Pub Date : 2023-05-17DOI: 10.1017/s1365100523000214
A. Chu, Rongxin Xu
This study develops a Malthusian model for the evolution of human society from hunting-gathering to agriculture and from agriculture to industrial production. Human society evolves across these stages as the population grows. However, under endogenous population growth, the population may stop growing at any stage. If it fails to reach the first threshold, the population remains as hunter-gatherers. If it reaches the first threshold, an agricultural society emerges. Then, if the population fails to reach the industrial threshold, it remains in an agricultural Malthusian trap without experiencing industrialization. Interestingly, high agricultural productivity triggers not only the Neolithic Revolution but also the subsequent industrialization. Using cross-country data to test this result, we employ an index of prehistoric biogeographic conditions that affect agricultural productivity as an instrument for the timing of transitions to agriculture and find that an earlier transition to agriculture has a positive effect on industrialization in the modern era.
{"title":"From Neolithic Revolution to industrialization","authors":"A. Chu, Rongxin Xu","doi":"10.1017/s1365100523000214","DOIUrl":"https://doi.org/10.1017/s1365100523000214","url":null,"abstract":"\u0000 This study develops a Malthusian model for the evolution of human society from hunting-gathering to agriculture and from agriculture to industrial production. Human society evolves across these stages as the population grows. However, under endogenous population growth, the population may stop growing at any stage. If it fails to reach the first threshold, the population remains as hunter-gatherers. If it reaches the first threshold, an agricultural society emerges. Then, if the population fails to reach the industrial threshold, it remains in an agricultural Malthusian trap without experiencing industrialization. Interestingly, high agricultural productivity triggers not only the Neolithic Revolution but also the subsequent industrialization. Using cross-country data to test this result, we employ an index of prehistoric biogeographic conditions that affect agricultural productivity as an instrument for the timing of transitions to agriculture and find that an earlier transition to agriculture has a positive effect on industrialization in the modern era.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"46561820","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-05-17DOI: 10.1017/s1365100523000184
Mao-Wei Hung, Andy Jia-Yuh Yeh
Abstract We extract dynamic conditional factor premiums from the Fama-French factor model and find that most anomalies disappear after one accounts for time variation in these premiums. Vector autoregression evidence shows that mutual causation between dynamic conditional alphas and macroeconomic surprises serves as a core qualifying condition for fundamental factor selection. This economic insight is an incremental step toward drawing a distinction between rational risk and behavioral mispricing models. To the extent that dynamic conditional alphas can reveal the marginal investor’s fundamental news and expectations about the cross-section of average asset returns, our economic insight helps enrich macroeconomic asset return prediction.
{"title":"Stock market alphas help predict macroeconomic innovations","authors":"Mao-Wei Hung, Andy Jia-Yuh Yeh","doi":"10.1017/s1365100523000184","DOIUrl":"https://doi.org/10.1017/s1365100523000184","url":null,"abstract":"Abstract We extract dynamic conditional factor premiums from the Fama-French factor model and find that most anomalies disappear after one accounts for time variation in these premiums. Vector autoregression evidence shows that mutual causation between dynamic conditional alphas and macroeconomic surprises serves as a core qualifying condition for fundamental factor selection. This economic insight is an incremental step toward drawing a distinction between rational risk and behavioral mispricing models. To the extent that dynamic conditional alphas can reveal the marginal investor’s fundamental news and expectations about the cross-section of average asset returns, our economic insight helps enrich macroeconomic asset return prediction.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"44 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-05-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135861617","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-05-11DOI: 10.1017/s1365100523000202
Nicola Amendola, Lorenzo Carbonari, Leo Ferraris
Abstract We examine a theoretical model of liquidity with three assets—money, government bonds, and equity—that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing play a beneficial role for different purposes.
{"title":"Three liquid assets","authors":"Nicola Amendola, Lorenzo Carbonari, Leo Ferraris","doi":"10.1017/s1365100523000202","DOIUrl":"https://doi.org/10.1017/s1365100523000202","url":null,"abstract":"Abstract We examine a theoretical model of liquidity with three assets—money, government bonds, and equity—that are used for transaction purposes. Money and bonds complement each other in the payment system. The liquidity of equity is derived as an equilibrium outcome. Liquidity cycles arise from the loss of confidence of the traders in the liquidity of the system. Both open market operations and credit easing play a beneficial role for different purposes.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"210 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-05-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135473557","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-05-09DOI: 10.1017/s1365100522000608
Gianni La Cava
Economists have long been interested in the effect of business sentiment on economic activity. Using text analysis, I construct a new company-level indicator of sentiment based on the net balance of positive and negative words in Australian company disclosures. Company-level investment is very sensitive to changes in this corporate sentiment indicator, even controlling for fundamentals, such as Tobin’s Q, as well as controlling for measures of company-level uncertainty. The high sensitivity of investment to sentiment could be due to several mechanisms. It could be because of animal spirits among managers or because of sentiment proxies for private information held by managers about company prospects. Overall, I find mixed evidence of the underlying causal mechanism. The effect of sentiment on investment is relatively persistent, which is consistent with managers having private information about company fundamentals. But the sensitivity of investment to sentiment is not any stronger at opaque companies in which managers are likely to be better informed than investors. Further, investment is sensitive to sentiment even when investors have an information advantage over managers by lagging the sentiment indicator by a year. Overall, the sensitivity of investment to sentiment appears to reflect both animal spirits and fundamentals. Corporate investment has been weak since the global financial crisis (GFC) and demand-side factors, such as lower sales growth, explain more than half of this weakness. Low sentiment and heightened uncertainty weighed on investment during the GFC but have been less important factors since then.
{"title":"Smells like animal spirits: the sensitivity of corporate investment to sentiment","authors":"Gianni La Cava","doi":"10.1017/s1365100522000608","DOIUrl":"https://doi.org/10.1017/s1365100522000608","url":null,"abstract":"\u0000 Economists have long been interested in the effect of business sentiment on economic activity. Using text analysis, I construct a new company-level indicator of sentiment based on the net balance of positive and negative words in Australian company disclosures. Company-level investment is very sensitive to changes in this corporate sentiment indicator, even controlling for fundamentals, such as Tobin’s Q, as well as controlling for measures of company-level uncertainty.\u0000 The high sensitivity of investment to sentiment could be due to several mechanisms. It could be because of animal spirits among managers or because of sentiment proxies for private information held by managers about company prospects. Overall, I find mixed evidence of the underlying causal mechanism. The effect of sentiment on investment is relatively persistent, which is consistent with managers having private information about company fundamentals. But the sensitivity of investment to sentiment is not any stronger at opaque companies in which managers are likely to be better informed than investors. Further, investment is sensitive to sentiment even when investors have an information advantage over managers by lagging the sentiment indicator by a year. Overall, the sensitivity of investment to sentiment appears to reflect both animal spirits and fundamentals.\u0000 Corporate investment has been weak since the global financial crisis (GFC) and demand-side factors, such as lower sales growth, explain more than half of this weakness. Low sentiment and heightened uncertainty weighed on investment during the GFC but have been less important factors since then.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-05-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43070369","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-04-27DOI: 10.1017/s1365100523000159
P. Brinca, João Ricardo Costa Filho
The Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.
{"title":"Accounting for Mexican business cycles","authors":"P. Brinca, João Ricardo Costa Filho","doi":"10.1017/s1365100523000159","DOIUrl":"https://doi.org/10.1017/s1365100523000159","url":null,"abstract":"\u0000 The Mexican economy experienced two large crises: in 1995 and in 2008. The dynamics and origins of the episodes are very different; nevertheless, is there a common underlying mechanism? First, by applying the Business Cycle Accounting method, we find that the efficiency wedge is the main driver of output during both episodes. We present an equivalence between the neoclassical growth model with distortions and a small open economy with imported intermediate goods inputs, in which relative price changes manifest themselves as changes on the efficiency wedge. This result proposes a solution for the theoretical puzzle regarding the relationship between terms of trade shocks and productivity. Finally, the model is able to reproduce both the intensities and velocities of the crises in Mexico.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"44030696","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-04-27DOI: 10.1017/s1365100523000160
SeEun Jung, Hyunduk Suh
The retirement of old workers increased during the COVID-19 pandemic, and health concerns are considered to be a critical factor. To understand the effect of pure health concerns during the pandemic, we analyze the impact of the aggregate health shock on retirement decisions using a life cycle model. The aggregate health shock changes the economy from the normal state to the pandemic state, where the probability of adverse idiosyncratic health shock increases, especially if agents are working. Simulation results suggest that the shock accelerates the retirement of agents aged over 60. The increase in retirement is significant even though the shock is expected to be temporary. Also, the effect hinges on the assumption that working poses a greater risk of receiving a negative health shock than retiring. Even accounting for the large income and wealth changes that US households experienced in 2020, a counterfactual experiment suggests that the aggregate health shock plays a prominent role in increasing retirement.
{"title":"Aggregate health shock and retirement decision","authors":"SeEun Jung, Hyunduk Suh","doi":"10.1017/s1365100523000160","DOIUrl":"https://doi.org/10.1017/s1365100523000160","url":null,"abstract":"\u0000 The retirement of old workers increased during the COVID-19 pandemic, and health concerns are considered to be a critical factor. To understand the effect of pure health concerns during the pandemic, we analyze the impact of the aggregate health shock on retirement decisions using a life cycle model. The aggregate health shock changes the economy from the normal state to the pandemic state, where the probability of adverse idiosyncratic health shock increases, especially if agents are working. Simulation results suggest that the shock accelerates the retirement of agents aged over 60. The increase in retirement is significant even though the shock is expected to be temporary. Also, the effect hinges on the assumption that working poses a greater risk of receiving a negative health shock than retiring. Even accounting for the large income and wealth changes that US households experienced in 2020, a counterfactual experiment suggests that the aggregate health shock plays a prominent role in increasing retirement.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-04-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45433238","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-04-11DOI: 10.1017/s1365100523000123
Giam Pietro Cipriani, Tamara Fioroni
Abstract We study an OLG model with child policies and a PAYG pension with endogenous retirement and fertility. The result of the planned economy is compared to the decentralized competitive equilibrium deriving optimal policies. We show that in the presence of a PAYG pension system, the optimal policy mix includes an education subsidy and a subsidy for the supply of labor in old age. Fertility should be taxed or incentivized depending on whether there is full or partial retirement, and on the parameters. We focus on the parameter reflecting the deterioration of human capital and show that a child tax may be required.
{"title":"Human capital and pensions with endogenous fertility and retirement","authors":"Giam Pietro Cipriani, Tamara Fioroni","doi":"10.1017/s1365100523000123","DOIUrl":"https://doi.org/10.1017/s1365100523000123","url":null,"abstract":"Abstract We study an OLG model with child policies and a PAYG pension with endogenous retirement and fertility. The result of the planned economy is compared to the decentralized competitive equilibrium deriving optimal policies. We show that in the presence of a PAYG pension system, the optimal policy mix includes an education subsidy and a subsidy for the supply of labor in old age. Fertility should be taxed or incentivized depending on whether there is full or partial retirement, and on the parameters. We focus on the parameter reflecting the deterioration of human capital and show that a child tax may be required.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":"4 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2023-04-11","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134994111","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-03-29DOI: 10.1017/s136510052300010x
C. Higgins, Ayse Sapci
This paper studies the role of stochastic volatility in a setting where housing serves as an important propagation mechanism. After showing time-varying volatility in US house prices, we estimate a dynamic stochastic general equilibrium model with housing, financial frictions, and stochastic volatility using a nonlinear approximation and Bayesian econometric techniques. Incorporating stochastic volatility into the model greatly improves model fit and accounts for approximately half of the increased volatility in house prices observed during the Great Recession. Increased stochastic volatility escalates uncertainty which has significant effects on macroeconomic variables. While uncertainty in most sectors has negative effects on the economy, uncertainty on collateral constraints has the largest role. Unlike other uncertainty shocks, the housing demand uncertainty creates positive spillovers in the economy. Credit conditions, adjustment costs of capital and housing, and monetary policy are important transmission mechanisms for the stochastic volatility shocks.
{"title":"Time-varying volatility and the housing market","authors":"C. Higgins, Ayse Sapci","doi":"10.1017/s136510052300010x","DOIUrl":"https://doi.org/10.1017/s136510052300010x","url":null,"abstract":"\u0000 This paper studies the role of stochastic volatility in a setting where housing serves as an important propagation mechanism. After showing time-varying volatility in US house prices, we estimate a dynamic stochastic general equilibrium model with housing, financial frictions, and stochastic volatility using a nonlinear approximation and Bayesian econometric techniques. Incorporating stochastic volatility into the model greatly improves model fit and accounts for approximately half of the increased volatility in house prices observed during the Great Recession. Increased stochastic volatility escalates uncertainty which has significant effects on macroeconomic variables. While uncertainty in most sectors has negative effects on the economy, uncertainty on collateral constraints has the largest role. Unlike other uncertainty shocks, the housing demand uncertainty creates positive spillovers in the economy. Credit conditions, adjustment costs of capital and housing, and monetary policy are important transmission mechanisms for the stochastic volatility shocks.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-03-29","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"43249042","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-03-27DOI: 10.1017/s1365100523000147
Wongi Kim
This paper empirically and theoretically investigates the relationship between budget balances and external balances, the so-called twin deficit hypothesis. Using the US post-World War II data, I estimate a time-varying structural vector autoregressive model to evaluate the effects of structural breaks on this relationship. The empirical results reveal that the relationship is significantly time varying: (1) an increase in government spending and the consequent budget deficits tend to cause trade deficits in the Bretton Woods era; (2) in contrast, an increase in government spending tends to induce trade surpluses in the post-Bretton Woods era; and (3) with the exceptions of the 1980s and 2010s, government spending shocks cause trade deficits under a floating exchange regime. Using the open economy New Keynesian model with rule-of-thumb consumers, I find that a shift in exchange rate regimes helps in understanding empirical results (1) and (2). Moreover, slowly adjusted taxes inform our comprehension of exceptions in the 1980s, whereas zero lower bound aids our explanation of exceptions in the 2010s.
{"title":"Fiscal policy and the twin deficits: structural changes matter","authors":"Wongi Kim","doi":"10.1017/s1365100523000147","DOIUrl":"https://doi.org/10.1017/s1365100523000147","url":null,"abstract":"\u0000 This paper empirically and theoretically investigates the relationship between budget balances and external balances, the so-called twin deficit hypothesis. Using the US post-World War II data, I estimate a time-varying structural vector autoregressive model to evaluate the effects of structural breaks on this relationship. The empirical results reveal that the relationship is significantly time varying: (1) an increase in government spending and the consequent budget deficits tend to cause trade deficits in the Bretton Woods era; (2) in contrast, an increase in government spending tends to induce trade surpluses in the post-Bretton Woods era; and (3) with the exceptions of the 1980s and 2010s, government spending shocks cause trade deficits under a floating exchange regime. Using the open economy New Keynesian model with rule-of-thumb consumers, I find that a shift in exchange rate regimes helps in understanding empirical results (1) and (2). Moreover, slowly adjusted taxes inform our comprehension of exceptions in the 1980s, whereas zero lower bound aids our explanation of exceptions in the 2010s.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"45585197","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2023-03-27DOI: 10.1017/s1365100523000135
Erin Cottle Hunt, F. Caliendo
The US Social Security program was created in part as an explicit response to the Great Depression. We evaluate the performance of Social Security as a protective safety net against a rare episode of sudden and significant loss of private wealth such as the Great Depression. We construct a model in which a rare event causes a shock to wealth at an unknown time. How well does Social Security function as a safety net against such risk? The answer depends critically on whether households optimize in the face of this risk. If the household has full information on the distribution of rare event risk and solves a dynamic stochastic problem to hedge this risk, then Social Security is unnecessary along this dimension. Alternatively, if the household does not account for rare event risk in its financial planning, then Social Security can provide very large welfare gains as a safety net.
{"title":"Social Security safety net with rare event risk","authors":"Erin Cottle Hunt, F. Caliendo","doi":"10.1017/s1365100523000135","DOIUrl":"https://doi.org/10.1017/s1365100523000135","url":null,"abstract":"\u0000 The US Social Security program was created in part as an explicit response to the Great Depression. We evaluate the performance of Social Security as a protective safety net against a rare episode of sudden and significant loss of private wealth such as the Great Depression. We construct a model in which a rare event causes a shock to wealth at an unknown time. How well does Social Security function as a safety net against such risk? The answer depends critically on whether households optimize in the face of this risk. If the household has full information on the distribution of rare event risk and solves a dynamic stochastic problem to hedge this risk, then Social Security is unnecessary along this dimension. Alternatively, if the household does not account for rare event risk in its financial planning, then Social Security can provide very large welfare gains as a safety net.","PeriodicalId":18078,"journal":{"name":"Macroeconomic Dynamics","volume":" ","pages":""},"PeriodicalIF":0.9,"publicationDate":"2023-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"48994892","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":4,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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