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Bubbly booms and welfare Review of Economic Dynamics (IF 1.712) Pub Date : 2024-02-19 Feng Dong, Yang Jiao, Haoning Sun
We show the competing effects of a housing bubble on the real economy by developing a multi-sector dynamic model with housing production. On the one hand, firms can sell or collateralize their housing, so a housing bubble helps firms obtain credit to finance their investment and expand production. On the other hand, a boom in the housing sector crowds out labor in the non-housing sector. We show that
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Training and search on the job Review of Economic Dynamics (IF 1.712) Pub Date : 2024-02-15 Rasmus Lentz, Nicolas Roys
The paper studies human capital accumulation over workers' careers in an on-the-job search setting with heterogeneous firms. In renegotiation-proof employment contracts, more productive firms provide more training. General and specific training both induce higher wages within jobs and with future employers, even conditional on the future employer type.
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Are zero-Covid policies optimal? Review of Economic Dynamics (IF 1.712) Pub Date : 2024-02-05 Andrew B. Abel, Stavros Panageas
We analyze the impact of public health policy on the spread of a disease using a version of the SIR model that includes vital statistics, waning immunity, and vaccination. This model is rich enough to accommodate endemic steady states and disease-free steady states. We derive social distancing and vaccination policies that maximize an objective function that penalizes lost output resulting from social
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Information acquisition and price discrimination in dynamic, decentralized markets Review of Economic Dynamics (IF 1.712) Pub Date : 2024-01-22 Michael Choi, Guillaume Rocheteau
We formalize a decentralized market where consumers with privately-known preferences meet bilaterally with firms. The latter acquire information to raise their degree of price discrimination from second to first. In a dynamic setting where outside options are endogenous, information choices are strategic complements, possibly generating multiple equilibria across which consumers' surpluses and firms'
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Unmarried births: Accounting and equilibrium analysis, 1960-1995 Review of Economic Dynamics (IF 1.712) Pub Date : 2023-12-27 John Kennes, John Knowles
The share of births to unmarried women in the U.S. rose well above 30% in the 1990s, despite unmarried women having greater access to abortion and improved birth control. We show that an equilibrium matching model in which unmarried couples behave co-operatively can explain 97% of the rise in the UMB ratio as the response to a combination of well-documented shocks: rising divorce rates, access to abortion
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Revisiting speculative hyperinflations in monetary models: A rejoinder Review of Economic Dynamics (IF 1.712) Pub Date : 2023-12-05 Behzad Diba, Olivier Loisel
In this note, we present a formal proof of Obstfeld and Rogoff's (1983, 2021) claim that their fractional-currency-backing scheme eliminates the inflationary equilibria in the money-in-utility model. To do so, we fully articulate the optimization problem of consumers who have the option to redeem (part or all of) their cash for a small amount of goods at any date. We also relate the scheme to the Fiscal
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Changing marital transitions and homeownership among young households Review of Economic Dynamics (IF 1.712) Pub Date : 2023-11-28 Minsu Chang
This paper shows that the evolving likelihood of marriage and divorce is an important factor that helps account for the changes in homeownership rates among young single households and married couples from 1970 to the mid 1990s. To investigate potential mechanisms behind these observed changes, I develop and estimate a life-cycle model that incorporates housing decisions and age-dependent shocks associated
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Blocking patents, rent protection and economic growth Review of Economic Dynamics (IF 1.712) Pub Date : 2023-11-24 Michael A. Klein, Yibai Yang
We develop a Schumpeterian growth model to analyze the interaction between patent policy and firms' internal strategies to capture value from innovations. We consider two dimensions of patent policy: backward protection against imitation and forward protection, also known as blocking patents, against subsequent innovation that builds on a patented technology. Incumbent patent holders endogenously invest
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Optimal taxation in the life cycle with human capital investment Review of Economic Dynamics (IF 1.712) Pub Date : 2023-11-23 Been-Lon Chen, Fei-Chi Liang
This paper studies optimal taxes in a lifecycle model with unverifiable human capital investment inseparable from regular consumption. The planner faces asymmetric information regarding agents’ exogenous abilities and endogenous human capital. Agents deviate in two ways: misreporting ability and mis-investing in human capital. We characterize the distortions in a model with i.i.d. shocks and full human
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Revisiting Taxes on High Incomes Review of Economic Dynamics (IF 1.712) Pub Date : 2023-11-08 Ayşe İmrohoroğlu, Çağrı S. Kumru, Jiu Lian, Arm Nakornthab
In this paper, we study income taxation in a model with entrepreneurial activity. We conduct two types of changes in tax policy: changing the overall progressivity of taxes versus changing the tax rate on the richest 1% of the population. Our results indicate that increasing the tax rate on the richest 1% of the population is more effective in raising revenues than increasing the overall progressivity
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Intertemporal substitution in labor supply: A meta-analysis Review of Economic Dynamics (IF 1.712) Pub Date : 2023-10-20 Ali Elminejad, Tomas Havranek, Roman Horvath, Zuzana Irsova
The intertemporal substitution (Frisch) elasticity of labor supply governs how structural models predict changes in people's willingness to work in response to changes in economic conditions or government fiscal policy. We show that the mean reported estimates of the elasticity are exaggerated due to publication bias. For both the intensive and extensive margins the literature provides over 700 estimates
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Business Ownership and the Secondary Market Review of Economic Dynamics (IF 1.712) Pub Date : 2023-10-20 Zachary Mahone
I combine survey and transaction data to empirically characterize secondary markets for wholly owned businesses in the United States. While markets are active, with an estimated 2.9% of businesses sold annually, they are also frictional, with the median sale taking between 170 and 200 days. To quantify the impact of market frictions on business formation, ownership, continuation, and entrepreneurial
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Contract Enforcement and Preventive Healthcare: Theory and Evidence Review of Economic Dynamics (IF 1.712) Pub Date : 2023-10-05 Shiv Dixit
I study how enforcement frictions in health insurance contracts determine the distribution of preventive care. I show that when contracts are weakly enforced, insurers underinvest in preventive care to perpetuate the need for insurance. This mechanism is self-enforcing, whereby low levels of prevention today breed low levels of prevention in the future. In contrast, I show that dynamic contracts that
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The costs of macroprudential deleveraging in a liquidity trap Review of Economic Dynamics (IF 1.712) Pub Date : 2023-10-02 Jiaqian Chen, Daria Finocchiaro, Jesper Lindé, Karl Walentin
We study various macroprudential tools and their interaction with monetary policy in a New Keynesian model featuring long-term debt, illiquid housing and an effective lower bound constraint on policy rates. We find that the short-run deleveraging costs of different macroprudential tools – all sized to imply the same reduction in household debt in the medium and long-term – can differ significantly
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A Bayesian DSGE Approach to Modelling Cryptocurrency Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-27 Stylianos Asimakopoulos, Marco Lorusso, Francesco Ravazzolo
We develop and estimate a DSGE model to evaluate the economic repercussions of cryptocurrency. In our model, cryptocurrency offers an alternative currency option to government currency, with endogenous supply and demand. We uncover a substitution effect between the real balances of government currency and cryptocurrency in response to technology, preferences and monetary policy shocks. We find that
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Welfare-enhancing inflation and liquidity premia Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-26 David Andolfatto, Fernando M. Martin
We investigate what principles should govern the evolution and maturity structure of the national debt when nominal government securities constitute an important form of exchange media. Even in the absence of government funding risk, we find a rationale for issuing nominal debt in different maturities, purposely mispricing long-term debt, and growing the nominal debt to support a strictly positive
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Capital and Labor Taxes with Costly State Contingency Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-26 Alex Clymo, Andrea Lanteri, Alessandro T. Villa
We analyze optimal capital and labor taxes in a model where (i) the government makes noncontingent announcements about future policies and (ii) state-contingent deviations from these announcements are costly. With Full Commitment, optimal announcements coincide with expected future taxes. Costly state contingency dampens the response of both current and future capital taxes to government spending shocks
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Dynamic Bank Capital Regulation in the Presence of Shadow Banks Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-25 Arsenii Mishin
Regulated banks expand relative to shadow banks in recessions and when credit spreads are high, while regulated banks shrink relative to shadow banks in expansions and when credit spreads are low. Motivated by these facts, I build a quantitative general equilibrium model with endogenous risk taking to study how competitive interactions between regulated banks and shadow banks affect optimal dynamic
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Bequest Motives and the Social Security Notch Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-21 Siha Lee, Kegon T.K. Tan
Bequests may be a key driver of late life savings behavior and more broadly, a determinant of intergenerational inequality. However, distinguishing bequest motives from precautionary savings is challenging. Using data from the Health and Retirement Study, we exploit an unanticipated change in Social Security benefits, commonly called the Social Security Notch, as an instrument to identify the effect
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Invariance of Unemployment and Vacancy Dynamics with Respect to Diminishing Returns to Labor at the Firm Level Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-20 Björn Brügemann
This paper shows analytically that introducing diminishing returns to labor at the firm level into the Diamond-Mortensen-Pissarides model, followed by recalibration, does not change aggregate dynamics of unemployment and vacancies. This invariance result holds for several standard calibration strategies developed for the model with constant returns, alternative bargaining solutions for the setting
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Optimal income taxation: An urban economics perspective Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-14 Mark Huggett, Wenlan Luo
We derive an optimal labor income tax rate formula for urban models that nests the Mirrlees model as a limiting case. Optimal tax rates are determined by traditional forces plus a new term arising from urban forces: house price, migration and agglomeration effects. Based on the earnings distribution, housing costs and housing tenure in large and small US cities, we find that in a benchmark model (i)
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Inflation Gap Persistence, Indeterminacy, and Monetary Policy Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-07 Yasuo Hirose, Takushi Kurozumi, Willem Van Zandweghe
Empirical literature has documented that the persistence of the gap between inflation and its trend declined after the Volcker disinflation. Previous studies into the source of the decline in inflation gap persistence have offered competing views while sidestepping the possibility of equilibrium indeterminacy. We examine the source of the decline by estimating a medium-scale dynamic stochastic general
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Demand, Growth, and Deleveraging Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-07 Brian Greaney, Conor Walsh
We present empirical evidence that weak household demand contributed to a reduction in firm entry in the Great Recession. Motivated by this evidence, we study the general equilibrium response of aggregate economic growth to a severe deleveraging event. To do so, we combine a standard incomplete markets model with a class of endogenous growth models. A large reduction in credit access causes the zero
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Marginal propensity to consume and unemployment: A meta-analysis Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-04 Anna Sokolova
This paper considers 1244 estimates of marginal propensities to consume (MPC) out of stimulus checks and other small transitory or predictable payments. The mean quarterly MPC estimate reported by the literature is .35, but estimates vary widely. I use meta-regressions to study sources of this variation. MPC estimates increase with the unemployment rate: at 4% unemployment MPC out of a $1200 stimulus
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Climate policy, financial frictions, and transition risk Review of Economic Dynamics (IF 1.712) Pub Date : 2023-09-01 Stefano Carattini, Garth Heutel, Givi Melkadze
We study climate and macroprudential policies in an economy with financial frictions. Using a dynamic stochastic general equilibrium model featuring both a pollution market failure and a market failure in the financial sector, we explore transition risk – whether ambitious climate policy can lead to macroeconomic instability. It can, but the risk can be alleviated through macroprudential policies –
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Optimal GDP-indexed Bonds Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-30 Yasin Kürşat Önder
I investigate the introduction of GDP-indexed bonds as an additional source of government borrowing in a quantitative default model. The idea of linking debt payments to developments in GDP resurfaced with the 1980s debt crisis and peaked with the COVID-19 outbreak. I show that the gains from this idea depend on the underlying indexation method and are highest if payments are symmetrically tied to
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Fiscal Policy and the Monetary Transmission Mechanism Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-18 Nicolas Caramp, Dejanir H. Silva
The economy's response to monetary policy depends on its fiscal backing. We present a novel decomposition of the equilibrium that links the wealth effect, i.e. the revaluation of households' financial and human wealth, to the fiscal response to monetary policy. When monetary policy has fiscal consequences, monetary variables affect the timing of aggregate output while fiscal variables shape its present
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Taxes, regulations, and the value of U.S. corporations: A reassessment Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-12 Ellen R. McGrattan
This paper reassesses the conclusions of McGrattan and Prescott (2005), which derived the quantitative implications of growth theory for U.S. corporate valuations. In addition to having two more decades of data, the analysis incorporates recent changes in policies that affect corporate investments, taxes, and legal-form choice. Secular trends identified in the earlier period remain, with little change
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CEO compensation: Facts Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-09 Gian Luca Clementi, Thomas Cooley
In this paper we highlight a few striking features of CEO compensation in the US from 1994 to 2020. For the purpose of measuring both the level and sensitivity of compensation, we define the latter as the year–on–year change in the portion of the executive's wealth tied to the firm. Compared to a narrower definition often adopted in the literature to measure levels, the cross-sectional distribution
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Accounting for the duality of the Italian economy Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-09 Jesús Fernández-Villaverde, Dario Laudati, Lee Ohanian, Vincenzo Quadrini
After 162 years of political unification, Italy still displays large regional economic differences. In 2019, the per capita GDP of Lombardia was 39,700 euros, but Calabria's per capita GDP was only 17,300 euros. We build a two-region, two-sector model of the Italian economy to measure the wedges that could account for the differences in aggregate variables between the North and the South. We find that
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More unequal we stand? Inequality dynamics in the United States, 1967–2021 Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-09 Jonathan Heathcote, Fabrizio Perri, Giovanni L. Violante, Lichen Zhang
Heathcote et al. (2010) conducted an empirical analysis of several dimensions of inequality in the United States over the years 1967-2006, using publicly-available survey data. This paper expands the analysis, and extends it to 2021. We find that since the early 2000s, the college wage premium has stopped growing, and the race wage gap has stalled. However, the gender wage gap has kept shrinking. Both
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Growth through Learning Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-07 Boyan Jovanovic, Sai Ma
This paper analyzes an economy in which agents face related problems and invest in parameter information that they share. The N-player game generates growth via statistical learning alone. The equilibrium growth rate rises with agents' risk aversion via precautionary saving. Research entails a free riding problem, but the scale effect dominates and growth rises with the number of agents.
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The looming fiscal reckoning: Tax distortions, top earners, and revenues Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-06 Nezih Guner, Martin Lopez-Daneri, Gustavo Ventura
How should the U.S. confront the growing revenue needs driven by higher spending requirements? We investigate the mix of potential tax increases that generate a given revenue need at the minimum welfare cost and evaluate its macroeconomic impact. We do so in the context of a life-cycle growth model that captures key aspects of the earnings and wealth distributions and the non-linear shape of taxes
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Demographic change, government debt and fiscal sustainability in Japan: The impact of bond purchases by the Bank of Japan Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-06 Gary D. Hansen, Selahattin İmrohoroğlu
We reconsider the fiscal consequences of an aging population in Japan that were reported in Hansen and İmrohoroğlu (2016). That paper predicted that the net debt to GNP ratio would reach 250 percent in 2021, while the actual net debt to GNP ratio was roughly constant at about 120% from 2011 to 2019. Here we study the role played by higher tax revenues, lower spending, and lower interest rates than
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The expansion of varieties in the new age of advertising Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-05 Salome Baslandze, Jeremy Greenwood, Ricardo Marto, Sara Moreira
The last decades have seen large improvements in digital advertising technology that allowed firms to target better specific consumer tastes. This research studies the relationship between digital advertising, the rise of varieties, and economic welfare. A model of advertising and varieties is developed, where firms choose the intensity of digital ads directed at specific consumers as well as traditional
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On a lender of last resort with a central bank and a stability Fund Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-05 Giovanni Callegari, Ramon Marimon, Adrien Wicht, Luca Zavalloni
We explore the complementarity between a central bank and a financial stability Fund in stabilizing sovereign debt markets. The central bank pursuing its mandate can intervene with public sector purchasing programs, buying sovereign debt in the secondary market, provided that the debt is safe. The sovereign sells its debt to private lenders, through market auctions. Furthermore, it has access to a
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Labor supply when productivity keeps growing Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-05 Timo Boppart, Per Krusell, Jonna Olsson
We examine the intensive and extensive margins of labor supply in an incomplete-markets framework where productivity keeps growing. What are, in particular, the long-run implications for who will work how much, and how the distribution of economic welfare among households will change? We insist the relative strengths of income and substitution effects to be such as to match historical and cross-country
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Cross-phenomenon restrictions: Unemployment effects of layoff costs and quit turbulence Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-05 Isaac Baley, Lars Ljungqvist, Thomas J. Sargent
Cross-phenomenon restrictions associated with returns to labor mobility can inform calibrations of productivity processes in macro-labor models. We exploit how returns to labor mobility influence effects on equilibrium unemployment of changes in (a) layoff costs, and (b) distributions of skill losses coincident with quits (“quit turbulence”). Returns to labor mobility intermediate both effects. Ample
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Information acquisition and rating agencies Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-04 Harold Cole, Thomas F. Cooley
For decades credit rating agencies were viewed as trusted arbiters of creditworthiness and their ratings as important tools for managing risk. The common narrative is that the value of ratings was compromised by the evolution of the industry to a form where issuers pay for ratings. In this paper we consider both an investor-pays and an issuer-pays set-ups and show that if the investor-pays version
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Introduction to the special issue in memory of Thomas F. Cooley Review of Economic Dynamics (IF 1.712) Pub Date : 2023-08-03 Jeremy Greenwood, Nezih Guner, Loukas Karabarbounis, Lee Ohanian
Abstract not available
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Incarceration, employment, and earnings: Dynamics and differences Review of Economic Dynamics (IF 1.712) Pub Date : 2023-07-16
We study the dynamics of incarceration, employment, and earnings. Our hidden Markov model distinguishes between first-time and repeat incarceration, between persistent and transitory nonemployment and earnings risks, and accounts for nonresponse bias. We estimate the model via maximum likelihood using the National Longitudinal Survey of Youth 1979, accounting for the large differences in incarceration
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Slow recoveries, endogenous growth and macro-prudential policy Review of Economic Dynamics (IF 1.712) Pub Date : 2023-07-07 Dario Bonciani, David Gauthier, Derrick Kanngiesser
Financial crises have severe short and long-term consequences. We develop a general equilibrium model with financial frictions and endogenous growth in which macro-prudential policy supports economic activity and productivity growth by strengthening the resilience of financial intermediaries to adverse shocks. The improved intermediation capacity of a safer financial system leads to a higher steady-state
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The Preferential Treatment of Green Bonds Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-30 Francesco Giovanardi, Matthias Kaldorf, Lucas Radke, Florian Wicknig
We study the preferential treatment of green bonds in the central bank collateral framework as a climate policy instrument within a DSGE model with climate and financial frictions. In the model, green and carbon-emitting conventional firms issue defaultable corporate bonds to banks that use them as collateral, subject to haircuts determined by the central bank. A haircut reduction induces firms to
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Low safe interest rates: A case for dynamic inefficiency? Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-27 Gaetano Bloise, Pietro Reichlin
We reexamine the tests for dynamic inefficiency in productive overlapping-generations economies with stochastic growth. Contrary to certain claims in the recent literature, we argue that the size of real safe interest rates relative to average GDP growth is an inconclusive test for dynamic inefficiency. A more accurate test should take into account the correlation between growth and the marginal utility
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Rescue policies for small businesses in the COVID-19 recession Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-21 Alessandro Di Nola, Leo Kaas, Haomin Wang
While the COVID-19 pandemic had a large and asymmetric impact on firms, many countries quickly enacted massive business rescue programs which are specifically targeted to smaller firms. Little is known about the effects of such policies on business entry and exit, investment, factor reallocation, and macroeconomic outcomes. This paper builds a general equilibrium model with heterogeneous and financially
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Money Laundering and the Privacy Design of Central Bank Digital Currency Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-20 Zijian Wang
This paper studies the implications of money laundering for the optimal design of central bank digital currency (CBDC). I build a general equilibrium framework to explicitly allow money laundering by agents and income audits by a government. I find that as long as CBDC offers less anonymity than cash, introducing CBDC will decrease money laundering. However, if CBDC still offers a relatively high level
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Accounting for Limited Commitment between Spouses when Estimating Labor-Supply Elasticities Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-13 Christian Bredemeier, Jan Gravert, Falko Juessen
The Frisch elasticity of labor supply can be estimated by regressing hours worked on the hourly wage rate, controlling for consumption of the individual worker. However, most household panel surveys contain consumption information only at the household level. We show that proxying individual consumption by household consumption biases estimated Frisch elasticities downward as limited commitment in
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Identifying Preferences when households are financially constrained Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-08 Andreas Tryphonides
This paper shows that utilizing information on the extensive margin of financially constrained households can narrow down the set of admissible preferences in a large class of macroeconomic models. Estimates based on Spanish aggregate data provide further empirical support for this result and suggest that accounting for this margin can bring estimates closer to microeconometric evidence. Accounting
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Trend Inflation and Evolving Inflation Dynamics: A Bayesian GMM Analysis Review of Economic Dynamics (IF 1.712) Pub Date : 2023-06-05 Yasufumi Gemma, Takushi Kurozumi, Mototsugu Shintani
Inflation dynamics are investigated by estimating a generalized version of the New Keynesian Phillips curve (NKPC) of Galí and Gertler (1999) using Bayesian GMM. US macroeconomic data suggests that the generalized NKPC (GNKPC) performs best in terms of quasi-marginal likelihood among those considered both during and after the Great Inflation period. The estimated GNKPC indicates that when trend inflation
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Revisiting Capital-Skill Complementarity, Inequality, and Labor Share Review of Economic Dynamics (IF 1.712) Pub Date : 2023-05-30 Lee Ohanian, Musa Orak, Shihan Shen
This paper analyzes the quantitative contribution of capital-skill complementarity in accounting for rising wage inequality, as in Krusell, Ohanian, Rios-Rull, and Violante (KORV, 2000). We study how well the KORV framework accounts for more recent data, including the large changes in labor's share of income that occurred after the KORV estimation period ended. We also study how using information and
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On the Black-White Gaps in Labor Supply and Earnings over the Lifecycle in the US Review of Economic Dynamics (IF 1.712) Pub Date : 2023-04-24 Christopher Rauh, Arnau Valladares-Esteban
In the US economy, Black men, on average, receive lower wages than White men, and the difference increases over the working life. The employment rate and the number of hours worked are also lower for Blacks, but the gap is nearly constant. Together these facts suggest that on-the-job human capital accumulation might explain the diverging wages. However, the wage gap and its evolution over the lifecycle
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Does my model predict a forward guidance puzzle? Review of Economic Dynamics (IF 1.712) Pub Date : 2023-03-22 Christopher G. Gibbs, Nigel McClung
We show how to characterize the economic forces that generate the forward guidance puzzle in a wide variety of structural macroeconomic models. We accomplish this by showing that studying the predictions of forward guidance announcements is essentially the same as conducting E-stability analysis under adaptive learning. We show that the Iterative E-stability criterion identifies all of the most prominent
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The Paradox of Price Flexibility in an Open Economy Review of Economic Dynamics (IF 1.712) Pub Date : 2023-03-06 Daeha Cho, Kwang Hwan Kim, Suk Joon Kim
Empirical evidence suggests that the degree of price stickiness is not uniform around the world. Heterogeneous price stickiness introduces a new propagation mechanism of global demand shocks that lead to a liquidity trap for all countries, which we call the open-economy paradox of flexibility. We show that the severity of the paradox increases with the degree of trade and capital market openness, when
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Credit markets, relationship lending, and the dynamics of firm entry Review of Economic Dynamics (IF 1.712) Pub Date : 2023-02-23 Qingqing Cao, Paolo Giordani, Raoul Minetti, Pierluigi Murro
We study the impact of credit relationships on firm entry, and the implications for aggregate investment and output. Exploiting Italian data, we find that relationship-oriented local credit markets feature fewer, larger entrants, and relatively more spinoff entrants. Relationship lending discourages de novo entry when banks' knowledge is incumbent-specific but promotes knowledge transfers to spinoffs
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Financial constraints and economic development: The role of firm productivity investment Review of Economic Dynamics (IF 1.712) Pub Date : 2023-02-08 Galina Vereshchagina
This paper demonstrates that accounting for firms' endogenous productivity growth over lifecycle plays an important role in understanding the link between financial and economic development. It incorporates firm productivity investment into a span-of-control model, and compares the effects of firm financing constraints arising in this model to the effects of the same constraints in the model in which
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When to Lock, Not Whom: Managing Epidemics Using Time-Based Restrictions Review of Economic Dynamics (IF 1.712) Pub Date : 2023-01-26 Yinon Bar-On, Tanya Baron, Ofer Cornfeld, Eran Yashiv
We present novel policy tools to manage epidemics. Rather than using prevalent population restrictions, these policy strategies are based on cyclical time restrictions. Key findings on the outcomes of such policy strategies include: a significant improvement of social welfare, substantially lessening the trade-offs between economic activity and health outcomes; optimally-derived timings of interventions