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on Dynamic General Equilibrium |
| By: | Wei Chun Hsu |
| Abstract: | This paper integrates the damped harmonic oscillator into DSGE models to better capture delayed economic adjustments. By introducing a damping coefficient, I model economic recoveries as under-damped, critically damped, or over-damped processes. Numerical simulations illustrate how different damping levels affect recovery speed and stability. This approach enhances DSGE models' realism, offering insights into historical economic crises and improving macroeconomic forecasting. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.06528 |
| By: | Milivojevic, Lazar |
| Abstract: | This paper examines to what extent slowdowns in economic growth after natural disasters are accompanied by widening fiscal deficits and corresponding pressures on public debt. Empirical analysis based on exogenous measures of physical disaster intensity shows that natural disasters lead not only to output losses but also to further deterioration of countries’ fiscal positions. The effects are persistent and driven by developments in emerging markets and developing economies. A dynamic stochastic general equilibrium model is used to show the propagation mechanism of an extreme event that affects agricultural productivity. The model features farmers endowed with land with time-varying productivity subject to economic and weather conditions. Simulation results illustrate the climate-fiscal nexus existence and highlight the role of structural resilience in limiting the impact of natural disasters. |
| Date: | 2023–02–07 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10298 |
| By: | Alessandria, George; Khan, Shafaat Yar; Khederlarian, Armen; Mix, Carter; Ruhl, Kim J. |
| Abstract: | This paper studies the aggregate effects of supply chain disruptions in the post-pandemic period in a heterogeneous-firm, general equilibrium model with input-output linkages and a rich set of supply chain frictions: uncertain shipping delays, fixed order costs, and storage costs. Firms optimally hold inventories that depend on the source of sup- ply, domestic or imported. Increases in shipping times are contractionary, raise prices, and increase stockouts, particularly for goods intensive in delayed inputs. These effects are larger when inventories are already at low levels. The paper fits the model to the United States and global economies over 2020|2022 and estimates large aggregate effects of supply disruptions. The model predicts that the boost in outpu t from reducing delays will be smaller than the contraction from the waning effects of stimulus. |
| Date: | 2023–02–13 |
| URL: | https://d.repec.org/n?u=RePEc:wbk:wbrwps:10303 |
| By: | Asahi Sato |
| Abstract: | Traditionally, the impact of minimum wages on employment has been studied, and it is generally believed to have a negative effect. Yet, some recent studies have shown that the impact of minimum wages on employment can sometimes be positive. In addition, certain recent proposals set a higher minimum wage than the wage earned by some high-productivity workers. However, the impact of minimum wages on employment has been primarily studied on low-skilled workers, whereas there is limited research on high-skilled workers. To address this gap and examine the effects of minimum wages on high-productivity workers' employment, I construct a macroeconomic model incorporating productivity fluctuations, incomplete markets, directed search, and on-the-job search and compare the steady-state distributions between the baseline model and the model with a minimum wage. As a result, binding minimum wages increase the unemployment rate of both low and high-productivity workers. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.18261 |
| By: | Denizalp Goktas; Amy Greenwald |
| Abstract: | We study Walrasian economies (or general equilibrium models) and their solution concept, the Walrasian equilibrium. A key challenge in this domain is identifying price-adjustment processes that converge to equilibrium. One such process, t\^atonnement, is an auction-like algorithm first proposed in 1874 by L\'eon Walras. While continuous-time variants of t\^atonnement are known to converge to equilibrium in economies satisfying the Weak Axiom of Revealed Preferences (WARP), the process fails to converge in a pathological Walrasian economy known as the Scarf economy. To address these issues, we analyze Walrasian economies using variational inequalities (VIs), an optimization framework. We introduce the class of mirror extragradient algorithms, which, under suitable Lipschitz-continuity-like assumptions, converge to a solution of any VI satisfying the Minty condition in polynomial time. We show that the set of Walrasian equilibria of any balanced economy-which includes among others Arrow-Debreu economies-corresponds to the solution set of an associated VI that satisfies the Minty condition but is generally discontinuous. Applying the mirror extragradient algorithm to this VI we obtain a class of t\^atonnement-like processes, which we call the mirror extrat\^atonnement process. While our VI formulation is generally discontinuous, it is Lipschitz-continuous in variationally stable Walrasian economies with bounded elasticity-including those satisfying WARP and the Scarf economy-thus establishing the polynomial-time convergence of mirror extrat\^atonnement in these economies. We validate our approach through experiments on large Arrow-Debreu economies with Cobb-Douglas, Leontief, and CES consumers, as well as the Scarf economy, demonstrating fast convergence in all cases without failure. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.11449 |
| By: | Somdeb Lahiri |
| Abstract: | We introduce a model of infinite horizon linear dynamic optimization and obtain results concerning existence of solution and satisfaction of the Euler condition and transversality condition being unconditionally sufficient for optimality of a trajectory. We show that the optimal value function is concave and continuous and the optimal trajectory satisfies the functional equation of dynamic programming. Linearity bites when it comes to the definition of optimal decision rules which can no longer be guaranteed to be single-valued. We show that the optimal decision rule is an upper semi-continuous correspondence. For linear cake-eating problems, we obtain monotonicity results for the optimal value function and a conditional monotonicity result for optimal decision rules. We also introduce the concept of a two-phase linear cake eating problem and obtain a necessary condition that must be satisfied by all solutions of such problems. |
| Date: | 2025–02 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2502.17012 |