Dynamic General Equilibrium http://lists.repec.org/mailman/listinfo/nep-dge Dynamic General Equilibrium 2026-06-29 Transition dynamics in heterogeneous-agent models and the distributional consequences of taxation https://d.repec.org/n?u=RePEc:zbw:iwhdps:341395&r=&r=dge We study how idiosyncratic income risk shapes the aggregate and distributional effects of labor and capital income taxation in dynamic general equilibrium models. To this end, we compare a heterogeneous-agent (HA) model with uninsurable idiosyncratic labor productivity risk and a ten-representative-agent (TE) model in which households correspond to fixed wealth deciles without such risk. At the aggregate level, both models generate qualitatively similar responses; however, the HA model exhibits a smaller recessionary impact driven by precautionary savings behavior, which stabilizes investment. At the distributional level, the models differ sharply. In the HA framework, tax shocks trigger endogenous mobility across wealth deciles. These inter-decile transition dynamics tend to benefit lower deciles. In contrast, the TA model features fixed household positions. Our findings highlight that while simpler multi-representative-agent models can approximate aggregate dynamics well, they may miss important distributional adjustment channels. The relevance of these mechanisms ultimately depends on the empirical importance of mobility across the wealth distribution, pointing to a key trade-off between model simplicity and accuracy. Gutsch, Alexandra Schult, Christoph computational economics, heterogeneous agents, incomplete markets, Krusell-Smith model 2026 The Dynamics of Fertility, Bargaining, and Human Capital Accumulation https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2025_760&r=&r=dge This paper studies the role of intrahousehold bargaining in shaping women’s fertility decisions over the life cycle. I build and estimate a quantitative life-cycle model in which fertility is jointly determined by female labor supply and women’s bargaining power within the household under limited commitment, with endogenous marriage and divorce. A cen tral feature of the model is a dynamic feedback loop: childbirth lowers women’s wages and outside options, weakening their bargaining position and feeding back into subsequent fertility decisions. Exploiting the relaxation of fertility restrictions in China, I document empirically that couples with misaligned fertility preferences exhibit significantly smaller fertility responses and higher divorce rates than couples with aligned preferences. The es timated model replicates these reduced-form moments and further reveals the quantitative importance of limited-commitment frictions in depressing marriage incentives, generating inefficient divorce, and thereby suppressing fertility rates. Eliminating them raises com pleted fertility by 1.77% and marriage rates by 4.48%. Finally, the effectiveness of family policies depends critically on the degree of commitment within the household. Anning Xie fertility, intrahousehold bargaining, marriage and divorce, female labor supply, human capital 2026-06 Climate Policy and The Energy Transition https://d.repec.org/n?u=RePEc:arx:papers:2606.18994&r=&r=dge This paper studies the macroeconomic dynamics of climate policy in a multi-sector dynamic general equilibrium model with renewable and non-renewable energy, sector-specific capital adjustment frictions, household energy demand, and endogenous fossil resource dynamics. The central mechanism is that decarbonization requires reallocating energy use and installed capital: fossil energy demand can contract immediately, while renewable capacity and abatement adjust only gradually. The analysis delivers four results. First, gradual policy implementation sharply reduces transition costs: relative to immediate implementation, gradual emissions caps improve welfare by 2.26 percentage points under comprehensive regulation and by 5.06 percentage points under firm-only regulation. Second, renewable energy subsidies and non-renewable energy taxes support renewable capital accumulation and reduce, but do not eliminate, the welfare cost of front-loaded tightening. Third, sectoral coverage changes the welfare ranking across implementation speeds. Firm-only regulation performs better under gradual implementation because it shields utility-relevant household energy services, but becomes nearly as costly as the carbon-price-only transition under immediate implementation. Fourth, endogenous fossil exploration and stock-dependent extraction costs transmit climate policy into lower extraction, fewer discoveries, and a declining shadow value of reserves, providing a structural mechanism for stranded fossil assets. The results show that deep decarbonization can be achieved at substantially lower macroeconomic cost when policy manages the speed and incidence of energy-capital reallocation. Roy Sarkis 2026-06 Effects of different financial frictions on households https://d.repec.org/n?u=RePEc:ter:wpaper:00191&r=&r=dge This study examines how different types of financial frictions influence household wealth and consumption inequality in response to a contractionary monetary policy shock. The analysis considers two key frictions: those affecting production firms and those related to household borrowing, both incorporated into a HANK model. The results suggest that frictions in the productive sector have a stronger impact on wealth inequality, whereas frictions in household borrowing lead to greater consumption dispersion relative to the counterfactual scenario. This divergence primarily arises from dynamics around the zero-wealth threshold, particularly the behavior of the household borrowing spread. Francesco Ferlaino Heterogeneous agents, financial frictions, monetary policy, New Keynesian models, inequalities 2025-05 Climate Policies in the Housing Market? https://d.repec.org/n?u=RePEc:fae:wpaper:2026.01&r=&r=dge Mitigating CO2 emissions in housing through retrofits has emerged as a crucial political issue. In this paper, we assess the macroeconomic and distributional impacts of key climate policies in the residential housing market. We build a quantitative heterogeneous agent model featuring high (green) and low (brown) energy efficient houses. Brown houses are associated with an additional cost of energy and can be retrofitted to a green house. We compare the effects of three policies: a tax on energy, a tax on brown rental income and a retrofit subsidy. The taxes widen the green to brown price ratio by penalizing brown houses, whereas the subsidy reduces it by lowering the substitution cost. The energy tax raises the user cost of brown housing, tightening affordability and increasing the renter share. The tax on brown rental income generates a "brown reallocation": by decreasing brown house prices while leaving the user cost unchanged, it induces lowincome renters to transition into brown homeownership. Finally, the subsidy improves affordability, enabling low-income households to enter green homeownership. Paloma Péligry Grégoire Sempé 2025-11 Monopsony Power and the Transmission of Monetary Policy https://d.repec.org/n?u=RePEc:nbr:nberwo:35335&r=&r=dge This paper studies how labor market power affects the transmission of monetary policy. Using administrative U.S. Census data, we show that firms with high monopsony power—defined as those accounting for over 10 percent of the local wage bill—respond less to monetary policy in terms of their wage bill and employment. We then develop a New Keynesian model with heterogeneous firms and oligopsonistic competition to interpret these findings. Wage stickiness combined with firms’ labor market power is key to generating the heterogeneous responses that we document. Our model highlights two channels through which oligopsony shapes the aggregate effects of monetary policy: partial passthrough and misallocation. Calibrated to U.S. labor markets, the model implies that the decline in labor market power since the 1980s has increased the output response to monetary policy by about 10 percent and accounts for about 15 percent of the estimated flattening of the Phillips curve. Bence Bardóczy Gideon Bornstein Sergio Salgado 2026-06 The Search Costs of Inflation in the Labor Market https://d.repec.org/n?u=RePEc:nbr:nberwo:35369&r=&r=dge This paper studies the effect of unanticipated inflation in the labor market. When wages are contracted in nominal terms, inflation reduces real wages, leading workers to intensify on-the-job search to obtain wage-adjusting outside offers. Both the search effort and the resulting job mobility are costly, yet that same mobility raises output by moving workers toward more productive matches. To quantify these costs and benefits, we extend the canonical job ladder of Postel-Vinay and Robin (2002) to a nominal environment with privately chosen search effort, and calibrate it to standard moments from the pre-pandemic US labor market. A one-time inflation shock scaled to the COVID episode generates an average welfare loss of 0.44% of consumption, with workers at the top of the wage distribution bearing losses over six times those at the bottom. Once the offsetting transfer of surplus to firms and productivity gains from reallocation are accounted for, the net aggregate cost is close to zero. Second, inflation volatility imposes asymmetric costs: worker welfare is approximately invariant to the volatility regime because firms compensate workers for expected search costs at hiring, but social welfare declines meaningfully because the resource cost of search effort is not undone by compensation. This second finding identifies a distinct, labor-market source of welfare costs from inflation volatility, complementing the price-dispersion costs emphasized in the New Keynesian literature. Laura Pilossoph Jane M. Ryngaert Jesse J. Wedewer 2026-06 An integrated Bayesian-Principal Component approach to macroeconomic resilience https://d.repec.org/n?u=RePEc:ter:wpaper:00194&r=&r=dge We propose a new approach to study the resilience to business cycle fluctuations of the Central Europe and Baltic macro-region. By individually estimating six open economy DSGE models within the macro-region, we identify the business-cycle-volatility drivers for each country. Then, we use the outcome of our six estimates to conduct a principal component analysis to determine structural common characteristics required to explain economic resilience in the Central Europe and Baltic macro-region. Elton Beqiraj Giovanni Di Bartolomeo Marco Di Pietro Carolina Serpieri Financial crisis, resilience, macroeconomic performance, emerging markets, Bayesian estimations, principal component analysis 2025 Reconciling Micro Elasticities with the Macro Decline in Labor Supply https://d.repec.org/n?u=RePEc:nbr:nberwo:35329&r=&r=dge Micro estimates of the Marshallian elasticity of labor supply are small and typically positive, whereas cross-country and time-series patterns of hours imply a strong negative relationship between wages and hours. I reconcile these two apparently contradictory observations using a single utility specification and taking into account heterogeneity in non-labor income. Micro estimates condition on non-labor income, while macro variation allows capital income to adjust alongside labor income, which strengthens the income effect. A model with heterogeneous households and exogenous capital income yields closed-form expressions in which the distribution of the labor share shapes the gap between the micro and the macro elasticities. A cross-sectional regression of hours on wages that conditions on the labor share recovers the macro elasticity. A dynamic model with heterogeneous households and incomplete asset markets reproduces both elasticities as outcomes when disciplined by joint moments of wages, hours, consumption, and wealth. The income effects that bridge the gap between the two elasticities imply marginal propensities to earn that lie in the range of estimates of micro studies on lottery winners. Loukas Karabarbounis 2026-06 The U.S. Economic Dynamics and Inflation Persistence: A Regime-Switching Perspective https://d.repec.org/n?u=RePEc:ter:wpaper:00204&r=&r=dge Most comparative analyses explaining the 1970s and 1990s/2000s inflation performance, focusing on good/bad policy versus good/bad luck, assume that price- and wage-setting institutions remained constant. While studies acknowledge institutional changes, they typically overlook sources of intrinsic persistence of wage and price inflation. This paper contributes to this ongoing debate by revisiting the U.S. business cycle. We account for time variations in pricing and wage-setting behavior due to institutional changes and for switches in inflation-intrinsic persistence, which we formally represent as changes in the shape of the hazard function. By analyzing how policy and shocks interact within different institutional settings in our model economy, we trace the existing contrasting evidence back to an identification problem that biases regime estimates and leads to misleading interpretations. Once we account for persistence switches, the empirical outcomes strongly support, but refine, the luck interpretation over the policy interpretation. The 1970s were characterized not only by larger shocks but also by more pronounced transmission mechanisms of supply shocks, driven by the price- and wage-setting institutions of the time. Additionally, the data suggest reinterpreting monetary regimes more in line with central bankers' views and show that structural changes in price and wage adjustments play essential, opposing roles in the Great Inflation. Finally, our analysis yields two important general findings. First, it emphasizes the critical role that changes in price- and wage-setting institutions play in influencing the propagation of shocks. Second, it validates the use of a generalized time-dependent rule to represent nominal rigidities. Elton Beqiraj Giuseppe Ciccarone Giovanni Di Bartolomeo duration-dependent wage adjustments, intrinsic inflation persistence, DSGE models, hybrid Phillips curves, Markov-switching 2026-05 Labor Unions and Social Insurance https://d.repec.org/n?u=RePEc:crm:wpaper:26167&r=&r=dge We study the labor market impacts of unions by accounting for their effects on employers' insurance provision and examine how social insurance policies, in turn, affect unionization and labor market outcomes. We document that unions increase employer-sponsored insurance provision and that expansions in social insurance reduce unionization in the United States. We then develop and estimate an equilibrium labor search model where unionization, wages, and non-wage benefits are endogenously determined. We demonstrate that unionization, as well as the threat of unionization, increases employer-sponsored insurance provision in both unionized and nonunionized firms. We find that social insurance policies can affect labor market inequality through (de)unionization, and inequality may increase or decrease depending on how social insurance is targeted. Social insurance expansions, along with technological changes, contribute to the long-term decline of unions in the U.S. in the last fifty years. Although historical deunionization driven by these forces increased overall welfare, we find that subsidizing unions in the current economy can improve welfare. Naoki Aizawa Hanming Fang Katsuhiro Komatsu Labor unions; Non-wage benefits; Employer-provided insurance; Social insurance; Technological change 2026-06