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on Dynamic General Equilibrium |
| By: | Joshua Hausman; John V. Leahy; John Mondragon; Johannes F. Wieland |
| Abstract: | Nominal interest rates have real effects. Residential mortgages and other real world debt contracts require a sequence of constant nominal payments. Combined with payment-to-income constraints, these nominal payments force borrowers to take on less debt when nominal interest rates rise, regardless of the behavior of the real interest rate. Survey data shows that conditional on the real rate, higher nominal mortgage interest rates reduce home buying sentiment. And increases in nominal mortgage rates reduce mortgage origination more in cities where payment to-income constraints are more likely to bind. We explore the macroeconomic implications of payment-to-income constraints in a new Keynesian model modified to include a credit good. The payment-to-income constraint amplifies the effect of current short-term nominal interest rates on output and inflation, making the model less forward-looking than the standard new Keynesian model. |
| Date: | 2026–04–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:103060 |
| By: | Suzanne Bellue |
| Abstract: | In the U.S., beliefs about parenting and parental choices differ across socioeconomic groups. This paper develops an overlapping generations model with social learning, where young adults form beliefs about parenting by observing neighbors but may make inference mistakes due to selection neglect-imperfect correction for selection. In equilibrium, residential segregation generates information frictions that foster heterogeneous beliefs and distort parenting decisions. When calibrated to the U.S., the model suggests these beliefs reduce equity and efficiency, and housing vouchers can enhance both social mobility and aggregate income. In contrast, a model that replaces beliefs with fixed preference heterogeneity predicts income losses. |
| Keywords: | Macroeconomics, Family, Human Capital, Learning, Neighborhood |
| JEL: | J24 D83 R20 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26100 |
| By: | Joseph S. Briggs; Ciaran Rogers; Christopher Tonetti |
| Abstract: | We study consumer demand for savings, life insurance, annuities, and long-term care insurance using novel survey data and a structural life-cycle model. We document that individuals perceive substantial insurance nonpayment risk, and these beliefs predict ownership. Embedding elicited beliefs into an incomplete-markets model alongside additional real-world insurance features, we match empirical patterns of low participation. Relative to a no-insurance benchmark, access to existing imperfect insurance reduces median wealth by 16% and generates a modest 0.6% welfare gain. Eliminating nonpayment risk would substantially increase insurance ownership, yield a further 11% decline in median savings, and generate an additional 1.7% welfare gain. |
| JEL: | D14 E21 G22 |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:35122 |
| By: | Ander Pérez-Orive; Yannick Timmer; Alejandro Van der Ghote |
| Abstract: | We revisit the credit channel of monetary policy when firms face multiple financing constraints. Our theory shows that the multiplicity of constraints dampens the transmission of expansionary policy to firm borrowing and investment notably but amplifies the transmission of policy tightening. This asymmetry arises because, when policy tightens (eases), the most (least) responsive constraint binds. Using U.S. firm-level data and exploiting a quasi-natural experiment, we find strong support for these predictions. Embedding the mechanism into a New Keynesian framework, we find that the drop in investment after contractionary shocks is twice as large as its increase following equally-sized expansionary shocks. |
| Keywords: | Monetary policy transmission; Dynamic stochastic general equilibrium (DSGE) models; Business investment |
| JEL: | D22 D25 E22 E44 E52 |
| Date: | 2026–04–01 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedgfe:103075 |
| By: | Hanna Wang |
| Abstract: | I develop and estimate a life-cycle discrete-choice model of fertility and female labor supply to study the optimal design of a range of child-related policies. First, I examine two German reforms that introduced wage-contingent parental leave payments and expanded access to low-cost public childcare. I find that both reforms raised completed fertility, with the parental leave reform having a particularly strong impact on highly educated women. Second, I solve for a budget-neutral optimal policy portfolio that maximizes either aggregate welfare or fertility, while ensuring that welfare and fertility do not decline for any education group. I consider four prominent child subsidies as well as the degree of tax jointness. My results show that optimal policy has the potential to increase welfare by 0.5% or fertility by 5.7%. While the solutions are qualitatively similar, they prioritize different policy instruments depending on the specific objective being targeted. |
| Keywords: | Fertility, Parental Leave, Childcare Subsidies, Optimal Policy |
| JEL: | H21 J13 J24 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26029 |
| By: | Winkelried, Diego (Universidad del Pacífico); Nicolás Butrón (Banco Central de Reserva del Perú); Carmen Rojas (Banco Central de Reserva del Perú) |
| Abstract: | This research analyzes the dynamics of the current account and its main components — particularly the trade balance and primary income — by identifying the key determinants of their fluctuations and evaluating the relative importance of the associated shocks. The study combines theoretical and empirical approaches, using Peru as a case of study, to exploit macroeconomic data within a structural framework. On the theoretical side, a DSGE model for a small open economy is developed, featuring three productive sectors: exportables, importables, and non-tradables. Production relies on domestic inputs, foreign capital, and imported intermediate goods, allowing external shocks to propagate to domestic activity. The baseline specification, inspired by Mendoza (1995), includes shocks to sectoral productivity and export prices, and is extended to incorporate shocks to imported input prices, international interest rates, and foreign investment returns. Empirically, the paper successfully replicates the persistence of the terms of trade and the countercyclicality of the current account without compromising business cycle characteristics, which the model also manages to reproduce. Parameters are estimated using Bayesian methods, and alternative specifications are compared to assess the contribution of each mechanism to explaining current account dynamics. |
| Keywords: | Current account, international interest rates, foreign investment, countercyclicality, Bayesian estimation |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:rbp:wpaper:dt-2026-004 |
| By: | Guido Ascari (De Nederlandsche Bank); Alexandre Carrier (European Central Bank); Emanuel Gasteiger (TU Wien); Alex Grimaud (Oesterreichische Nationalbank); Gauthier Vermandel (Banque de France) |
| Abstract: | We study monetary policy in an environment where price and wage Phillips curves exhibit true curvature. To this end, we propose a New Keynesian (NK) model with endogenous adjustment of price and wage setting frequencies, moving beyond the quasilinear structure of standard nonlinear NK Phillips curves (NKPC). Using euro area data from 1999Q1 to 2024Q4, we estimate and simulate the non-linear model, analyzing the recent inflation surge and the implications of state-dependent prices andwages for monetary policy. Unlike conventional models, our framework does not attribute inflation dynamics primarily to exogenous supply shocks. Instead, the impact of shocks depends on their timing, size, and the business cycle. Consequently, the inflation–output stabilization trade-off is state-dependent: monetary policy is more effective in curbing inflation, and supply shocks have larger effects during periods of high inflation. |
| Keywords: | New Keynesian Phillips Curve, non-linearity, inflation, monetary policy |
| JEL: | C51 E31 E47 E52 |
| Date: | 2025–12–09 |
| URL: | https://d.repec.org/n?u=RePEc:onb:oenbwp:270 |
| By: | Moritz Kuhn; Iourii Manovskii; Xincheng Qiu |
| Abstract: | Spatial differences in labor market performance are large and highly persistent. Using data from the United States, Germany, and the United Kingdom, we document striking similarities across these countries in the spatial differences in unemployment, vacancies, and vacancy filling, job finding, and separation rates. The novel facts on the geography of vacancies and vacancy filling are instrumental in guiding and disciplining the development of a theory of local labor market performance. We find that a spatial version of a Diamond-Mortensen-Pissarides model with endogenous separations and on-the-job search quantitatively accounts for all the documented empirical regularities. The model also quantitatively rationalizes why differences in job-separation rates have primary importance in inducing differences in unemployment across space while changes in the job-finding rate are the main driver in unemployment fluctuations over the business cycle. |
| Keywords: | Local Labor Markets, Unemployment, Vacancies, Search and Matching |
| JEL: | J63 J64 E24 E32 R13 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:2596 |
| By: | Peter Arcidiacono; Attila Gyetvai; Arnaud Maurel; Ekaterina Jardim |
| Abstract: | This paper applies some of the key insights of dynamic discrete choice models to continuous-time job search models. Our framework incorporates preference shocks into search models, resulting in a tight connection between value functions and conditional choice probabilities. In this environment, we establish constructive identification of the model parameters, including the wage offer distributions off- and on-the-job. Our framework makes it possible to estimate nonstationary search models in a simple and tractable way, without having to solve any differential equations. We apply our method using Hungarian administrative data. Longer unemployment durations are associated with lower offer arrival rates, resulting in accepted wages falling over time. Counterfactual simulations indicate that increasing unemployment benefits by 90 days results in a 14-day increase in expected unemployment duration. |
| Keywords: | Job search, Identification, dynamic discrete choice |
| JEL: | J64 C31 C41 J31 |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:25153 |
| By: | Pauline Carry |
| Abstract: | This paper examines the effects of working time regulations on the allocation of workers and hours. I exploit a unique reform introducing a minimum workweek of 24 hours in France in 2014, affecting 15% of jobs. Drawing on administrative data and an event study design, I find a firm-level reduction in total hours worked, showing imperfect substitutability between workers and hours. The effects differ by gender: women working part-time were replaced by men working longer hours. Importantly, workers also reallocate between firms. To quantify the aggregate impact accounting for these effects, I build and estimate a search and matching model with firm and worker heterogeneity. Overall, the minimum workweek reduced employment by 1.4%, largely driven by women, and decreased total hours by 0.5%. |
| Keywords: | Working time regulations, Hours of work, Reallocation effects, Gender inequality |
| JEL: | J08 J23 J41 E24 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26071 |
| By: | Nadim Elayan-Balagué |
| Abstract: | Recessions create enduring effects, or scars, on young individuals’ careers. I investigate how educational choices amplify or mitigate these scarring effects by income. Low-income young people face dual scarring effects: an increased likelihood of dropping out of college and enduring negative labor market entry effects. High- and middleincome young people strategically evade these repercussions by delaying labor market entry through timely college enrollment during economic downturns. I quantify the lifetime repercussions of experiencing a recession during two critical phases (around high-school graduation and college attendance) using a dynamic life-cycle model with educational choices calibrated to US data. I find that the negative consequences of recessions are largely concentrated on the low-income group. |
| Date: | 2025–12 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1061 |
| By: | Marius Brülhart; Aurélien Eyquem; Isabel Martinez; Enrico Rubolino |
| Abstract: | We study how inheritance affects labor supply over the life cycle, and we quantify its aggregate impact. Tracking earnings histories around some 135, 000 inheritances and 5, 000 lottery wins, we exploit the quasi-random timing and size of these events to identify labor supply responses with high precision. Earnings responses are negative at all ages but peak between ages 55 and 64, largely due to early retirement. Inheritances generate smaller impact responses than comparable lottery wins, consistent with anticipation effects. Our estimates match the predictions of a life-cycle model with endogenous labor supply and early retirement. Aggregating model-based responses across the population, our point estimate of the GDP cost of inheritance is 1.7%. The timing, size, and anticipation of inheritance all contribute to shaping its macroeconomic consequences. |
| Keywords: | inheritance; labor supply; lottery wins; life-cycle effects |
| JEL: | J22 D31 D64 G51 H31 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:25119 |
| By: | Enzo A. Cerletti; Tomás Cortés |
| Abstract: | This paper studies the amount of consumption insurance attained by households over the life cycle. We take advantage of the Spanish Household Budget Survey, which collected detailed panel data on consumption and income at the quarterly frequency between 1985 and 1996. We document the joint dynamics of consumption and income for Spanish households over the life cycle. We find that the ability of households to smooth income shocks changes sharply with age. In particular, the transmission of permanent shocks to consumption decreases with age, from full transmission at 25 to less than 40% at 60. In turn, the transmission of transitory shocks is low throughout the life cycle. Our results are broadly consistent with canonical life-cycle models of self-insurance, where the pattern emerges from the combination of increasing willingness and ability to smooth persistent shocks as households age. We illustrate this result by calibrating a quantitative model to Spain. We also validate the generality of our empirical results using data for the US. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:chb:bcchwp:1075 |
| By: | Daisuke Adachi; Lars Skipper |
| Abstract: | Manufacturing job offshoring has displaced low-skilled workers lacking transition skills. Using Danish adult education and employer-employee data, we study how vocational training influences occupational choice and mitigates labor market shocks. Manufacturing workers trained in business services (BS) show a higher probability of transitioning to BS occupations via dynamic difference-in-difference analysis. We then propose and estimate a life-cycle model of training and occupation. Our model reveals that program take-up elasticity is lower than occupation choice elasticity, indicating insensitivity to program monetary value. Counterfactual wage subsidies tied to BS programs support manufacturing-to-BS transitions and reduce labor force exits, especially among older workers. |
| Keywords: | Adult vocational education, life-cycle discrete choice model, labor market resilience |
| JEL: | J24 J62 I21 |
| Date: | 2025–11 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:25114 |
| By: | Du, Zaichuan |
| Abstract: | By integrating Discrete Exterior Calculus (DEC) with upwind stabilization, I develop a structure-preserving numerical scheme that guarantees absolute mass conservation in heterogeneous agent models. Standard finite difference methods rely on algebraic approximations that entangle state dimensions. DEC, instead, natively isolates economic forces: exogenous income diffusion operates strictly on vertices, while endogenous savings advection flows across edges. This topological modularity rigorously justifies finite volume techniques on non-uniform grids and perfectly unifies the mechanism of different numerical methods used in continuous and discrete time, revealing the Endogenous Grid Method and Young’s projection as exact geometric Pullback and Pushforward operators. Crucially, DEC’s strict operator separation unlocks Strang splitting for transition dynamics. By safely decoupling income uncertainty from wealth accumulation, this fractional step method avoids dynamic multidimensional matrix inversions. Resolving advection via independent one-dimensional sweeps and pre-factorizing the static diffusion operator achieves more than a 2x computational speedup over purely finite difference iteration. |
| Keywords: | heterogeneous agent, incomplete market, discrete exterior calculus, mean field game |
| JEL: | C61 C63 E21 |
| Date: | 2026–04–03 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128565 |
| By: | Rasmus Lentz; Jonas Maibom; Espen R. Moen |
| Abstract: | We present a tractable, hybrid framework that nests random and perfectly directed search, in which workers are more likely to direct their search toward submarkets with higher returns, while still searching in inferior submarkets with positive probability. The choice of submarket is governed by a logit choice model with noise parameter μ ∈ [0, ∞). In the respective limits, search becomes either completely random or perfectly directed. We characterize the model equilibrium and show that even the perfectly directed search limit is inefficient, in contrast to its otherwise close cousin, competitive search. We proceed to quantify the extent of directedness on Danish matched employer-employee data. Identification relies on the insight that the two benchmark models differ qualitatively in their implications for job-to-job worker reallocation. We find evidence of substantial directedness in search. Finally, we study the implications for underinvestment due to holdup problems and show that the observed degree of directedness substantially reduces underinvestment relative to a setting with random search. |
| Keywords: | Random search, directed search, partly directed search, structural estimation, efficiency |
| JEL: | J62 J63 D83 D4 |
| Date: | 2026–01 |
| URL: | https://d.repec.org/n?u=RePEc:crm:wpaper:26022 |
| By: | Pablo Guerron-Quintana (Boston College; Boston College) |
| Abstract: | This paper proposes a novel equilibrium concept in which agents are fully rational in preferences and constraints but computationally bounded, with decision rules parameterized and improved via stochastic gradient methods applied to simulated expected utility. In a standard RBC model with GHH preferences, we define a Stochastic Gradient Descent equilibrium as a fixed point (in expectation) of the stochastic-gradient update rule together with market clearing and firm optimality. The fixed-point condition requires that the expected gradient of the household’s truncated utility function vanishes at the equilibrium decision rules, so that the agent has no incentive, on average, to revise her policy further. We establish conditions under which the SGD equilibrium converges to the rational expectations solution in the sequential limit as the planning horizon and training intensity increase without bound. Away from this limit, tighter computational budgets generate systematic, state-dependent deviations summarized by an intratemporal labor wedge and an intertemporal capital wedge, whereas large horizon planning and extensive training deliver policies close to the rational expectations benchmark. These wedges are endogenous and time-varying, providing a structural bridge to the business-cycle accounting framework of Chari et al. (2007) without introducing non-productivity shocks or real frictions. |
| Keywords: | bounded rationality, optimization, stochastic gradient descent |
| JEL: | C6 E3 E7 |
| Date: | 2026–03–31 |
| URL: | https://d.repec.org/n?u=RePEc:boc:bocoec:1110 |
| By: | Elisa Giannone; Yuhei Miyauchi; Nuno Paixao; Xinle Pang; Yuta Suzuki |
| Abstract: | How do depopulation and population aging evolve differently across regions within a country, and what are their implications for aggregate economic activity and regional inequality? Using spatially disaggregated data from Japan over the past several decades, we show that rural areas have experienced significantly faster depopulation and aging than urban areas, driven by low fertility and sustained out-migration of young cohorts. Regions undergoing these trends face declining local amenities and rising per-capita public service costs. To study the future evolution and economic consequences of these dynamics, we develop and calibrate a dynamic life-cycle spatial general equilibrium model. The model predicts widening geographic disparities in depopulation, aging, and economic activity in the coming centuries. While subsidies to declining regions can lower regional inequality, they come at the cost of lower aggregate efficiency and higher public service expenditures. |
| Date: | 2026–04 |
| URL: | https://d.repec.org/n?u=RePEc:upf:upfgen:1944 |