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The credit-augmented Divisia aggregates and the monetary business cycle Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-03-05 Apostolos Serletis, Libo Xu
We follow Belongia and Ireland (2021) and investigate the role that the Center for Financial Stability credit card-augmented Divisia monetary aggregates could play in monetary policy and business cycle analysis. We use Bayesian methods to estimate a structural VAR under priors that reflect Keynesian channels of monetary transmission, but produce posterior distributions for the structural parameters
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Does household debt affect the size of the fiscal multiplier? Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-03-05 Juan Zurita
Does household debt affect the size of the fiscal multiplier? We investigate the effects of household debt on government spending multipliers using a smooth transition vector autoregression model. Through generalized impulse response functions, we measure whether the effect of government spending on GDP is conditioned by different levels of household debt in Australia, Sweden, and Norway, three countries
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New evidence on US monetary policy activism and the Taylor rule Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-29 Chew Lian Chua, Sarantis Tsiaplias
We provide new evidence about US monetary policy using a model that: (i) estimates time-varying monetary policy weights without relying on stylized theoretical assumptions; (ii) allows for endogenous breakdowns in the relationship between interest rates, inflation, and output; and (iii) generates a unique measure of monetary policy activism that accounts for economic instability. The joint incorporation
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Unionization, industry concentration, and economic growth Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-29 Colin Davis, Ken-ichi Hashimoto, Ken Tabata
This paper examines how unionization affects economic growth through its impact on industry concentration in a two-country model of international trade and endogenous productivity growth. Knowledge spillovers link firm-level productivity in innovation with geographic patterns of industry ensuring a faster rate of output growth when industry is relatively concentrated in the country with the greater
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Expectation formation and the Phillips curve revisited Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-28 Robert L. Czudaj
This paper studies expectation formation of professional forecasters in the context of the Phillips curve. We assess whether professionals form their expectations regarding inflation and unemployment consistent with the Phillips curve based on individual forecast data taken from the ECB Survey of Professional Forecasters. We consider expectations over different horizons and do not restrict the analysis
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Inter-industry trade and business cycle dynamics Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-20 Wolfgang Lechthaler, Mariya Mileva
Motivated by the increased importance of trade between industrialized and less-developed countries, we build a two-sector dynamic stochastic general equilibrium model featuring inter-industry trade as well as intra-industry trade to analyze the business cycle dynamics of industrialized countries. We find that import-competing sectors are more sensitive to domestic productivity shocks than exporting
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A note on the neutrality of interest rates Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-14 Apostolos Serletis, Libo Xu
We test the neutrality of nominal interest rates taking advantage of recent advances in quantitative financial history using the Schmelzing (2022) global nominal interest rate and inflation rate series (across eight centuries), for France, Germany, Holland, Italy, Japan, Spain, the United Kingdom, and the USA. We pay attention to the integration and cointegration properties of the variables and use
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The plague, the skill-premium, and the road to modern economic growth Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-02-12 Martin Kaae Jensen, Rui Luo
When bubonic plague arrived in Britain in the mid-14th century, it caused dramatic economic and structural change. Within 50 years, the skill-premium was reduced by half, and another 50 years on, agriculture’s share of the labor force had declined by more than 20 percentage points. This paper develops a two-sector pre-industrial growth model and draws on recent data sources covering Late Medieval and
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Unconventional policy instruments in the New Keynesian model Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-17 Zineddine Alla, Raphael A. Espinoza, Atish R. Ghosh
This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the “divine coincidence” breaks down. The paper discusses the role of a second instrument that, in addition to the effect of conventional interest rate policy, may enter the Phillips curve, the investment–saving (IS) curve, and the welfare function, thus influencing inflation and output. The paper presents
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Monetary policy and housing market cycles Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-12 Shiu-Sheng Chen, Tzu-Yu Lin, Jen-Kuan Wang
Using monthly data from 1978:M1 to 2019:M9, this paper provides empirical evidence concerning the role that monetary policy plays in the US housing market. We first show that shocks to short-run interest rates have significant impacts on house prices and that these effects are persistent. Our findings also provide evidence supporting the claim that too-low-for-too-long interest rates are responsible
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Untimely destruction: pestilence, war, and accumulation in the long run Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-12 Clive Bell, Hans Gersbach, Evgenij Komarov
This paper analyses the effects of disease and war on the accumulation of human and physical capital. We employ an overlapping generation framework in which young adults, motivated by old-age provision and possibly altruism, make decisions about investments in schooling and capital. A poverty trap exists for a wide range of constant war losses and premature adult mortality. If parents are altruistic
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Solving heterogeneous-belief asset pricing models with short-selling constraints and many agents Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-10 Michael Hatcher
Short-selling constraints are common in financial markets, while physical assets such as housing often lack markets for short-selling altogether. As a result, investment decisions are often restricted by such constraints. This paper studies asset prices in behavioral heterogeneous-belief models with short-selling constraints and arbitrarily many belief types. We provide conditions on beliefs such that
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The anatomy of government bond yields synchronization in the Eurozone Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-09 Claudio Barbieri, Mattia Guerini, Mauro Napoletano
We investigate the synchronization of the Eurozone’s government bond yields at different maturities. For this purpose, we combine principal component analysis with random matrix theory. We find that synchronization depends on yield maturity. Short-term yields are not synchronized. Medium- and long-term yields, instead, were highly synchronized early after the introduction of the Euro. Synchronization
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Conspicuous leisure, time allocation, and obesity Kuznets curves Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-02 Nathalie Mathieu-Bolh, Ronald Wendner
Our growth model explores the complex relationship between income, obesity, and changes in exercise-related behavior. Combining Becker’s theory of time allocation (The Economic Journal 75(299), 493–517, 1965) with Veblen’s theory of conspicuous leisure (The Theory of the Leisure Class, 1st ed. New York: Macmillan, 1899), we determine conditions for dynamic and static obesity Kuznets curves. Considering
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Optimal unemployment insurance with behavioral agents Macroeconomic Dynamics (IF 1.325) Pub Date : 2024-01-02 Hon Chung Yeung
This paper studies how behavioral biases affect the optimal unemployment insurance. I revisit the optimal UI of Landais et al. (2018) and show how the optimal UI formula is modified and leads to novel economic insights. The optimal UI replacement rate is the conventional Baily-Chetty replacement rate, which solves the trade-off between liquidity and job-search incentives, plus a market tightness correction
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House prices and rents: a reappraisal Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-12-04 Bertrand Achou, Hippolyte d’Albis, Eleni Iliopulos
In this work, we introduce rental markets in a general equilibrium model with borrowing constraints and infinitely lived agents. We estimate our model using standard Bayesian methods and match US data on recent decades. We highlight a crucial relationship that strongly links interest rates, house prices, and rents. It represents agents’ arbitrage when choosing their degree of participation in the housing
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On the decline in the magnitude of the expenditure multiplier Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-23 Jesús Rodríguez-López, Mario Solis-Garcia
We investigate the causes underlying the decline in the government expenditure multiplier after the Korean War, through the lens of a structural dynamic stochastic general equilibrium model. We estimate the model using Bayesian methods and annual frequency data from 1939 to 2017. The model replicates the observed fall in the expenditure multiplier. We find that the decline is accounted for by changes
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Income tax reductions in production networks Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-16 Chunyang Fu, Bin Wang
We analytically characterize the comparative statics of the macroeconomy after income tax reductions in which production is organized in networks around the inefficient economy. We contribute to the literature by showing that in production networks, income taxes have different effects from revenue taxes which are assumed to be real distortions in the literature. The sectoral income tax reductions’
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Monetary policy and economic fluctuations Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-16 Cosmas Dery, Apostolos Serletis
We assess the responses of output and inflation to monetary policy shocks in the context of a Bayesian, monetary structural vector autoregressive model. We allow money supply and leverage measures to enter into the interest rate policy rule and use an identification approach that is by construction devoid of any price puzzles. We provide a comprehensive comparison between monetary policy shocks under
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A view from outside: sovereign CDS volatility as an indicator of economic uncertainty Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-15 Maximilian Boeck, Martin Feldkircher, Burkhard Raunig
This paper proposes the volatility of sovereign credit default swaps (CDS) as a measurement of economic uncertainty. Sovereign CDS provide protection against losses from sovereign defaults and are traded for almost all countries by the world’s largest financial institutions. The premium for protection, the so-called CDS spread, depends on a country’s economic conditions and provides an outside view
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Creative destruction, human capital accumulation, and growth in a digital economy Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-10 Lewei Liao, Xuezheng Qin, Xiaolong Li, Liutang Gong
The rapid development of the digital economy has highlighted the crucial role of data in economic growth. This study investigates the impact of two types of innovation on long-term growth by incorporating data into a model of creative destruction and knowledge accumulation. Unlike traditional factors, data exhibit nonrivalry between the two research and development (R&D) sectors, thereby influencing
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Linear quadratic approximation of rationally inattentive control problems Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-08 Jianjun Miao, Bo Zhang
This paper proposes a linear quadratic approximation approach to dynamic nonlinear rationally inattentive control problems with multiple states and multiple controls. An efficient toolbox to implement this approach is provided. Applying this toolbox to five economic examples demonstrates that rational inattention can help explain the comovement puzzle in the macroeconomics literature.
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The Gold Standard and the international dimension of the Great Depression Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-11-07 Luca Pensieroso, Romain Restout
Was the Gold Standard a major determinant of the onset and protracted character of the Great Depression of the 1930s in the USA and worldwide? In this paper, we model the “Gold Standard hypothesis” in an open-economy, dynamic general equilibrium framework. We show that encompassing the international and monetary dimensions of the Great Depression is important to understand the turmoil of the 1930s
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The race between offshoring and automation in explaining wage polarization Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-27 Mafalda Pinho, Oscar Afonso, Tiago Sequeira
Offshoring and automation are sources of wage polarization. We reassess these two determinants of wage polarization in a single directed technical change setup that encompasses routine and nonroutine production. We empirically establish the conditional positive relationship between automation and relocations on one side and wage polarization on the other. Theoretically, we show that wage polarization
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On government spending and income inequality under monopolistic competition Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-23 Juin-Jen Chang, Jang-Ting Guo, Wei-Neng Wang
This paper systematically examines the theoretical and quantitative interrelations between government spending and disposable income inequality in a tractable monopolistically competitive Ramsey macroeconomy. Upon an increase in government size, we analytically show that whether the long-run after-tax Gini coefficient rises or falls depends on the sign and magnitude of the wealth/capital inequality
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Government debt and fiscal multipliers in the era of population aging Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-19 Dooyeon Cho, Dong-Eun Rhee
Over the past decade, the most salient changes in macroeconomic conditions in developed economies have included rising government debt and population aging, which are strongly correlated with each other. This paper investigates fiscal multipliers by disentangling the effects of population aging from those of government debt. Our analysis, which uses heterogeneous panel data from 24 OECD economies,
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A guide to estimating the canonical income process in quasidifferences Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-19 Francis Chiparawasha, Dmytro Hryshko
The canonical income process, including autoregressive, transitory, and fixed effect components, is routinely used in macro and labor economics. We provide a guide for its estimation using quasidifferences, cataloging biases in the estimated parameters for various $N$ , $T$ , initial conditions, and weighting schemes. Using Danish administrative data on male earnings, estimation in quasidifferences
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Optimal forward guidance in monetary policy: Can central banks sway the public with projections? Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-12 Christian Jensen
Because economic outcomes depend on private-sector expectations, central banks might be tempted to guide these by publishing projections of key macroeconomic variables. We find that optimal projections require misleading the public. Optimal non-misleading projections are time-inconsistent. Non-misleading time-consistent projections can only improve policy outcomes if the public’s forecasts are noisier
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Temporary prosperity or sustainable development: the long-run impact of developing pollution-intensive industries Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-10-12 Hongyu Nian, Zhiwei Xu, Haitao Yin
This paper proposes a dynamic model to capture the interaction among the environment, human capital accumulation, and economic growth. We emphasize the mechanism that pollution stock depresses human capital accumulation, which has received increasing support from empirical studies. The model predicts that the development of pollution-intensive industries can help an economy gear up a short-run prosperity
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Do business cycles result from stochastic shocks? Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-09-29 Yi Zhu
According to the real business cycle theory, business cycles mainly result from random exogenous shocks. In this paper, this argument is tested. I extend the Wald–Wolfowitz runs test under the assumption that a recession lasts for two periods at least and an expansion lasts for $k$ periods at least with k ≥ 2. I apply the extended runs test to the three two-valued data recession-expansion series generated
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Homeownership rates, housing policies, and co-residence decisions Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-09-25 Nils Grevenbrock, Alexander Ludwig, Nawid Siassi
Homeownership rates differ widely across European countries. We document that part of this variation is driven by differences in the fraction of adults co-residing with their parents. Comparing Germany and Italy, we show that in contrast to homeownership rates per household, homeownership rates per individual are very similar during the first part of the life cycle. To understand these patterns, we
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Land-price dynamics and macroeconomic fluctuations with general household preferences Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-09-25 Been-Lon Chen, Zheng-Ze Lai, Shian-Yu Liao
Through the collateral channel for entrepreneurs, a positive housing demand shock in Liu et al. [(2013) Econometrica 81, 1147–1184.] increases land prices and business investment, but consumption decreases on impact and there is thus a comovement problem. This paper improves Liu et al. [(2013) Econometrica 81, 1147–1184.] by adding general household preferences with broader intratemporal and intertemporal
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Technical change, task reallocation, and wage inequality Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-09-15 Long Qian
This paper empirically investigates wage inequality within the group of skilled workers in the recent four decades in the USA using CPS data and finds evidence that the trend of wage growth of the top and bottom 10th percentile of skilled workers significantly diverged starting from 2000. Using a task-based framework of occupation, I find that the changing trend of wage inequality was entirely driven
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Recovery from economic disasters Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-09-07 Bruno Ćorić, Blanka Škrabić Perić
This study uses two large datasets to explore the output dynamics following economic disasters, one including 180 economic disasters across 38 countries over the last two centuries and the other including 204 disasters in 182 countries since World War II. Our results suggest that extreme economic crises are associated with huge and remarkably persistent loss. On average, output loss surges to above
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Financial shocks to banks, R&D investment, and recessions Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-29 Ryoji Ohdoi
In some classes of macroeconomic models with financial frictions, an adverse financial shock successfully explains a decrease in real activity but simultaneously induces a stock price boom. The latter theoretical result is not consistent with data from actual financial crises. This study aims to provide a theoretical explanation for both prolonged recessions and stock price declines. I develop a simple
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Structural breaks in seemingly unrelated regression models Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-29 Shahnaz Parsaeian
This paper develops an efficient Stein-like shrinkage estimator for estimating slope parameters under structural breaks in seemingly unrelated regression models, which is then used for forecasting. The proposed method is a weighted average of two estimators: a restricted estimator that estimates the parameters under the restriction of no break in the coefficients, and an unrestricted estimator that
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Factor-augmented QVAR models: an observation-driven approach Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-25 Willy Alanya-Beltran
I develop and study a factor-augmented quasi-vector autoregressive (FAQVAR) model for economic policy analysis in tumultuous times. An observation-driven framework that exploits the information from the score of the model allows a maximum likelihood estimation. This multivariate FAQVAR model, which assumes a Student t error distribution, is robust to atypical observations such as the global financial
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Adjustments of factor income tax rates and aggregate (in)stability Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-24 Kevin X. D. Huang, Qinglai Meng, Jianpo Xue
A general wisdom, since at least the work of Schmitt-Grohé and Uribe [(1997) Journal of Political Economy 105, 976–1000.], holds that a government that relies on adjusting factor income tax rates to achieve budget objective may induce aggregate instability driven by self-fulfilling expectations. This paper shows that this conventional wisdom may be overturned if the rate of adjustment of the capital
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Undesired monetary policy effects in a bubbly world Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-15 Giuseppe Ciccarone, Francesco Giuli, Enrico Marchetti, Valeria Patella, Massimiliano Tancioni
Stock market bubbles arise as a joint monetary and financial phenomenon. We assess the potential of monetary policy in mitigating the onset of bubbles by means of a Markov-switching Bayesian Vector Autoregression model estimated on US 1960–2019 data. Bubbles are detected and dated from the regime-specific interplay among asset prices, fundamental values, and monetary policy shocks. We rationalize the
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Alternative monetary policies and wealth and income inequality: the monetary instrument problem revisited Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-08-11 Stephen J. Turnovsky, Yoichi Gokan
This paper compares the impact of setting the money growth rate versus pegging the interest rate on aggregate real variables and their distributions. In either case, the monetary policy, in isolation, requires the price level to jump to ensure intertemporal solvency but has no real dynamic effects. The choice of monetary instrument has consequences for wealth and income inequality, doing so in potentially
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Asset pricing with costly and delayed firm entry Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-07-19 Lorant Kaszab, Ales Marsal, Katrin Rabitsch
Survey evidence tells us that stock prices reflect the risks investors associate with long-run technological change. However, there is a shortage of models that can rationalize long-run risks. Unlike the previous literature assuming a fixed number of products, our model allows for new product varieties that appear in the form of new firms which face entry costs and delay in the entry process. The fixed
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On Mexican poverty-trap regimes and struggling to escape them Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-07-12 Edgar J. Sanchez Carrera, Wiston Adrián Risso
This paper deals with the phenomenon of poverty-trap regimes in Mexico, that is, self-reinforcing mechanisms in which municipalities which start poor remain poor. We develop a coordination game of poverty traps driven by strategic interactions of economic agents: people choose to complete or not their education levels since it might be excessively costly and unprofitable. A one-shot game is constructed
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Negative income tax and universal basic income in the eyes of Aiyagari Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-07-10 Yongsung Chang, Jong-Suk Han, Sun-Bin Kim
We compare two welfare programs: the universal basic income (UBI) and negative income tax (NIT). Under a linear income tax system, we show that (i) the NIT can replicate the allocation of the UBI exactly by providing an identical marginal effective tax schedule, and (ii) the budget of the NIT is always smaller than that of the UBI. According to our quantitative model, which is calibrated to approximate
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Simple mandates, monetary rules, and trend-inflation Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-07-07 Szabolcs Deák, Paul Levine, Son T. Pham
A mandate framework is proposed for delegating monetary policy to an instrument-independent, but goal-dependent central bank that emphasizes simplicity in both the objectives entering the welfare criterion and those in the instrument rule. It consists of: (i) a simple quadratic loss function penalizing deviations from target variables; (ii) a welfare-optimized, Taylor-type log-linear nominal interest-rate
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Government spending multipliers with the Real Cost channel Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-07-06 He Nie
In the benchmark New Keynesian (NK) model, I introduce the real cost channel to study government spending multipliers and provide simple Markov chain closed-form solutions. This model departs fundamentally from most previous interpretations of the nominal cost channel by flattening the NK Phillips Curve in liquidity traps. At the zero lower bound, I show analytically that following positive government
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The effects of public sector employment on household savings and labor supply Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-06-14 Luis G. Bettoni, Marcelo R. Santos
In many countries, the structure of wages and the labor law legislation are completely different for public and private sector employees. In this paper, we develop a general equilibrium overlapping generations model to study the effect of such differences on household savings and labor supply. To conduct our analysis, first we use microdata from two Brazilian household surveys to document that civil
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Love of novelty: a source of innovation-based growth… or underdevelopment traps? Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-05-30 Yuichi Furukawa, Tat-kei Lai, Kenji Sato
This study develops a new dynamic general equilibrium model to explore the role of people’s love of novelty as a cultural preference in innovation and innovation-based growth. The model considers (a) an infinitely lived representative consumer who has standard love-of-variety preferences for differentiated products and additional love-of-novelty preferences for new products and (b) technological progress
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From Neolithic Revolution to industrialization Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-05-17 Angus C. Chu, Rongxin Xu
This study develops a Malthusian model for the evolution of human society from hunting-gathering to agriculture and from agriculture to industrial production. Human society evolves across these stages as the population grows. However, under endogenous population growth, the population may stop growing at any stage. If it fails to reach the first threshold, the population remains as hunter-gatherers
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Stock market alphas help predict macroeconomic innovations Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-05-17 Mao-Wei Hung, Andy Jia-Yuh Yeh
We extract dynamic conditional factor premiums from the Fama-French factor model and find that most anomalies disappear after one accounts for time variation in these premiums. Vector autoregression evidence shows that mutual causation between dynamic conditional alphas and macroeconomic surprises serves as a core qualifying condition for fundamental factor selection. This economic insight is an incremental
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Three liquid assets Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-05-11 Nicola Amendola, Lorenzo Carbonari, Leo Ferraris
We examine a theoretical model of liquidity with three assets—money, government bonds, and equity—that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing
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Smells like animal spirits: the sensitivity of corporate investment to sentiment Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-05-09 Gianni La Cava
Economists have long been interested in the effect of business sentiment on economic activity. Using text analysis, I construct a new company-level indicator of sentiment based on the net balance of positive and negative words in Australian company disclosures. Company-level investment is very sensitive to changes in this corporate sentiment indicator, even controlling for fundamentals, such as Tobin’s
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Accounting for Mexican business cycles Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-04-27 Pedro Brinca, João Ricardo Costa Filho
The Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions
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Aggregate health shock and retirement decision Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-04-27 SeEun Jung, Hyunduk Suh
The retirement of old workers increased during the COVID-19 pandemic, and health concerns are considered to be a critical factor. To understand the effect of pure health concerns during the pandemic, we analyze the impact of the aggregate health shock on retirement decisions using a life cycle model. The aggregate health shock changes the economy from the normal state to the pandemic state, where the
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The elastic origins of tail asymmetry Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-04-27 Satoshi Nakano, Kazuhiko Nishimura
Based on a multisector general equilibrium framework, we show that the sectoral elasticity of substitution plays the key role in the evolution of asymmetric tails of macroeconomic fluctuations and the establishment of robustness against productivity shocks. A non-unitary elasticity of substitution renders a nonlinear Domar aggregation, where normal sectoral productivity shocks translate into non-normal
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Human capital and pensions with endogenous fertility and retirement Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-04-11 Giam Pietro Cipriani, Tamara Fioroni
We study an OLG model with child policies and a PAYG pension with endogenous retirement and fertility. The result of the planned economy is compared to the decentralized competitive equilibrium deriving optimal policies. We show that in the presence of a PAYG pension system, the optimal policy mix includes an education subsidy and a subsidy for the supply of labor in old age. Fertility should be taxed
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Time-varying volatility and the housing market Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-03-29 C. Richard Higgins, Ayse Sapci
This paper studies the role of stochastic volatility in a setting where housing serves as an important propagation mechanism. After showing time-varying volatility in US house prices, we estimate a dynamic stochastic general equilibrium model with housing, financial frictions, and stochastic volatility using a nonlinear approximation and Bayesian econometric techniques. Incorporating stochastic volatility
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Fiscal policy and the twin deficits: structural changes matter Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-03-27 Wongi Kim
This paper empirically and theoretically investigates the relationship between budget balances and external balances, the so-called twin deficit hypothesis. Using the US post-World War II data, I estimate a time-varying structural vector autoregressive model to evaluate the effects of structural breaks on this relationship. The empirical results reveal that the relationship is significantly time varying:
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Social Security safety net with rare event risk Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-03-27 Erin Cottle Hunt, Frank N. Caliendo
The US Social Security program was created in part as an explicit response to the Great Depression. We evaluate the performance of Social Security as a protective safety net against a rare episode of sudden and significant loss of private wealth such as the Great Depression. We construct a model in which a rare event causes a shock to wealth at an unknown time. How well does Social Security function
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Endogenous uncertainty and monetary policy Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-03-20 ShinHyuck Kang, Kwangyong Park
In this paper, we empirically explore the endogeneity of uncertainty and the interaction between different types of uncertainty and monetary policy using a shock-restricted vector-autoregression model. We find that a contractionary monetary policy shock reduces financial uncertainty, opposite to the findings in the previous literature, while at the same time it also heightens real uncertainty. This
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UK household-sector money demand and Divisia monetary aggregates in the new millennium Macroeconomic Dynamics (IF 1.325) Pub Date : 2023-03-17 Adrian R. Fleissig, Barry E. Jones
We estimate elasticities of substitution between components of the Bank of England’s household-sector UK Divisia monetary aggregate using quarterly data from 1999 to 2019, encompassing the period surrounding the global financial crisis. The demand system includes interest-bearing sight and time deposits at monetary financial institutions as components, since deposit data for banks (excluding mutuals)