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on Dynamic General Equilibrium |
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Issue of 2024‒07‒15
23 papers chosen by |
| By: | Miguel Faria-e-Castro |
| Abstract: | This document contains a technical description of the dynamic stochastic general equilibrium (DSGE) model developed and maintained by the Research Division of the St. Louis Fed as one of its tools for forecasting and policy analysis. The St. Louis Fed model departs from an otherwise standard medium-scale New Keynesian DSGE model along two main dimensions: first, it allows for household heterogeneity, in the form of workers and capitalists, who have different marginal propensities to consume (MPC). Second, it explicitly models a fiscal sector endowed with multiple spending and revenue instruments, such as social transfers and distortionary income taxes. Both of these features make the model well-suited for the analysis of fiscal policy counterfactuals, and monetary-fiscal interactions. We describe how the model is estimated using historical data for the US economy and how the COVID-19 pandemic is accounted for. Some examples of model output are presented and discussed. |
| Keywords: | Dynamic Stochastic General Equilibrium (DSGE) models; policy analysis; New Keynesian models; TANK models; Bayesian estimation; fiscal policy |
| JEL: | E1 E2 E3 E4 E5 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedlwp:98405&r= |
| By: | Bilbiie, F. O. |
| Abstract: | THANK is a tractable heterogeneous-agent New-Keynesian model that captures analytically core micro heterogeneity channels of quantitative-HANK: cyclical inequality and risk; self-insurance, pre-cautionary saving, and realistic intertemporal marginal propensities to consume. I use it to elucidate key transmission mechanisms and dynamic properties of HANK models. Countercyclical inequality yields aggregate-demand amplification and makes determinacy with Taylor rules more stringent; but solving the forward guidance puzzle requires procyclical inequality: a Catch-22. Solutions include combining inequality with a distinct risk channel, with compensating cyclicalities; I provide evidence that disposable income inequality was procyclical in the last two, Great and COVID recessions, while risk is countercyclical. Alternative policy rules also solve the Catch-22, e.g. price-level-targeting or, in the model version with liquidity, setting nominal public debt. Optimal policy with heterogeneity features a novel inequality-stabilization motive generating higher inflation volatility—but is unaffected by risk, insofar as the target efficient equilibrium entails no inequality. |
| Keywords: | Determinacy, Forward Guidance Puzzle, Heterogeneity, Inequality, Interest Rate Rules, Liquidity, Multipliers, Optimal Monetary Policy, Risk |
| JEL: | E21 E31 E40 E44 E50 E52 E58 E60 E62 |
| Date: | 2024–06–13 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camjip:2420&r= |
| By: | Kase, Hanno (European Central Bank); Melosi, Leonardo (University of Warwick, FRB Chicago, DNB, & CEPR); Rottner, Matthias (Deutsche Bundesbank) |
| Abstract: | We leverage recent advancements in machine learning to develop an integrated method to solve globally and estimate models featuring agent heterogeneity, nonlinear constraints, and aggregate uncertainty. Using simulated data, we show that the proposed method accurately estimates the parameters of a nonlinear Heterogeneous Agent New Keynesian (HANK) model with a zero lower bound (ZLB) constraint. We further apply our method to estimate this HANK model using U.S. data. In the estimated model, the interaction between the ZLB constraint and idiosyncratic income risks emerges as a key source of aggregate output volatility. |
| Keywords: | Neural networks ; likelihood ; global solution ; heterogeneous agents ; nonlinearity ; aggregate uncertainty ; HANK ; zero lower bound. JEL Codes: C11 ; C45 ; D31 ; E32 ; E52. |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:wrk:warwec:1499&r= |
| By: | José-Elías Gallegos (Banco de España) |
| Abstract: | The transmission channel of monetary policy in the benchmark New Keynesian (NK) framework relies on the counterfactual Full Information Rational Expectations (FIRE) assumption, particularly at the general equilibrium (GE) dimension. I relax the Full Information assumption and build a Heterogeneous-Agents NK model under financial frictions and dispersed information. I find that the amplification multiplier of monetary policy is dampened by the lessened role of GE effects. I then conduct the standard full-fledged NK analysis: the determinacy region is widened as a result of as if aggregate myopia, and the framework beyond FIRE does not suffer from the forward guidance puzzle. Finally, I find that transitory “animal spirits” shocks generate persistent effects. |
| Keywords: | imperfect information, New Keynesian, heterogeneous agents, monetary policy |
| JEL: | E31 E43 E52 E71 |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:bde:wpaper:2418&r= |
| By: | Giovanni Di Bartolomeo; Carolina Serpieri |
| Abstract: | We investigate the behavior of central banks in seven advanced economies, focusing on how observed monetary policies align with optimal ones as determined by model-consistent welfare measures. Our approach stands out by emphasizing the importance of inertia’s impact on the output gap and the dynamics of prices and wages. We incorporate inertia into our model using duration-dependent adjustments. By integrating this aspect into a simple New Keynesian model, our analysis aims to identify shared patterns and distinctive features in the monetary policy approach of central banks across different countries. |
| Keywords: | duration-dependent adjustments; intrinsic inflation persistence; DSGE models; hybrid Phillips curves; optimal policy |
| JEL: | E31 E32 C11 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:sap:wpaper:wp249&r= |
| By: | Stephanie Ettmeier; Alexander Kriwoluzky |
| Abstract: | We investigate the interplay of the monetary-fiscal policy mix during times of crisis by drawing insights from the Great Inflation of the 1960s and 1970s. We use a Sequential Monte Carlo (SMC) algorithm to estimate a DSGE model with three distinct monetary/fiscal policy regimes. We show that in such a model SMC outperforms standard sampling algorithms because it is better suited to deal with multimodal posteriors, an outcome that is highly likely in a DSGE model with monetary-fiscal policy interactions. From the estimation with SMC a differentiated perspective results: pre- Volcker macroeconomic dynamics were similarly driven by passive monetary/passive fiscal policy and fiscal dominance. We apply these insights to study the post-pandemic inflation period. |
| Keywords: | Bayesian Analysis, DSGE Models, Monetary-Fiscal Policy Interactions, Monte Carlo Methods |
| JEL: | C11 C15 E63 E65 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bon:boncrc:crctr224_2024_565&r= |
| By: | Giorgio Fabbri (GAEL - Laboratoire d'Economie Appliquée de Grenoble - CNRS - Centre National de la Recherche Scientifique - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement - UGA - Université Grenoble Alpes - Grenoble INP - Institut polytechnique de Grenoble - Grenoble Institute of Technology - UGA - Université Grenoble Alpes); Marie-Louise Leroux (UQAM - Université du Québec à Montréal = University of Québec in Montréal); Paolo Melindi-Ghidi (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique); Willem Sas (University of Stirling) |
| Abstract: | This paper develops an overlapping generations model that links a public health system to a pay-as-you-go (PAYG) pension system. It relies on two assumptions. First, the health system directly finances curative health spending on the elderly. Second, public pensions partially depend on health status by introducing a component indexed to society's average level of old-age disability. Reducing the average disability rate in the economy then lowers pension benefits as the need to finance long-term care services also drops. We study the effects of introducing such a ‘comprehensive' Social Security system on individual decisions, capital accumulation, and welfare. We first show that health investments can boost savings and capital accumulation under certain conditions. Second, if individuals are sufficiently concerned with their health when old, it is optimal to introduce a health-dependent pension system, as this will raise social welfare compared to a system where pensions are not tied to the society's average level of old-age disability. Our analysis thus highlights an important policy recommendation: making PAYG pension schemes partially health-dependent can be beneficial to society. |
| Keywords: | Curative Health Investments, PAYG Pension System, Disability, Overlapping Generations, Long-term Care |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:hal:journl:hal-04612468&r= |
| By: | Manuel Amador; Javier Bianchi |
| Abstract: | We examine banking regulation in a macroeconomic model of bank runs. We construct a general equilibrium model where banks may default because of fundamental or self-fulfilling runs. With only fundamental defaults, we show that the competitive equilibrium is constrained efficient. However, when banks are vulnerable to runs, banks’ leverage decisions are not ex-ante optimal: individual banks do not internalize that higher leverage makes other banks more vulnerable. The theory calls for introducing minimum capital requirements, even in the absence of bailouts. |
| Keywords: | Self-fulfilling bank runs; Banking crises; Macroprudential policy |
| JEL: | E32 G21 G01 G33 E44 E58 |
| Date: | 2024–04–11 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:98383&r= |
| By: | Hochmuth, Brigitte; Merkl, Christian; Stüber, Heiko |
| Abstract: | This paper shows that less generous unemployment benefits in one country may generate substantial negative long-run consumption spillovers to non-reforming countries under incomplete consumption insurance. While lower benefits reduce unemployment in the reforming country, employed workers increase their precautionary savings to compensate for reduced government-provided insurance. A portion of these additional savings flows to the non-reforming country and depresses long-term consumption due to the negative net foreign asset position. To discipline our quantitative model, we estimate the increase of Germany's tradable sector in the aftermath of the Hartz unemployment insurance reform based on firm-level data. Our quantitative model matches a significant fraction of various macroeconomic trends after the reform, namely Germany's persistent increase of aggregate savings and net foreign assets, the increase of net exports, the real exchange rate depreciation within the Eurozone, and the decline in unemployment. Conversely, Germany's wage moderation before the reform appears to be unrelated to most of these phenomena. |
| Keywords: | Unemployment insurance reform, spillover effects, precautionary savings |
| JEL: | E21 E24 F16 F41 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:zbw:iwqwdp:298854&r= |
| By: | James Graham; Avish Sharma |
| Abstract: | How does monetary policy affect the homeownership rate? A monetary contraction may have contrasting effects on ownership due to rising interest rates, falling in-comes, and lower house prices. To investigate, we build a heterogeneous household life-cycle model with housing tenure decisions, mortgage ï¬ nance, and an exogenous stochastic process to capture the macroeconomic effects of monetary policy. Following a contractionary shock, homeownership initially falls due to rising mortgage rates, but rises over the medium term given falling house prices. We also show that differences in mortgage credit conditions, mortgage flexibility, and household expectations formation can amplify homeownership dynamics following a shock. |
| Keywords: | homeownership, monetary policy, interest rates, house prices, heterogeneous households |
| JEL: | E52 E20 R21 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:een:camaaa:2024-43&r= |
| By: | Svetlana Pashchenko (University of Georgia, Athens, USA); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies, Tokyo, Japan) |
| Abstract: | Social Security benefit claiming is highly concentrated at two ages, 62 and the full retirementage, which is hard to explain by the program’s incentives. We study claiming and labor supply decisions in a structural framework and provide three main findings. First, we show that claiming behavior can be well explained by a parsimonious life- cycle model with fully rational agents. The two key mechanisms are(i) the strong unwillingness to hold annuities, (ii) the effects of the earnings test. Second, we show that current rules distort claiming and labor supply decisions, and eliminating these distortions results in large welfare gains. Finally, we show that claiming decisions can be used to sharpen the identification of important preference parameters. |
| Keywords: | SocialSecurity, Retirement, Annuities, ConsumptionandSaving, Life-Cycle Model |
| Date: | 2023–06 |
| URL: | https://d.repec.org/n?u=RePEc:ngi:dpaper:23-05&r= |
| By: | Phitawat Poonpolkｌ (Puey Ungphakorn Institute for Economic Research, Bangkok, Thailand); Ponpoje Porapakkarm (National Graduate Institute for Policy Studies, Tokyo, Japan); Nada Wasi (Puey Ungphakorn Institute for Economic Research, Bangkok, Thailand) |
| Abstract: | We use an overlapping generations model to study the challenge in developing countries with a large informal sector and aging populations. We use Thailand as a case study and incorporate its labor market structure and its public pension system into the calibrated model. Unlike developed countries, workers in developing countries commonly transit from the formal sector to the informal sector, which can be in the early stage of their working life. This labor market feature crucially limits the coverage of the contributory social security system. We find that 66% of Thai elderly (aged 60 years old or over) are ineligible for social security annuity benefits because of an insufficient number of years paying into the social security fund. In addition, we use our model to evaluate two schemes to raise the existing universal basic pension income to the poverty line; namely, uniform benefits and pension-tested benefits. We find that pension-testing effectively improves the targeting efficiency, and non-trivially lower the cost of the basic pension income program. |
| Keywords: | Overlapping generations model, Fiscal sustainability, Pension, Social Security, Thailand |
| Date: | 2023–03 |
| URL: | https://d.repec.org/n?u=RePEc:ngi:dpaper:22-14&r= |
| By: | Joel P. Flynn; Karthik Sastry |
| Abstract: | We study how bounded rationality coevolves with the business cycle. We introduce a business-cycle model in which firms face a cognitive cost of making precise decisions. Theoretically, we characterize equilibrium with non-parametric, state-dependent stochastic choice. Firms have greater incentives to pay attention in downturns because they are owned by risk-averse households. Correspondingly, the model generates counter-cyclical attention, pro-cyclical mistakes, and an endogenous attention wedge that depresses aggregate productivity when attention is low. Empirically, we test the model's predictions using novel measures of firms' mistakes and attention. Quantitatively, attention cycles generate significant stochastic volatility of output growth and shock propagation asymmetries. |
| JEL: | E32 E44 E71 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:nbr:nberwo:32553&r= |
| By: | Bilbiie, F. O.; Monacelli, T.; Perotti, R. |
| Abstract: | Stabilization and redistribution are intertwined in a model with heterogeneity, imperfect insurance, and nominal rigidity-making fiscal and monetary policy inextricably linked for aggregate-demand management. Movements in inequality induced by fiscal transfers make the flexible-price equilibrium suboptimal, thus triggering a stabilization vs redistribution tradeoff. Likewise, changes in government spending that are associated with changes in the distribution of taxes (progressive vs. regressive) induce a tradeoff for monetary policy: the central bank cannot stabilize real activity at its efficient level (including insurance) and simultaneously avoid inflation. Fiscal policy can be used in conjunction to monetary policy to strike the optimal balance between stabilization and insurance (redistribution) motives. |
| Keywords: | Inequality, Redistribution, Aggregate Demand, Fiscal Transfers, Optimal Monetary-Fiscal Policy, TANK |
| JEL: | D91 E21 E62 |
| Date: | 2024–06–17 |
| URL: | https://d.repec.org/n?u=RePEc:cam:camjip:2421&r= |
| By: | Kieran Walsh; Eric Young |
| Abstract: | Repeatedly solving the Aiyagari (1994) model with random parameters, we construct hundreds of examples with multiple stationary equilibria. We never find multiplicity with risk aversion less than ≈ 1.49, depreciation less than ≈ 0.19, or income persistence less than ≈ 0.47, and multiplicity requires a disaster state for income. In cases with multiplicity, the lowest rental rate occurs near depreciation times the capital share. It is possible for the economy, without a change in fundamentals, to transition rationally from a higher-rate equilibrium to one with a lower rental rate, lower inequality, and lower welfare (for most agents). We also construct the first Krusell and Smith (1998) examples with multiple recursive competitive equilibria. |
| Keywords: | uniqueness; multiplicity; Bewley models; Krusell-Smith |
| JEL: | C6 D5 E1 |
| Date: | 2024–06–20 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:98407&r= |
| By: | Zareei, Afsaneh (Stockholm University); Falahi, Mohammad Ali (Ferdowsi University of Mashhad); Wadensjö, Eskil (Stockholm University); Sadati, Saeed Malek (Ferdowsi University of Mashhad) |
| Abstract: | Sanctions have severe adverse effects on societies. Even though sanctions are used against governments, the population is punished for its government's behavior. Sanctions can create problems due to international migration. Iran is an unique case study because it faced the most and hardest sanctions in the world until February 2022. Many negative effects on the economy have been observed such as losing the Rial's value against the US Dollar by 80 percent, increasing poverty, and reducing exports and imports. At the same time, Iran had a very fast growth of emigration with an increase of 141 percent. Sanctions have been imposed on Iran's economy in different ways, but so far, it has not been determined how each type of sanctions will affect emigration. The aim of this study is to study the relationship between different kinds of economic sanctions and labor emigration using the Dynamic Stochastic General Equilibrium model. Different types of sanctions as oil and nonoil exports and three different import sanctions on consumer, capital, and intermediate goods are considered. The results show that sanctions on nonoil exports are most influencing emigration. Sanctions on the imports of intermediate and consumer goods, as well as sanctions on oil exports, are in the next steps, but not as much as the non-oil exports. It can be noticed that out of approximately 24 million people working in Iran, up to 4 percent of the working force have a desire to leave the country as migrant workers due to the sanctions. |
| Keywords: | international sanctions, labor emigration, DSGE Models, Iran |
| JEL: | B22 C02 C11 C68 F22 P00 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:iza:izadps:dp17062&r= |
| By: | Gergő Motyovszki; Philipp Pfeiffer; Jan in ’t Veld |
| Abstract: | Rising public investment needs raise the issue of debt sustainability. This paper analyses the implications of public investments for debt dynamics using quantitative model simulations. Without offsetting fiscal adjustments via the primary balance, a temporary increase in public investment implies a lasting increase in the debt-to-GDP ratio. While a significant boost to real GDP can create some backing for the additional public debt, the direct budgetary costs of the stimulus outweigh this denominator effect. In the medium and long run, as these endogenous effects fade, debt dynamics becomes increasingly driven by the longterm r−g differential, which is assumed to be positive in our central scenario, putting debt-to-GDP on an increasing trajectory. In contrast, negative r − g could ensure that debt-to-GDP eventually reverts to its baseline level, even without budgetary adjustments. Alternatively, letting the primary balance adjust beyond the impact of the fiscal shock can provide another mechanism for debt stabilisation. In particular, if non-stimulus spending is fixed in real terms while taxes increase in line with expanding output, debt-toGDP falls below its baseline in the medium run, even in an economy with positive r−g. However, this constitutes a quasi-consolidation where the resulting higher primary balances reflect the inherent fiscal costs, underlining that public investment is not a “free lunch”. Nonetheless, the need for debt-financed public investments to be eventually paid for (in a narrow fiscal sense) does not preclude their potential to be welfare-improving for society, especially if they facilitate the climate transition – a channel our model does not explicitly consider. |
| JEL: | E62 E63 H62 H63 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:euf:dispap:204&r= |
| By: | Carlos G\'oes |
| Abstract: | Can trade integration induce product innovation? I document that countries that joined the European Union (EU) started producing more product varieties, investing more in R&D, and trading more compared to candidate countries that did not join at a given horizon. Additionally, I show that a plausibly exogenous increase in market access increases the probability of a given country starting production of and exporting a given product. To rationalize this reduced-form evidence, I propose a new quantitative framework that integrates the forces of specialization and market size. This is a dynamic general equilibrium model of frictional trade and endogenous growth with arbitrarily many asymmetric countries that nests the Eaton-Kortum model of trade and the Romer growth model as special cases. The key result is an analytical expression to decompose gains from trade into dynamic and static components. In this framework, the product innovation growth rate increases with higher market access. Finally, a quantitative version of the model suggests that: (a) the EU enlargement increased its long-run yearly growth rate by about 0.10pp; and (b) dynamic gains can account for between 65-90% of total welfare gains from trade. |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2406.08727&r= |
| By: | Yuhki Hosoya |
| Abstract: | We consider a class of economic growth models that includes the classical Ramsey--Cass--Koopmans capital accumulation model and verify that, under several assumptions, the value function of the model is the unique viscosity solution to the Hamilton--Jacobi--Bellman equation. Moreover, we discuss a solution method for these models using differential inclusion, where the subdifferential of the value function plays an important role. Next, we present an assumption under which the value function is a classical solution to the Hamilton--Jacobi--Bellman equation, and show that many economic models satisfy this assumption. In particular, our result still holds in an economic growth model in which the government takes a non-smooth Keynesian policy rule. |
| Date: | 2024–05 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2405.16643&r= |
| By: | Mauricio Barbosa-Alves; Javier Bianchi; César Sosa-Padilla |
| Abstract: | This paper investigates how a government should manage international reserves when it faces the risk of a rollover crisis. We ask, should the government accumulate reserves or reduce debt to make itself less vulnerable? We show that the optimal policy entails initially reducing debt, followed by a subsequent increase in both debt and reserves as the government approaches a safe zone. Furthermore, we uncover that issuing additional debt to accumulate reserves can lead to a reduction in sovereign spreads. |
| Keywords: | International reserves; rollover crises; Sovereign debt |
| JEL: | E40 F34 F32 E50 F41 |
| Date: | 2024–04–17 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedmwp:98384&r= |
| By: | Jaime Alonso-Carrera; Jordi Caballé; Xavier Raurich |
| Abstract: | We show that US commuting zones with higher income inequality exhibit less upward social mobility at the bottom of the income distribution, more downward social mobility at the top, and lower average income. We explain this empirical evidence through a life-cycle model in which investment in education and effort increase labor income, and individuals are altruistic, suffer disutility from exerting effort, and face a credit constraint. We pro- pose two mechanisms driving those findings. First, due to the credit constraint, investment in education and income of individuals born into low-income families is constrained by parental wealth, which explains that upward social mobility at the bottom is lower in com- muting zones with higher inequality where low-income families have less wealth. Second, individuals born into affluent families exert less effort and earn lower labor income when they inherit a larger wealth, which explains that downward social mobility at the top is larger in the most unequal commuting zones where affuent families are wealthier. |
| Keywords: | inequality, social mobility, education, effort |
| JEL: | D64 E21 E71 I24 |
| Date: | 2024–06 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1451&r= |
| By: | Stefano BOSI; David DESMARCHELIER; Thai HA-HUY |
| Abstract: | From a dynamic perspective, the existing literature on renewable resources in a Ramsey economy is puzzling. On the one hand, the central plannerís solution leads to the occurrence of limit cycles around the lower steady state (Wirl, 2004); on the other hand, limit cycles arise in a market economy around the higher steady state (Bosi and Desmarchelier, 2018). To reconcile these Öndings, we study the competitive equilibrium of a discrete-time Ramsey-Cass-Koopmans model with a renewable resource, where preferences are represented by two di§erent utility functions with Constant Static Elasticity of Substitution (CSES) and Constant Intertemporal Elasticity of Substitution (CIES). In the CSES case, we recover the dynamics highlighted by Wirl (2004), while, in the CIES case, the ones obtained by Bosi and Desmarchelier (2018). Moreover, this conclusion is robust under two alternative regeneration processes for the resource (power and logistic laws). In other words, the dynamics seems to depend more on the preference structure than on the market structure (central planner versus market economy). |
| Keywords: | Ramsey model, reproduction law, pollution, two-period and limit cycles. |
| JEL: | C61 E32 |
| Date: | 2024 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2024-23&r= |
| By: | Alfred Duncan; Charles Nolan |
| Abstract: | Anticipated stimulus policies enacted perhaps in response to a crisis can motivate precautionary behaviour during the preceding expansion. Ex post stimulus can be ex ante prudential. Prudential fiscal stimulus both speeds up economic recoveries, and prevents crises from occurring in the first place. Prudential fiscal stimulus policies can be simple: a wage subsidy simple rule conditioned on real output can generate sizeable stimulus in downturns while improving precautionary incentives in good times. Prudential fiscal stimulus improves welfare, even in the absence of traditional aggregate demand externalities. Such policies should be implemented rapidly following a shock, and withdrawn more quickly than its dissipation. |
| Keywords: | Macroeconomics, Fiscal Stimulus, Incomplete Markets. |
| JEL: | E32 D52 |
| Date: | 2024–02 |
| URL: | https://d.repec.org/n?u=RePEc:gla:glaewp:2024_03&r= |