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Identification of Vector Autoregressive Models with Nonlinear Contemporaneous Structure Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-03-19 Francesco Cordoni, Nicolas Dorémus, Alessio Moneta
We propose a statistical identification procedure for recursive structural vector autoregressive (VAR) models that present a nonlinear dependence (at least) at the contemporaneous level. By applying and adapting results from the literature on causal discovery with continuous additive noise models, we show that, under certain conditions, a large class of structural VAR models is identifiable. We spell
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International transmission of quantitative easing policies: Evidence from Canada Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-03-08 Serdar Kabaca, Kerem Tuzcuoglu
What are the cross-border spillovers from major economies' quantitative easing policies to their trading partners? We provide evidence by concentrating on spillovers from the US to Canada during the ZLB period when QE policies were actively used. We identify QE shocks in the US and estimate their impact on a large number of Canadian macroeconomic and financial variables. Then we analyze transmission
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The simple macroeconometrics of the quantity theory and the welfare cost of inflation Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-03-04 Kenneth G. Stewart
The quantity theory of money hypothesizes that the price level is determined through the equilibration of money supply and demand. Predicated on this causal structure, a single-equation error correction model decomposes from a larger vector autoregressive system so as to make available bounds tests for a levels relationship that are robust to the univariate integration properties of the variables.
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Uncertainty over uncertainty in environmental policy adoption: Bayesian learning of unpredictable socioeconomic costs Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-03-01 Matteo Basei, Giorgio Ferrari, Neofytos Rodosthenous
The socioeconomic impact of pollution naturally comes with uncertainty due to, e.g., current new technological developments in emissions' abatement or demographic changes. On top of that, the trend of the future costs of the environmental damage is unknown: Will global warming dominate or technological advancements prevail? The truth is that we do not know which scenario will be realised and the scientific
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IEL-CDA model: A more accurate theory of behavior in continuous double auctions Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-23 Mikhail Anufriev, Jasmina Arifovic, Anil Donmez, John Ledyard, Valentyn Panchenko
The continuous double auction (CDA) is a well-studied and widely used trading institution. However, there is no universally accepted theory regarding the dynamics of price formation, especially within the first period, that has endured experimental testing. In this paper, we introduce a behavioral model called IEL-CDA, which builds upon the Individual Evolutionary Learning (IEL) model of . We enhance
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Growing through spinoffs. Corporate governance, entry dynamics, and innovation Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-19 Maurizio Iacopetta, Raoul Minetti, Pierluigi Murro
New firms are often based on ideas developed within incumbent firms. We study spinoff activities in a growth model with entry and product quality innovation. Spinoffs increase aggregate productivity through product variety expansion and, if created voluntarily by incumbents, boost their return to equity. However, they erode incumbents' market share and, when stemming from conflicts between incumbents
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Heteroskedastic proxy vector autoregressions: An identification-robust test for time-varying impulse responses in the presence of multiple proxies Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-15 Martin Bruns, Helmut Lütkepohl
We propose a test for time-varying impulse responses in heteroskedastic structural vector autoregressions that can be used when the shocks are identified by external proxy variables as a group but not necessarily individually. The test is robust to the identification scheme for identifying the shocks individually and can be used even if the shocks are not identified individually. The asymptotic analysis
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Financial decisions involving credit default swaps over the business cycle Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-10 Liu Gan, Zhaojun Yang
We propose a modeling approach to disentangle how idiosyncratic and aggregate shocks shape the impact of credit default swaps (CDSs) on CDS firms' financial decisions. Our relatively parsimonious model highlights a novel mechanism contributing to CDS procyclicality. We show that CDSs postpone debt renegotiation and risk-taking investment. CDS firms have higher leverage ratios than non-CDS firms. CDS
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Climate change and the US wheat commodity market Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-07 Vincenzo De Lipsis, Paolo Agnolucci
We study the impact on the workings of the wheat commodity market of increasing weather variability, one of the direct consequences of climate change. After finding strong evidence of an increase in the variance of weather and harvest for wheat in the US, we develop a structural time series model of the commodity market to investigate the sources and consequences of this increased variability. Exploiting
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Black-box Bayesian inference for agent-based models Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-05 Joel Dyer, Patrick Cannon, J. Doyne Farmer, Sebastian M. Schmon
Simulation models, in particular agent-based models, are gaining popularity in economics and the social sciences. The considerable flexibility they offer, as well as their capacity to reproduce a variety of empirically observed behaviours of complex systems, give them broad appeal, and the increasing availability of cheap computing power has made their use feasible. Yet a widespread adoption in real-world
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Dynamic CVaR portfolio construction with attention-powered generative factor learning Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-29 Chuting Sun, Qi Wu, Xing Yan
The dynamic portfolio construction problem requires dynamic modeling of the joint distribution of multivariate stock returns. To achieve this, we propose a dynamic generative factor model which uses random variable transformation as an implicit way of distribution modeling and relies on the Attention-GRU network for dynamic learning and forecasting. The proposed model captures the dynamic dependence
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Heterogeneous asset valuation in OTC markets and optimal inflation Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-02-01 Athanasios Geromichalos, Kuk Mo Jung
Building on recent work in monetary theory and finance, we develop a framework where money serves a , namely, it serves as a medium of exchange in goods markets as well as asset markets. We argue that studying such a framework is not only more empirically relevant, but also gives rise to new, important economic insights regarding the effects of inflation on welfare and asset prices. The main result
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Optimal fiscal and monetary policy with collateral constraints Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-30 Qingqing Cao
We study the Ramsey optimal fiscal and monetary policy in an economy where banks face collateral constraints. Inflation reduces the net worth of banks and tightens their collateral constraint by revaluing their nominal assets and liabilities. The optimal policy balances tax distortions with the costs of inflation on banks, thereby deviating from perfect tax smoothing. Our quantitative analysis reveals
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Interbank Decisions and Margins of Stability: an Agent-Based Stock-Flow Consistent Approach Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-29 Jessica Reale
This study investigates the functioning of modern payment systems through the lens of banks' maturity mismatch practices, and it examines the effects of banks' refusal to roll over short-term interbank liabilities on financial stability. Within an agent-based stock-flow consistent framework, banks can engage in two segments of the interbank market that differ in maturity, overnight and term. We compare
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Counterparty choice, maturity shifts and market freezes: Lessons from the European interbank market Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-20 Susanna Saroyan
We explore the impact of relationship lending on the interbank debt maturity structure of banks using data from the e-MID market covering both pre- and post-Lehman periods. We study the term structure and maturity shortening of interbank lending as an indicator of risk in times of stress. We identify bank-level and pair-level variables which are shown to contain information about the behaviour of lending
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Fiscal policy with an informal sector Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-22 Harris Dellas, Dimitris Malliaropulos, Dimitris Papageorgiou, Evangelia Vourvachaki
On the eve of its sovereign debt crisis in 2010, Greece initiated a large fiscal consolidation program. By 2015, official GDP had fallen to 26% below its 2009 level. We feed the actual fiscal package in the DSGE model of the Bank of Greece, augmented to include an informal sector, to assess the contribution of the fiscal package as well as of its individual tax and spending components. The model explains
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The redistributive effects of size-dependent childcare policies Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-15 Diego Escobar, Jeanne Lafortune, Loris Rubini, José Tessada
Governments often adopt policies to reduce the cost of childcare for working families, but those can distort the allocation of resources. We develop and calibrate a general equilibrium model with firm and household heterogeneity and study the case of Chile, where firms with more than 19 female employees must provide childcare. We find that removing this policy would increase welfare on average by 2
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Asymmetric information in frictional markets for liquidity: Collateralized credit vs asset sale Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-03 Florian Madison
This paper studies (non-)equivalence of collateralized credit and asset sales in over-the-counter markets subject to commitment and information frictions. Embedded in a search-theoretic general equilibrium model, a signaling game refined by the undefeated equilibrium endogenizes the choice between pooling and separating offers and provides novel insights under what conditions either payment strategy
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The productivity puzzle and the decline of unions Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-29 Aruni Mitra
This paper finds that rapid de-unionization can explain the sudden vanishing of the procyclicality of productivity in the U.S. during the 1980s, a phenomenon dubbed the ‘productivity puzzle’. Cross-sectional evidence from U.S. states and industries shows that a decline in union power led to a decrease in the cost of hiring and firing workers, which prompted firms to rely less on labor hoarding, making
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Why does the schooling gap close while the wage gap persists across country income comparisons? Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-29 Pantelis Karapanagiotis, Paul Reimers
The schooling gap diminishes because the services sector becomes more pronounced for high-income countries, and the paid hours gap closes. Although gender wage inequality persists across country income groups, differences in schooling years between females and males diminish. We assemble a novel dataset, calibrate a general equilibrium, multi-sector, -gender, and -production technology model, and show
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The transitional impact of state pension reform Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2024-01-03 Jordan Pandolfo, Kurt Winkelmann
We use an overlapping generations framework to evaluate the transitional impact of state pension reform on public and private workers, extending our analysis to all fifty U.S. states. We consider reducing cost-of-living-adjustments (COLAs) for retirees and reducing benefit accruals for current workers. The magnitude of reform in each state is calibrated to achieve a common policy goal: the elimination
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The Term Structure of Monetary Policy Uncertainty Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-23 Brent Bundick, Trenton Herriford, A. Lee Smith
This paper studies the transmission of Federal Reserve communication to financial markets and the economy using new measures of the term structure of policy rate uncertainty. High-frequency movements in the term structure of interest rate uncertainty around FOMC announcements cannot be summarized by a single measure but, instead, are two dimensional. We characterize these two dimensions as the Level
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A contagion test with unspecified heteroscedastic errors Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-21 Ernest Aboagye, Stanley Iat-Meng Ko, Chia Chun Lo, Cody Yu-Ling Hsiao, Liang Peng
The tests of contagion in Fry-McKibbin et al. (2010) filter returns by a vector autoregressive model, assume residuals are independent, fit a parametric distribution family to residuals, and test for the change of contagion measures, which ignore the effect of filtering the time series model and the stylized fact of heteroscedasticity in daily returns. This paper studies a contagion test based on correlation
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Can passive monetary policy decrease the debt burden? Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-18 Ruoyun Mao, Wenyi Shen, Shu-Chun S. Yang
Large expansionary fiscal measures are often implemented with monetary accommodation during an economic crisis. When a government is highly indebted, and the timing of switching to the conventional regime M (passive fiscal/active monetary policies) is uncertain, a government spending increase in regime F (active fiscal/passive monetary policies) increases government debt. Such regime uncertainty dampens
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The External Financial Spillovers of CBDCs Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-14 Alessandro Moro, Valerio Nispi Landi
We set up a DSGE model to study the macroeconomic consequences of a foreign central bank digital currency (CBDC) available to residents in a small open economy. We find that a gradual and permanent increase in the domestic households' preferences toward the foreign CBDC leads to a structural reduction in economic activity, especially if the CBDC is designed to be similar to domestic deposits. Imposing
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Non-linear dimension reduction in factor-augmented vector autoregressions Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-12-10 Karin Klieber
This paper introduces non-linear dimension reduction in factor-augmented vector autoregressions to analyze the effects of different economic shocks. I argue that controlling for non-linearities between a large-dimensional dataset and the latent factors is particularly useful during turbulent times of the business cycle. In simulations, I show that non-linear dimension reduction techniques yield good
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Dynamic industry uncertainty networks and the business cycle Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-24 Jozef Baruník, Mattia Bevilacqua, Robert Faff
This paper identifies smoothly varying industry uncertainty networks from option prices that contain valuable information about business cycles, especially in terms of forecasting. Such information is stronger when the network is formed on uncertainty hubs, firms identified as the main contributors to uncertainty shocks. The stronger predictive ability of the hubs-based network is robust to a wide
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Bonds, currencies and expectational errors Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-20 Eleonora Granziera, Markus Sihvonen
We propose a model in which sticky expectations concerning short-term interest rates generate joint predictability patterns in bond and currency markets. Our parsimonious specification can explain the downward sloping term structure of carry trade returns, difficult to replicate in a rational expectations framework. We offer empirical support for our approach and show that including a sticky short
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Preventing runs under sequential revelation of liquidity needs Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-13 Lukas Voellmy
I examine whether a financial intermediary issuing demandable debt can eliminate run equilibria by properly adjusting or restricting payouts in case of heavy redemptions. I study a model where investors learn their own liquidity needs over time and may withdraw preemptively before knowing their future liquidity needs. The difficulty in preventing runs is that, on the one hand, imposing temporary restrictions
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Reinforcement learning for continuous-time mean-variance portfolio selection in a regime-switching market Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-10 Bo Wu, Lingfei Li
We propose a reinforcement learning (RL) approach to solve the continuous-time mean-variance portfolio selection problem in a regime-switching market, where the market regime is unobservable. To encourage exploration for learning, we formulate an exploratory stochastic control problem with an entropy-regularized mean-variance objective. We obtain semi-analytical representations of the optimal value
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Risks and risk premia in the US Treasury market Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-10 Junye Li, Lucio Sarno, Gabriele Zinna
We analyze the risk-return trade-off in the US Treasury market using a term structure model that features volatility-in-mean effects of multiple sources, and yet preserves tractable bond prices. We find a strong positive relation between risks and risk premia over the 1966-2018 period. While interest-rate risk is the main driver of such positive relation, macro risk plays a non-trivial role, and its
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Sharks in the dark: Quantifying HFT dark pool latency arbitrage Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-07 Matteo Aquilina, Sean Foley, Peter O'Neill, Thomas Ruf
We investigate stale reference pricing and liquidity provision in dark pools using proprietary, participant-level regulatory data. We show a substantial amount of stale trading occurs, imposing large costs on passive dark pool participants. Consistent with these costs, HFTs almost never provide liquidity in the dark, instead frequently consuming liquidity, in particular in order to take advantage of
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Estimation of DSGE Models with the Effective Lower Bound Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-08 Gregor Boehl, Felix Strobel
We propose a new approach for the efficient and robust Bayesian estimation of medium- and large-scale DSGE models with occasionally binding constraints. At its core lies the Ensemble Kalman filter, a novel nonlinear recursive filter, which allows for fast likelihood approximations even for models with large state spaces. We combine the filter with a computationally efficient solution method for piece-wise
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When are tax multipliers large? Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-11-08 Alexander Ziegenbein
I show that the US tax multiplier depends on the direction of the tax change. The tax multiplier is significantly larger (in absolute value) for tax hikes than for tax cuts – regardless of whether I identify tax shocks via (i) the narrative approach or (ii) sign restrictions. The tax hike multiplier is strongly pro-cyclical, i.e., substantially larger in expansions. Variation in the tax cut multiplier
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Should macroprudential policy be countercyclical? Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-23 Yoske Igarashi, Keqing Liu
This paper investigates the influence of possible bank default and bank leverage constraints on monetary and macroprudential policy prescriptions. We build a New Keynesian model with banks that channel funds from households to firms. Banks face endogenous leverage constraints and are subject to costly default. We calibrate our model to the US economy and show that in the decentralized equilibrium,
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Monetary Policy and Financial Stability Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-23 Isabel Cairó, Jae Sim
The 2008 Global Financial Crisis called into question the narrow focus on price stability of inflation targeting regimes. This paper studies the relationship between price stability and financial stability by analyzing alternative monetary policy strategies for an economy that experiences endogenous financial crises due to excessive household sector leverage. We reach three conclusions. First, a central
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Labor market dynamics with sorting Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-24 Bastian Schulz
I study a dynamic search-matching model with two-sided heterogeneity, a production complementarity that induces labor market sorting, and aggregate shocks. In response to a positive productivity shock, incentives to sort increase disproportionately. Firms respond by posting additional vacancies, and the strength of the response is increasing in firm productivity. The distribution of unemployment worker
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Estimating the effects of demographics on interest rates: A robust Bayesian perspective Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-23 Paul Ho
We highlight a reason for the vast range of estimates for the effect of demographics on interest rates: the magnitudes are not well-identified without often omitted data on capital and life-cycle consumption. Using nonparametric prior sensitivity analysis for an overlapping generations model estimated through Bayesian methods, we show small changes in the prior for the discount rate, intertemporal
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Underinvestment and optimal capital structure under environmental constraints Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-16 Pengfei Luo, Yingxian Tan, Jinqiang Yang, Yanming Yao
We develop a Q-theoretical model for levered firms subject to environmental constraints (regulations). The model highlights the implications of environmental constraints on dynamic investment and optimal capital structure decisions. We find that environmental constraints can lead equityholders to become endogenously risk averse. Moreover, environmental constraints give rise to underinvestment in capital
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Fast estimation of a large TVP-VAR model with score-driven volatilities Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-16 Tingguo Zheng, Shiqi Ye, Yongmiao Hong
This paper proposes a fast approach to estimating a large time-varying parameter vector autoregressive (TVP-VAR) model. Based on a score-driven modeling framework, we first assume that the time-varying variances of random errors in each equation of the TVP-VAR are score-driven, and then propose filtering and smoothing procedures to estimate time-varying parameters and time-varying volatilities. We
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Progressive income taxation and consumption baskets of rich and poor Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-10 Mehedi Hasan Oni
In this paper, I analyze the implications of differences in consumption baskets across income groups to evaluate the effects of redistributive taxation on efficiency and inequality. To this end, I develop a static multi-sector general equilibrium model incorporating a parametric tax function, non-homothetic consumption preferences, and endogenous labor supply, with varying compositions of skilled and
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Bayesian mixed-frequency quantile vector autoregression: Eliciting tail risks of monthly US GDP Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-10 Matteo Iacopini, Aubrey Poon, Luca Rossini, Dan Zhu
Timely characterizations of risks in economic and financial systems play an essential role in both economic policy and private sector decisions. However, the informational content of low-frequency variables and the results from conditional mean models provide only limited evidence to investigate this problem. We propose a novel mixed-frequency quantile vector autoregression (MF-QVAR) model to address
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Life cycle insurance, bequest motives and annuity loads Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-06 Aleksandar Arandjelović, Geoffrey Kingston, Pavel V. Shevchenko
We investigate insurance purchases when bequest motives are age-varying and life insurance and life annuities both carry loads. The existing life cycle literature assumes bequests are normal goods without being either necessities or luxuries. Much of the literature also assumes implicitly that life annuity loads are negative. A key finding of the literature is that the demand for life insurance and
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Time-variation in the effects of push and pull factors on portfolio flows: Evidence from a Bayesian dynamic factor model Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-05 Timo Bettendorf, Aikaterini Karadimitropoulou
The extent to which push and pull factors affect international capital flows is widely debated. We contribute to this strand of literature by estimating the relative importance of push and pull factors for portfolio flows over a time span, encompassing the global financial crisis, the European sovereign debt crisis as well as the beginning of the Covid-19 pandemic. To do so, we extract common and country-specific
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Taming the housing roller coaster: The impact of macroprudential policy on the house price cycle Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-04 Adrian Carro
Employing an agent-based model of the Spanish housing market, this paper explores the main drivers behind the large amplitude of the Spanish house price cycle—as compared to most other European countries—, as well as the scope for macroprudential policy to reduce this amplitude. First, we exploit the availability of a previous calibration to the UK, characterised by a smaller house price cycle, to
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Moderating noise-driven macroeconomic fluctuations under dispersed information Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-04 Jonathan J. Adams
Can aggregate noise shocks produce large macroeconomic fluctuations, and if so, is there anything that policymakers can do about them? Yes and yes, if news about idiosyncratic fundamentals is contaminated by aggregate noise. I study a business cycle model where agents with rational expectations receive noisy signals about future productivity. The model features dispersed information, which allows aggregate
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The impact of asset purchases in an experimental market with consumption smoothing motives Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-04 Jieyi Duan, Nobuyuki Hanaki
We investigate the effect of preannounced market intervention on an asset price as well as participants' welfare in an experimental framework where participants have consumption smoothing motives to trade the asset. The results show that, on the one hand, the preannounced intervention results in significantly larger overpricing of the asset relative to the rational expectations equilibrium level in
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Collateral and reputation in a model of strategic defaults Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-02 Georgy Lukyanov
This paper builds a finite-horizon model to study the role of physical collateral in a model of strategic defaults, when the borrower can develop reputation for honesty. Asset ownership increases attractiveness of the reputational channel: the borrower who would prefer to remain in autarky in the absence of the asset prefers to apply for collateralized debt. Pledging the asset as collateral facilitates
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Optimal investment problem under behavioral setting: A Lagrange duality perspective Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-10-02 Xiuchun Bi, Zhenyu Cui, Jiacheng Fan, Lvning Yuan, Shuguang Zhang
In this paper, we consider the optimal investment problem with both probability distortion/weighting and general non-concave utility functions with possibly finite number of inflection points, and apply a Lagrange duality based relaxation approach for solving this problem. Existing literature has shown the equivalent relationships (strong duality) between the relaxed problem and the original one by
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Are all economic fluctuations bad for consumers? Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-29 Jongsoo Kim, Kwang Hwan Kim, Myungkyu Shim
Are business cycles always costly? This paper sheds new light on this question in the context of a two-sector neoclassical business cycle model by focusing on the roles of the origin of shocks and the degree of real frictions that restrict factor reallocation both inter-temporally (investment adjustment cost) and intra-temporally (inter-sectoral factor immobilities). We find that under the benchmark
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Information and communication technologies and medium-run fluctuations Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-17 Marco Brianti, Laura Gáti
This paper explores the possibility that productivity improvements in information and communication technologies (ICT) are a source of medium-run fluctuations in total factor productivity (TFP) and economic activity. We document in a structural VAR setting that supply shocks in the ICT sector are followed by hump-shaped and long-lasting increases in TFP. Following the ICT literature, we use a two-sector
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Two-stage investment, loan guarantees and share buybacks Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-15 Linjia Dong, Michi Nishihara, Zhaojun Yang
We consider an entrepreneur having an option to invest in a project and a potential growth investment option. The two-stage investment costs are financed by secured loans and paid by insurers respectively. We develop explicit models to describe guarantee costs, the timing and pricing of the two-stage investment options and share buyback option. We find that there exists optimal guarantee cost combination
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Market selection and learning under model misspecification Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-12 Giulio Bottazzi, Daniele Giachini, Matteo Ottaviani
This paper studies market selection in an Arrow-Debreu economy with complete markets where agents learn over misspecified models. In this setting, standard Bayesian learning loses its formal justification and biased learning processes may provide a selection advantage. Studying two cases of model misspecification and four learning processes, our analysis reveals that, differently from correctly specified
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A High-Resolution, Data-Driven Agent-Based Model of the Housing Market Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-07 Bence Mérő, András Borsos, Zsuzsanna Hosszú, Zsolt Oláh, Nikolett Vágó
This paper presents a complex, modular, 1:1 scale model of the Hungarian residential housing market. All of the 4 million households with their relevant characteristics and all of the flats with detailed attributes like size, state and neighbourhood quality are represented, based on empirical micro-level data. The model features transactions in the housing and rental markets, a construction sector
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Optimal policies with heterogeneous agents: Truncation and transitions Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-07 François Le Grand, Xavier Ragot
We compare two approaches in their ability to solve for optimal Ramsey policies in heterogeneous-agent models, considering the optimal provision of a public good. First, the “transition” approach makes the problem tractable by assuming a constant path for the planner's instruments. Second, the “truncation” approach uses a Lagrangian technique, solving the Ramsey problem of a finite state space model
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Firm heterogeneity, financial frictions and ambiguity Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-09-01 Lorenzo Carbonari, Filippo Maurici
This paper studies the effects of ambiguity (Knightian uncertainty) on business cycles and inequality in an economy with heterogeneous agents. Ambiguity-averse entrepreneurs operate in a model with financial frictions and a market-wide source of ambiguous information. Entrepreneurs use a worst-case criterion to formulate expectations about the total factor productivity and are heterogeneous in terms
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Interbank asset-liability networks with fire sale management Journal of Economic Dynamics and Control (IF 1.62) Pub Date : 2023-08-30 Zachary Feinstein, Grzegorz Hałaj
Interconnectedness is an inherent feature of the modern financial system. While it contributes to efficiency of financial services, it also creates structural vulnerabilities: pernicious shock transmission and amplification impacting banks' capitalization. This has recently been seen during the Global Financial Crisis. Post-crisis reforms addressed many of the causes of this event, but contagion effects