Review of Economic Dynamics最新文献

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 firm productivity growth is assumed to be exogenous. It finds that, depending on the severity of firm financing constraints, endogenizing firm productivity growth increases the adverse effects of the constraints on steady state output by 1.5-3 times, both due to a large decrease in average productivity and due to a bigger equilibrium effect on capital used in production.

We use over a decade of representative payroll data from Great Britain to study the nominal wage changes of employees who stayed in the same job for at least one year. We show that basic hourly pay drives the cyclicality of marginal labour costs, making this the most relevant measure of wages for macroeconomic models that incorporate wage rigidity. Basic hourly pay adjusts much less frequently than previously thought in Britain, particularly in small firms. We find that firms compress wage growth when inflation is low, which indicates that downward rigidity constrains firms' wage setting. We demonstrate that the empirical extent of downward nominal wage rigidity (DNWR) can theoretically cause considerable long-run output losses. Combined, our results all point to the importance of including DNWR in macroeconomic and monetary policy models.

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 rates by race, education level, and gender. First-time incarceration is associated with 33% (50%) lower expected lifetime earnings and 6 (10) fewer years of employment for Black (White) men with a high school degree. Among less-educated men, differences in incarceration and nonemployment can explain around half the Black-White lifetime earnings gap.

I study a labor market in which identical workers search on- and off-the-job and heterogeneous firms employ using either an ex-ante posted wage or flexible wage contracts contingent on outside options. Firm level costs for contingent contracts generate a segmented equilibrium in which less productive firms post wages. The model with heterogeneous contracts can achieve wage dispersion, labor share, employment transitions, and flow value of unemployment that are simultaneously consistent with empirical observations while capturing information frictions and search externalities modeled by ex-ante wage posting. In contrast to well known results regarding pure wage posting models, a good fit to these data can be achieved even when the vast majority of firms post wages. Matching to moments for the U.S. economy in the 2010s implies roughly 58 percent of firms post wages and employ nearly 30 percent of workers under such contracts.

This paper studies, analytically and numerically, economies with multiple liquid assets: fiat currency; fixed-supply real assets; and reproducible capital. Cases are considered where assets provide direct liquidity, and indirect liquidity via over-the-counter trade. The results shed new light on how monetary policy affects asset markets and investment. We also provide novel results on endogenous fluctuations (self-fulfilling prophecies), including coexistence of multiple equilibria with very different correlation and volatility patterns. Then we investigate if monetary policy can eliminate multiplicity. A calibration exercise assesses the impact on asset markets and on welfare of different policies, including changing inflation, and eliminating currency altogether.

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. We explain these patterns in a dynamic general equilibrium model where banks accumulate information in credit relationships and can reuse information when financing entrants. Relationship lending raises output, as the larger investments and the credit reallocation from de novos to spinoffs outweigh the entry slowdown.

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 – taxes or subsidies on banks' assets. Then, we explore efficient climate and macroprudential policy in the long run and over business cycles. The presence of financial frictions affects the steady-state value and dynamic properties of the efficient carbon tax.

We analytically characterize the aggregate productivity loss from distortions in the presence of sectoral production linkages and show the key role of input substitutability. We analyze the various forces behind the non-monotonic effect of input substitutability on the productivity loss. We then use the second-order approximation to aggregate productivity and find that for moderate distortions, low input substitutability reduces the productivity loss and the role of intermediate-input suppliers. Moreover, when the input elasticity of substitution is low, sectoral linkages do not systematically amplify the productivity loss. Using the model calibrated on industry-level data for 35 countries, we find that the insights obtained from the approximation are relevant in the context of the sectoral distortions caused by market power, even with the large distortions observed in the data. In particular, we find that using Cobb-Douglas production functions (unit elasticities) instead of accounting for low input substitutability (less-than-one elasticities) leads to overestimating the productivity loss by a factor of 1.8.

Whether a manager leads the innovation efforts of a firm in line with shareholder preferences is key for firm value and growth. This, in turn, influences aggregate productivity growth and welfare. Data on US public firms reveals that (i) firms with better corporate governance tend to adopt highly incentivized contracts rich in stock options and (ii) such contracts are more likely to lead to disruptive innovations – patented inventions that are in the upper tail of the distribution in terms of quality and originality. Motivated by these empirical results, we develop and estimate a new dynamic general equilibrium model of firm-level innovation with agency frictions and endogenous determination of executive contracts. The model is used to study the joint dynamics of corporate governance, managerial compensation, and disruptive innovations, as well as the consequent aggregate implications on growth and welfare. Better corporate governance can reduce the influence of the manager in determining the compensation structure. This leads to more incentivized contracts and boosts innovation, with substantial benefits for the shareholders as well as the broader economy through knowledge spillovers. Removing agency frictions leads to contracts richer in stock options, boosting growth by 0.51pp, and welfare by 7.3% in consumption-equivalent terms. These findings are robust to incorporating short-termism. Short-termism itself is also detrimental, the removal of which increases welfare by 1.5%. Alleviating both frictions at the same time leads to amplified gains in growth and welfare.

This study examines the implications of variable markups for resource misallocation and for aggregate productivity. Using manufacturing data from India, I show that variable markups alone account for a small fraction of the dispersion in revenue productivity when allowing for other sources of misallocation. Meanwhile, variable markups are crucial to understanding the aggregate consequences of policies that reduce misallocation. When equalizing marginal products across firms in narrowly defined industries, my model generates a smaller total factor productivity gain than does a model that uses constant markups because more productive firms endogenously choose higher markups. Thus, the indirect costs of markups are higher than one might expect.