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on Dynamic General Equilibrium |
| By: | José García Revelo; Jean-Guillaume Sahuc; Grégory Levieuge |
| Abstract: | The European Central Bank and the Federal Reserve introduced new policy instruments and made changes to their operational frameworks to address the global financial crisis (2008) and the Covid-19 pandemic (2020). We study the macroeconomic effects of these monetary policy evolutions on both sides of the Atlantic Ocean by developing and estimating a tractable two-country dynamic stochastic general equilibrium model. We show that the euro area and the United States faced shocks of different natures, explaining some asynchronous monetary policy measures between 2008 and 2023. However, counterfactual exercises highlight that all conventional and unconventional policies implemented since 2008 have appropriately (i) supported economic growth and (ii) maintained inflation on track in both areas. The exception is the delayed reaction to the inflationary surge during 2021-2022. Furthermore, exchange rate shocks played a significant role in shaping the overall monetary conditions of the two economies. |
| Keywords: | Monetary Policy, Real Exchange Rate Dynamics, Two-Country DSGE Model, Bayesian Estimation, Counterfactual Exercises |
| JEL: | E32 E52 |
| Date: | 2025 |
| URL: | https://d.repec.org/n?u=RePEc:bfr:banfra:1018 |
| By: | Yongsung Chang; Elin Halvorsen; Marios Karabarbounis |
| Abstract: | We present a new estimate for the elasticity of spousal labor supply in response to changes in the primary worker's income, the so-called "added worker effect." By leveraging firm-side information of the primary worker as an instrument, we isolate income changes that are uncorrelated with the spouse's productivity, addressing endogeneity bias. We find an economically meaningful role for the spousal labor supply, especially among young households with limited financial assets. We construct a heterogeneous agent model consistent with the estimated spousal employment response to design a government transfer program that effectively mitigates the negative income shock. |
| Keywords: | employment and labor markets; household and consumer finance |
| JEL: | E60 H20 J20 |
| Date: | 2025–11–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedrwp:102137 |
| By: | Quang-Thanh Tran; Akiomi Kitagawa |
| Abstract: | This paper employs an overlapping generations model to analyze how placing the burden of caring for both elderly parents and children on the working generation shapes fertility and other economic outcomes. In themodel, fertility decisions create intergenerational spillovers. When one generation has fewer children, the next generation faces a heavier caregiving burden for its elderly parents, which in turn discourages childbearing. The model reveals sharply different long-run trajectories depending on the time intensity of caregiving. If care demands are moderate, sustainable growth remains feasible despite these externalities. However, when care becomes highly time-intensive, fertility declines, labor supply contracts, and the economy risks falling into a "nursing hell, " where most time is devoted to caregiving. Policy measures, such as child allowances, can alleviate this dynamic by expanding the number of siblings and reducing the per-capita caregiving burden. Yet if care demands are extremely high from the outset, even such interventions cannot avert structural collapse. |
| Date: | 2025–11–24 |
| URL: | https://d.repec.org/n?u=RePEc:toh:tupdaa:77 |
| By: | Paolo Varraso (DEF University of Rome "Tor Vergata") |
| Abstract: | This paper develops a quantitative heterogeneous-bank model to study how interestrate risk transmits through the financial sector. Banks optimally choose their leverage and maturity structure in the presence of limited equity issuance, default risk, and partial deposit insurance. Long-maturity assets carry a premium because they expose banks to valuation losses when interest rates rise. To preserve their franchise value, banks with low net worth relative to risky assets take on less interest-rate risk, despite the presence of risk-shifting incentives associated with deposit insurance. Applying the model to the 2022–2023 monetary tightening, I show that a rapid increase in interest rates can generate large declines in asset prices and equity values even though banks have access to shortterm assets that provide insurance against interest-rate risk. Under the lens of the model a substantial share of the losses in 2022 was predictable, whereas the losses in 2023 were largely unexpected. A shift toward long-term assets during a period of unusually low rates amplified the initial tightening, but a rebalancing toward shorter maturities dampened the transmission of later hikes. |
| Keywords: | Interest-rate risk, heterogeneous banks, aggregate uncertainty, maturity mismatch, leverage |
| JEL: | E44 G21 |
| Date: | 2025–10–11 |
| URL: | https://d.repec.org/n?u=RePEc:rtv:ceisrp:616 |
| By: | Andrés Erosa; Luisa Fuster; Gueorgui Kambourov; Richard Rogerson |
| Abstract: | Two robust empirical facts are that mean wages and cross-sectional wage dispersion both increase over the life cycle. We study how these two changes vary across occupations and document a strong positive correlation: occupations with high mean wage growth over the life cycle also exhibit greater increases in cross-sectional wage dispersion. We develop a novel dynamic Roy model that features both static and dynamic comparative advantage and show that it can account for the variation in life cycle wage distributions across high and low wage occupations. Dynamic comparative advantage reflects individual heterogeneity in occupation specific learning abilities and is the dominant force that shapes occupation choice in our model. We highlight several important implications of dynamic comparative advantage and show that our model captures the data better than a benchmark model that features persistent shocks. |
| JEL: | E24 J24 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34481 |
| By: | Rodrigo J. Raad (Cedeplar/UFMG); Juan Pablo Gama (Cedeplar/UFMG) |
| Abstract: | This paper develops a general equilibrium framework that extends the Ramsey-Friedman taxation model by explicitly incorporating heterogeneous agents, competitive markets, and a central planner responsible for fiscal policy and debt management. Within this unified structure, the model captures the interaction between decentralized market outcomes and centralized policy instruments, while the adoption of quasi-linear preferences guarantees that the planner’s allocations remain time-consistent. Building on these foundations, we introduce a virtual monetary unit that emerges endogenously in equilibrium as a transaction-clearing service. This contribution addresses the open question of how to characterize money within general equilibrium theory, advancing the discussion by proposing a digital system that preserves purchasing power across regions and productive sectors in a stable, non-inflationary manner, without generating distortions in resource allocation. |
| Keywords: | General equilibrium, Stable Digital Currency, Ramsey-Friedman Taxation Model, Time Consistency |
| JEL: | D41 D50 D51 D53 D62 E42 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:cdp:texdis:td688 |
| By: | Xun (Grace) Gong; Ziqi Qiao; Randall Wright |
| Abstract: | This essay surveys the literature on middlemen—i.e., intermediation in exchange—reviewing, extending and consolidating key developments in the field. This is important because intermediated trade is common in reality but absent in standard general equilibrium theory. We focus on research using search theory. In various models, agents may act as middlemen when they are good at search, bargaining, recognizing quality, storing inventories, using credit, etc. The theory applies to markets for goods, inputs or assets. We discuss versions with indivisible or divisible goods, fixed or endogenous participation, stationary and dynamic equilibria, and some implications for efficiency and volatility. |
| JEL: | D0 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:34477 |
| By: | Luis Herrera (BANCO DE ESPAÑA); Mara Pirovano (EUROPEAN CENTRAL BANK); Valerio Scalone (EUROPEAN CENTRAL BANK) |
| Abstract: | This paper introduces the Risk-to-Buffer approach for calibrating the countercyclical capital buffer (CCyB), with a particular emphasis on the positive neutral (PN) CCyB rate, tailored to the euro area. The proposed methodology is applied in both a dynamic stochastic general equilibrium (DSGE) framework and a macroeconomic time series setting. It estimates the amplification of adverse shocks under varying levels of cyclical systemic risk and calibrates the CCyB to counteract these amplification effects. Using data from 2009 to 2023, the analysis suggests a positive neutral CCyB rate for the euro area ranging between 1% and 1.5%. The findings indicate that output and inflation shocks, which are not directly linked to the materialization of domestic systemic risk, and high degrees of trade openness, warrant a more prominent role of the PN CCyB in the overall CCyB calibration. The exercise to illustrate the methodology is carried out for the euro area. While national calibrations require additional exercises, this approach offers a flexible and complementary framework that can support and enhance national-level analyses. |
| Keywords: | financial stability, macroprudential policy, capital requirements, countercyclical capital buffer |
| JEL: | C32 E51 E58 G01 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2544 |
| By: | Hanno Foerster (Boston College); Robert Ulbricht (Boston College) |
| Abstract: | We develop a spatial directed search model to study job search and migration among dual-earner households. Using the model, we decompose observed gender gaps into exogenous gender differences, which are amplified by a “colocation friction” that is unique to dual-earner households. Estimated for the U.S. labor market, the colocation friction reduces women’s long-term migration gains by 19% and discourages mobility, particularly among “power couples”. The rise of remote work mitigates this friction, cutting average earnings losses by up to 50%. |
| Keywords: | dual-earner job search, gender inequality, migration, remote work, search friction |
| JEL: | E24 J16 J61 J64 |
| Date: | 2025–11–22 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1103 |
| By: | Andrei Gyarmathy; Georgy Lukyanov |
| Abstract: | Costly pre-play messages can deter unnecessary wars - but the same messages can also entrench stalemates once violence begins. We develop an overlapping-generations model of a security dilemma with persistent group types (normal vs bad), one-sided private signaling by the current old to the current young, and noisy private memory of the last encounter. We characterize a stationary equilibrium in which, for an intermediate band of signal costs, normal old agents mix on sending a costly reassurance only after an alarming private history; the signal is kept marginally persuasive by endogenous receiver cutoffs and strategic mimicking by bad types. Signaling strictly reduces the hazard of conflict onset; conditional on onset, duration is unchanged in the private model but increases once a small probability of publicity (leaks) creates a public record of failed reconciliation. With publicity, play generically absorbs in a peace trap or a conflict trap. We discuss welfare and policy: when to prefer back-channels versus public pledges. |
| Date: | 2025–10 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2511.11580 |