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on Dynamic General Equilibrium |
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Issue of 2024‒01‒29
ten papers chosen by |
| By: | Leo Kaas; Etienne Lalé; Nawid Siassi |
| Abstract: | This paper develops a macroeconomic model that combines an incomplete-markets overlapping-generations economy with a job ladder featuring sequential wage bargaining, endogenous search effort of employed and non-employed workers, and differences in match quality. The calibrated model offers a good fit to the empirical age profiles of search activity, job-finding rates, wages and savings, so that we use the model to examine the role of age and wealth for worker flows and for the consequences of job loss. We further analyze the impact of unemployment insurance and progressive taxation for labor market dynamics and aggregate economic activity via capital, employment and labor efficiency channels. Lower unemployment benefits or a less progressive tax schedule bring about welfare losses for a newborn worker household. |
| Keywords: | search and matching, job-to-job transitions, incomplete markets, overlapping generations, wealth accumulation |
| JEL: | E21 E24 H24 J64 J65 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_10847&r=dge |
| By: | Hinterlang, Natascha; Martin, Anika; Röhe, Oke; Stähler, Nikolai; Strobel, Johannes |
| Abstract: | Climate change and climate policy will have far-reaching economic implications, thereby also posing new challenges for macroeconomic analysis. This is partly because climate risks have an important global dimension. Moreover, climate change and climate polices are likely to affect different economic sectors to varying degrees. Hence, in order to adequately gauge the macroeconomic implications of climate risks, models with sufficient regional and sectoral differentiation are needed. Against this background, we developed the environmental multi-sector dynamic stochastic general equilibrium model EMuSe. This paper presents the main features of the benchmark closed-economy flexible-price model, an open-economy extension of the model, a variant of the model with price-setting frictions and selected applications to illustrate key transmission channels. In order to give those who are interested the opportunity to gain more experience with EMuSe, the model codes are published together with this documentation. |
| Keywords: | climate risks, DSGE, production linkages, sectoral heterogeneity |
| JEL: | E3 E6 F4 H3 Q5 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:esprep:280900&r=dge |
| By: | Huber, Johannes; Meyer-Gohde, Alexander; Saecker, Johanna |
| Abstract: | This paper applies structure preserving doubling methods to solve the matrix quadratic underlying the recursive solution of linear DSGE models. We present and compare two Structure-Preserving Doubling Algorithms (SDAs) to other competing methods - the QZ method, a Newton algorithm, and an iterative Bernoulli approach - as well as the related cyclic and logarithmic reduction algorithms. Our comparison is completed using nearly 100 different models from the Macroeconomic Model Data Base (MMB) and different parameterizations of the monetary policy rule in the medium scale New Keynesian model of Smets and Wouters (2007) iteratively. We find that both SDAs perform very favorably relative to QZ, with generally more accurate solutions computed in less time. While we collect theoretical convergence results that promise quadratic convergence rates to a unique stable solution, the algorithms may fail to converge when there is a breakdown due to singularity of the coefficient matrices in the recursion. One of the proposed algorithms can overcome this problem by an appropriate (re)initialization. This SDA also performs particular well in refining solutions of different methods or from nearby parameterizations. |
| Keywords: | Numerical accuracy, DSGE, Solution methods |
| JEL: | C61 C63 E17 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:imfswp:280968&r=dge |
| By: | Masataka Eguchi; Hidekazu Niwa; Takayuki Tsuruga |
| Abstract: | Implementation lags are a concern of policymakers as they may reduce the efficacy of fiscal policy. Using a standard New Keynesian model with an effective lower bound on the nominal interest rate, we compare the impacts of fiscal stimulus on output across various lengths of implementation lag. We show that despite concerns among policymakers, implementation lags may enhance the efficacy of government purchases on output when the economy is caught in a liquidity trap. |
| Date: | 2022–11 |
| URL: | https://d.repec.org/n?u=RePEc:dpr:wpaper:1196r&r=dge |
| By: | Stefano Carattini; Giseong Kim; Givi Melkadze; Aude Pommeret |
| Abstract: | Ambitious climate policy, coupled with financial frictions, has the potential to create macrofinancial stability risk. Such stability risk may expand beyond the economy implementing climate policy, potentially catching other countries off guard. International spillovers may occur because of trade and financial channels. Hence, we study the design and effects of climate policies in the world economy with international trade and financial flows. We develop a two-sector, two-country, dynamic general equilibrium model with financial frictions, climate policies, including carbon tariffs, and macroprudential policies. Using the calibrated model, we evaluate spillovers from unilateral domestic carbon pricing to foreign economies and back. We also examine more ambitious climate architectures involving carbon tariffs or a global carbon price. We find that accounting for cross-border financial flows and frictions in credit markets is crucial to understand the effects of climate policies and to guide the implementation of macroprudential policies at the global scale aimed at minimizing transition risk and paving the way for ambitious climate policy. |
| Keywords: | financial frictions, carbon tax, carbon tariffs, open economy |
| JEL: | E44 E58 F38 F42 G18 Q58 |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_10851&r=dge |
| By: | Luiz Brotherhood (Universitat de Barcelona & BEAT); Daniel Da Mata (Sao Paulo School of Economics-FGV); Nezih Guner (CEMFI, Centro de Estudios Monetarios y Financieros); Philipp Kircher (Cornell University); Cezar Santos (Inter-American Development Bank & CEPR) |
| Abstract: | This paper investigates informal employment in Brazil’s highly regulated labor market, focusing on the intensive margin of informality within formal firms. Using a comprehensive dataset of labor audits conducted from 1997 to 2012, we find that formal firms caught with informal workers face sustained slower growth. Informal workers are found across firms of all sizes, and their characteristics closely resemble those of formal employees. Building on these empirical findings, we develop a dynamic general equilibrium model where firms balance the flexibility of informality against potential costs. Our framework can be used to explore government policy implications and to examine the impact of audit strategies on informality, output, and workers’ welfare. |
| Keywords: | Informality, labor market regulation, firm dynamics, developing countries. |
| JEL: | H2 J1 J2 L1 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:cmf:wpaper:wp2023_2308&r=dge |
| By: | F. Cerina; X. Raurich |
| Abstract: | We study how preferences for leisure and its life-cycle allocation affect the macroeconomic equilibrium. To do so we extend an OLG model with leisure by allowing for the individual to allocate her leisure time within and across generations. Due to complementarity between consumption and leisure activities, we show that economies where the value placed on leisure by younger relative to older generations is lower, exhibit higher saving rates, higher stock of capital per worker higher fraction of time worked in the steady-state. Using data from the World Value Survey, we provide empirical support for these predictions. Lastly, we explore the implications of this channel on the optimality of the market equilibrium and on capital overaccumulation. |
| Keywords: | intergenerational preferences for leisure;saving behaviour;Labor Supply;time allocation;overlapping generations |
| Date: | 2023 |
| URL: | https://d.repec.org/n?u=RePEc:cns:cnscwp:202315&r=dge |
| By: | Philippe, Arnaud (University of Bristol); Skandalis, Daphné (University of Copenhagen) |
| Abstract: | Why do women experience a persistent drop in labor earnings upon becoming mothers, i.e. a "child penalty"? We study a new mechanism: search frictions. We analyze data on job applications sent on a popular online platform linked with administrative data for 350, 000 involuntarily unemployed workers in France. First, we highlight differences in job search behavior between mothers and similar women with no children. Mothers send 12.2% fewer job applications and are more selective regarding wage and non-wage amenities. Consistently, they have a lower job finding rate. Second, we analyze the exact time when applications are sent and highlight differences in the timing of job search. We find that mothers' rate of applications decreases by 20.3% in the hours and days when there is no school. We also show that mothers responded to a reform that introduced school on Wednesday by smoothing their search across weekdays and narrowing their search timing gap with other women. In a simple search model, we show that our results imply that mothers both face lower incentives and higher costs to search. We conclude that search frictions disproportionately prevent mothers from improving their labor market situation and contribute to the child penalty. |
| Keywords: | job search, gender inequality, time allocation, child penalty |
| JEL: | J16 J22 J64 |
| Date: | 2023–12 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp16669&r=dge |
| By: | Javier Bianchi; Louphou Coulibaly |
| Abstract: | Financial integration generates macroeconomic spillovers that may require international monetary policy coordination. We show that individual central banks may set nominal interest rates too low or too high relative to the cooperative outcome. We identify three sufficient statistics that determine whether the Nash equilibrium exhibits under-tightening or over-tightening: the output gap, sectoral differences in labor intensity, and the trade balance response to changes in nominal rates. Independently of the shocks hitting the economy, we find that under-tightening is possible during economic expansions or contractions. For large shocks, the gains from coordination can be substantial. |
| Keywords: | Macroeconomic and financial spillovers; Monetary policy cooperation |
| JEL: | E23 E43 E52 E21 E62 E44 F32 |
| Date: | 2024–01–04 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmoi:97546&r=dge |
| By: | García-Morán, Eva; Kuehn, Zoe |
| Abstract: | Part time jobs facilitate the conciliation of work and family life. But they entail reduced returns to experience and translate into lower own income in case of divorce. Given non-trivial divorce risks, why do married women work so little? Using micro data for Germany, we show married mothers' market hours (hours dedicated to housework) to be positively (negatively) related to separations. We then propose a dynamic life-cycle model of mothers' labor force participation, home production, and endogenous divorce which we calibrate to German data. Making divorce exogenous or ruling out divorce leads to an overestimation of the share of married mothers working full time and an underestimation of their housework and child care time, particularly among medium and highly educated women. Carrying out three policy experiments (increasing alimony, eliminating joint taxation, subsidizing child care) we highlight how couples' considerations of divorce risks condition the effects of such policies on married mothers' market hours. |
| Keywords: | female labor force participation, home production, divorce |
| JEL: | H42 J12 J13 J22 |
| Date: | 2023–12–01 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:119324&r=dge |