, E-DSGE models, monetary policy trade-offs, supply shocks |
| JEL: | E31 E52 Q43 Q58 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:bubdps:344219 |
| By: | Katsuhiro Komatsu (Kyoto University) |
| Abstract: | This paper studies how the wealth accumulation of workers and their job search behavior influence firm wage setting. I incorporate wealth accumulation and endogenous search intensity of risk-averse workers into an equilibrium job-ladder model. The wagesensitive search of wealth-poor workers restrains wage markdowns near the bottom of the job ladder. Removing this discipline through complete markets allows low-wage firms to further push down wages, lowering the average wage and raising wage inequality. This firm-side response, which I call the insurance channel, offsets the direct consumption-smoothing gain of unemployment insurance. |
| Keywords: | Wage; Saving; Search; Unemployment; Unemployment Insurance |
| JEL: | J30 E21 E24 D83 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:kyo:wpaper:1133 |
| By: | Silvia Sgherri |
| Abstract: | A global digital liability is a contract with three clauses that can be written separately at issuance: denomination, which governs what the liability pays and how well it insures its holders; the unit of account, which governs pass-through into prices; and backing, the government bonds held against it, which governs the yield privilege and the issuer’s currency exposure. Dollar stablecoins set all three to the dollar; multilateral proposals would move them to a basket. In a three-country New Keynesian model with currency-disaster risk in the periphery, a convenience yield on reserve assets, and original sin, we show that, however it is written, the contract cannot remove peripheral currency risk, only decide who bears it. Insuring against the peripherys currency creates an open position for the issuer. With fixed capital, that exposure places a limit on the scale at which the liability can be supplied credibly: a new Triffin dilemma that can be overcome by capital that grows with the open position. The mechanism behind the old dilemma reappears in general equilibrium: the country whose bonds back the liability runs a permanent trade deficit financed by the world’s demand for them, and the yield privilege it draws exceeds the interest it saves, as its terms of trade improve. |
| Keywords: | stablecoins, digital dollarization, unit of account, convenience yield, original sin, portfolio balance, international monetary system, Triffin dilemma |
| JEL: | F31 F33 F41 E42 E44 G23 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:gwc:wpaper:2026-015 |
| By: | Jean-Paul L'Huillier; Pierlauro Lopez; Sanjay R. Singh |
| Abstract: | Motivated by behavioral evidence, we develop a tractable method for incorporating competition neglect into a general equilibrium firm investment problem. Competition neglect causes firms to systematically underestimate the investment of their competitors. When we introduce competition neglect into a canonical RBC model, this friction acts like an investment wedge that causes over-investment at first, and under-investment later on. In contrast to a model with exogenous investment shocks, these dynamics are accompanied by a realistic variation in equity premia, even in the absence of financial frictions. Investment booms raise stock prices in general equilibrium, predicting periods of low excess returns going forward. The model can generate realistic comovement of real and financial variables. |
| Keywords: | animal spirits; boom-bust cycles; behavioral macroeconomics |
| JEL: | E22 E32 D21 D91 |
| Date: | 2026–10–13 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:103974 |
| By: | Bohou Cai; Liugang Sheng; Hongyan Zhao |
| Abstract: | We study how news shocks affect inflation in open economies, using large oil and gas discoveries with realized production lags of at least five years as observable news about future output. Panel local projections show that discoveries raise core consumer prices over the subsequent decade, with about half the increase occurring prior to extraction. The response is driven by nontradables, while tradable and producer prices barely respond. The real exchange rate appreciates persistently and real activity expands ahead of extraction, while the current account first deteriorates and then improves as new oil comes online. The inflationary response is concentrated under inflexible exchange-rate regimes but muted under flexible ones. A three-sector New Keynesian small open economy model rationalizes these findings through competing demand and exchange rate channels, with exchange-rate policy determining which force dominates. |
| Keywords: | news shocks, inflation, oil discoveries, New Keynesian model, small open economy, exchange-rate regimes |
| JEL: | E31 E32 E52 F41 Q32 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:bis:biswps:1389 |
| By: | Lochner, Benjamin; Merkl, Christian |
| Abstract: | While the cyclical behavior of wages is well studied, much less is known about how amenities vary over the business cycle. Using the IAB Job Vacancy Survey for Germany, we show that firms impose less demanding flexibility requirements in booms than in recessions. This cyclicality is concentrated among firms covered by collective agreements. Using worker-side data from the IAB PASS Survey, we further show that the rate at which interviews turn into jobs is procyclical. We propose a search-and-matching model with endogenous amenity provision and an endogenous job-realization probability. The model replicates the patterns from the data and shows that endogenous variation in job realization substantially amplifies labor-market fluctuations. Wage flexibility and amenity provision are substitutes: more procyclical wages lead to less countercyclical amenity provision. With heterogeneous workers, the job-realization probability of less flexible workers responds more strongly to aggregate shocks. Consistent with this model prediction, mothers' empirical job-realization probability is more cyclical than childless women's and men's, while their willingness to make concessions responds less to labor-market slack. |
| Keywords: | Amenities, Business Cycle, Wages, Unemployment, Search and Matching, Administrative Data, Survey Data |
| JEL: | E24 E32 J16 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwqwdp:344227 |
| By: | Isabel Cairó; Shigeru Fujita; Camilo Morales-Jimenez |
| Abstract: | The fiscal transfers deployed during the COVID-19 pandemic were unprecedented in scale and strongly progressive. Using CPS/ASEC data, we document that the decline in employment during the pandemic was larger for low-income households and tightly linked to the intensity of transfer receipt, a pattern absent during the Global Financial Crisis. We develop and estimate a two-sector, heterogeneous-household general equilibrium model in which low-income households are borrowing-constrained in normal times but can save out of sufficiently large transfers. Because preferences permit wealth effects on labor supply, transfers both reduce labor supply and raise consumption, and a dollar of transfers is split roughly evenly between the two margins. We find that the effects of transfers are state-dependent: because the borrowing constraint binds more tightly in a deeper recession, the same transfer relaxes a tighter constraint and delivers an employment and consumption response about 40 to 50 percent larger during the pandemic than when the same transfer is introduced in the steady state. In the model, transfers were welfare-improving for recipients, with gains diminishing as transfers increase. |
| Keywords: | employment; fiscal policy; labor supply |
| JEL: | E24 E62 J22 |
| Date: | 2026–10–14 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103955 |
| By: | Yi Fan; Shuangshuang Song; Yewen Yu |
| Abstract: | Population aging and fertility decline are occurring simultaneously worldwide, straining labor supply and pension systems. China began a gradual delayed-retirement (GDR) reform in 2025, raising statutory retirement ages on different schedules for men, female cadres, and female workers across birth cohorts. To evaluate its effects on older individuals and within the family, we develop a model of older adults' retirement, intergenerational transfers, and adult children's fertility decisions, with parameters estimated via fuzzy regression discontinuity at the pre-2025 statutory retirement ages. Counterfactual simulations show that, for mature reform cohorts, the GDR reform increases older employment and monetary transfers to adult children but reduces grandparental childcare. Because the reduction in childcare outweighs the increase in monetary transfers, fertility and older adults' welfare decline, with particularly large losses among lower-income women. Fully flexible retirement, mandatory partial retirement, and mandatory full-time work do not raise employment without similarly reducing fertility and welfare. Childcare subsidies can offset the declines in fertility and welfare, while restricting eligibility to women or lower-income women requires higher subsidy rates but reduces average fiscal expenditure. These findings suggest that evaluations of retirement policy should consider not only its direct effects on older adults' labor supply, but also its fertility effects through intergenerational transfers; childcare support can help mitigate these negative intergenerational effects of delayed retirement. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2610.32455 |
| By: | Lavender, S. |
| Abstract: | This paper shows how the design of fiscal policy and the characteristics of government debt can drive significant differences in monetary transmission within and across countries with different fiscal contexts, and across models with different fiscal specifications. Using a tractable HANK model, I derive analytical expressions for the effects of fiscal policy on monetary transmission as the sum of three channels: a debt service channel, a debt composition channel, and a fiscal cyclicality channel. The magnitudes and directions of these channels are strongly context dependent, being determined by the interactions between the size and composition of government debt, the choice of fiscal rule, the progressivity of the marginal fiscal instrument, and the distribution of government debt ownership. For a given fiscal block used in a theoretical model, or for a given fiscal context observed in the data, the framework explains when the fiscal channels are large or small, and why they amplify or dampen monetary policy. |
| Keywords: | Monetary-Fiscal Interactions, HANK Models, Government Debt |
| JEL: | E52 E62 E63 |
| Date: | 2026–10–09 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camdae:2683 |
| By: | Cristiana Benedetti-Fasil (RC European Commission); Giammario Impullitti (University of Nottingham); Omar Licandro (University of Leicester); Petr Sedl´aˇcek (University of New South Wales); Adam Hal Spencer (University of Bonn) |
| Abstract: | Do firms differ in their innovation response to business cycles? What economic forces shape this heterogeneity? And does it matter for aggregate propagation? We document substantial heterogeneity in firm-level R&D cyclicality, develop a theory to explain this fact, and validate its key mechanism in the data. In a tractable model of business cycles and innovation-driven growth, endogenous selection makes R&D particularly responsive to aggregate conditions for firms close to the exit margin. Consistent with this mechanism, firms closer to exit display more procyclical R&D in the data. Quantitatively, selection and endogenous growth interact powerfully: selection generates heterogeneous R&D cyclicality, while endogenous growth translates these heterogeneous responses into persistent aggregate effects. Ignoring heterogeneous R&D cyclicality misses roughly half of the long-run output cost of a severe recession. |
| Keywords: | Growth, business cycles, innovation, heterogeneous firms, selection |
| JEL: | E32 O31 O40 L1 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:ajk:ajkdps:440 |
| By: | Estelle Campenet |
| Abstract: | The interactions between the accumulation of public capital, the formation and environmental degradation are largely unexplored in the literature on growth. Each of these dimensions has recieved considerable attention in isolation, but no existing model treats them a state variables evolving jointly within a unified intertemporal framework. This paper fills this gap by developing a theoretical model, in which public capital, social capital and a stock of pollution accumulate simultaneously beside private capital. Social capital formation is endogenised via a meeting opportunity parameter linked to the availability of public infrastructure, whilst pollution appears as a by-product of productive activity, without entering into household utility. Firstly, the model admits a unique internal steady state. Secondly, a Hopf bifurcation occurs near this state, allowing the rise of a stable limit cycle and ensuring that the economy converges towards a regime of persistent endogenous oscillations. These results are established analytically and confirmed by numerical simulations. |
| Keywords: | Social Capital, Public Capital, Hopf Bifurcation, Endogenous Depreciation |
| JEL: | O41 Q58 C62 H41 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2026-35 |
| By: | Louphou Coulibaly; Charles Engel |
| Abstract: | We examine optimal non-cooperative monetary policy in a two-country New Keynesian setting with complete financial markets and pricing to market for goods. In contrast to the case in which the law of one price holds for goods, currency misalignments are an important consideration even for self-oriented policymakers. Financial markets are critical in the analysis. Under “full” commitment, the optimal policy considers the effects on asset values and hence wealth distribution across countries. Optimal policy under full commitment differs from the “partial” commitment case in which the policy commitment is not made until after asset markets clear. Surprisingly, the optimal targeting rule under strategic policy with full commitment is the same as under cooperative policy. In this setting, changes in state-contingent claim prices offset the wealth a self-oriented policymaker might seek through terms-of-trade manipulation, and we show that there are no gains from cooperation. Although a policy chosen under partial commitment may be desirable from a country’s perspective, the resulting Nash equilibrium yields lower welfare. |
| JEL: | E44 E52 F31 F41 F42 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35928 |
| By: | Stephanie Schmitt-Grohé; Martín Uribe |
| Abstract: | Using a panel of U.S. imports and customs duties at the HS 6-digit level, we document that in a typical quarter about 20 percent of tariffs rise, 20 percent fall, and 60 percent remain unchanged. Motivated by these facts, we develop a model of staggered tariff setting and embed it in a dynamic open-economy framework. Staggering changes the dynamics of the cross-sectional mean tariff, generating hump-shaped macroeconomic responses to tariff shocks. Staggering also overturns the Razin–Svensson trade- balance neutrality result for permanent tariff increases, because the gradual adjustment of the mean tariff creates an anticipation effect that induces agents to front-load net imports. Inherited tariff dispersion has first-order macroeconomic effects, allowing tariff harmonization to be studied with linear approximation methods. We find that eliminating tariff dispersion while holding the mean tariff unchanged has effects akin to a transitory tariff cut in an economy without staggering. |
| JEL: | F41 E52 E31 F13 |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35957 |
| By: | R. Anton Braun; Daisuke Ikeda |
| Abstract: | Routine variation in household labor supply, consumption, saving, and portfolio choice decisions over the lifecycle influences aggregate economic activity in an aging society because the size of different age groups changes. In rapidly aging societies such as Japan, this mechanism produces an aging trap. The inflation rate is low or negative. Real interest rates and per capita output are also persistently low. Unlike inflation, they resist monetary and fiscal stimulus. Monetary policy can offset the decline in the inflation rate, but neither aggressive central bank interest rate policies nor large increases in the public debt–output ratio offset the persistent declines in real interest rates and output. |
| Date: | 2026–10 |
| URL: | https://d.repec.org/n?u=RePEc:cnn:wpaper:26-019e |