Review of Economic Dynamics最新文献

Do recessions speed up or impede productivity-enhancing reallocation? To investigate this question, we use U.S. linked employer-employee data to examine how worker flows contribute to productivity growth over the business cycle. We find that in expansions high-productivity firms grow faster primarily by hiring workers away from low-productivity firms. Productivity growth slows during recessions when this job ladder collapses. In contrast, layoffs at low-productivity firms disproportionately increase in recessions, which leads to an increase in productivity growth. We thus find evidence of both sullying and cleansing effects of recessions, but the timing of these effects differs. The cleansing effects are concentrated in downturns while the sullying effects linger well into the economic recovery. Our results imply that slow labor market recoveries will be more damaging to productivity growth than V-shaped recoveries due to lingering sullying effects.

This paper reevaluates the common characterization of commodity-exporting developing economies as having excessively procyclical fiscal policy. We develop a new measure of fiscal procyclicality—the marginal propensity to spend (MPS) an extra dollar of commodity revenues—which we estimate in a panel of countries and compare with optimal policy in a New Keynesian model. Empirically, fiscal policy is procyclical on average (MPS=0.25), but heterogeneous. Countries with fixed exchange rates (ER) are almost acyclical, but countries with flexible ERs are procyclical and the MPS increases with the persistence of commodity price shocks. Optimal policy in the model is similar qualitatively but differs quantitatively in some dimensions. Under fixed ERs, optimal policy is almost acyclical to stabilize the business cycle. However, under flexible ERs, monetary policy stabilizes the business cycle, so fiscal policy is procyclical because commodity price shocks are typically persistent and so should be spent by the permanent income hypothesis.

We show that the degree of risk-sharing among heterogeneous workers is a key determinant of monetary non-neutrality in a multisector sticky-price model. In this framework, workers are employed across different sectors, earning distinct wages. The limited ability of workers to fully insure against labor income risks results in strategic complementarity in firms' price-setting decisions with respect to aggregate shocks and strategic substitutability with respect to idiosyncratic shocks. These pricing interactions lead to sluggish adjustments of the price level in response to monetary and other aggregate shocks, causing significant fluctuations in the output gap while maintaining large responses of individual prices to idiosyncratic shocks. We illustrate these results across three stylized asset market scenarios: complete markets, non-contingent bond-only markets, and financial autarky.

The conditions that ensure the existence of a unique stable equilibrium — determinacy conditions — for rational expectations models with Markov switching depend on the stability concept, contrasting with standard linear rational expectations models. In this paper, we offer a unified framework for the two commonly used stability concepts: boundedness and mean-square stability. We derive determinacy conditions for both concepts based on simple metrics. Qualitatively, we show that mean-square stable solutions are always at least as many as bounded solutions. We then apply and discuss our results in two monetary models.

We develop a general equilibrium model with search frictions in the labor market, wage bargaining and a welfare state, to study the impact of immigrants on the fiscal balance and welfare of natives in the host country. We distinguish immigrants by legal status and account for both their direct fiscal effects, through their tax contributions and transfer receipts, and their indirect fiscal and welfare effects, through their labor-market impact. We calibrate the model to the U.S. economy and find that legal immigrants reduce the tax burden on natives and increase natives' welfare, mainly because their tax contributions greatly exceed the transfers they receive. On the other hand, illegal immigrants' positive welfare impact stems mainly from their positive effect on job creation, which increases income to natives and in turn consumption. A legalization program leads to a fiscal gain, increases natives' welfare and is more beneficial to natives than a purely restrictive immigration policy that reduces the illegal immigrant population.

The Hamilton (H) filter is proposed as an alternative to the Hodrick-Prescott (HP) filter. It is designed to meet all of the objectives desired by users of the HP filter while avoiding its drawbacks (spurious dynamics, ad hoc filter settings, end-of-sample bias). I document a trade-off that has been overlooked: Addressing the HP filter's drawbacks means that the H filter cannot fulfill all of the desired objectives. It modifies different frequencies captured in an estimated cyclical component by inducing phase shifts and by likely altering variances. Typically, these modifications vary across time series. Through both simulation and real data exercises, I illustrate each filter's cyclical properties.

Why do some financial crises lead to macroeconomic disasters, while others barely affect the real economy? This paper proposes a model to study unusually deep financial crises. Deep crises arise from the interplay of demand-driven coordination failures on the productive sector and weak banks' balance sheets. There is a dynamic feedback between banks' balance sheets and coordination. Coordination failures happen when banks suffer large losses and substantially reduce asset prices and welfare, even if the economy is in good times and they rarely happen. Financial crises that start from similar initial shocks can feature very heterogeneous real effects.

The debate about the falling labor share has brought attention to the income-shares trends, but less attention has been devoted to their variability. We analyze how their fluctuations can be insured between workers and capitalists, and the corresponding implications for financial markets. We study a neoclassical growth model with aggregate shocks that affect income shares and financial frictions that prevent firms from fully insuring idiosyncratic risk. We examine theoretically how aggregate risk sharing is shaped by the combination of idiosyncratic risk and moving shares. In this setting, accumulation of safe assets by capitalists and risky assets by workers emerges naturally as a tool to insure income shares' risk. Then, in a quantitative exploration we show that low interest rates, rising capital shares, and accumulation of safe assets by firms and risky assets by households can be rationalized by persistent shocks to the labor share.

The consensus among central bankers is that higher inflation expectations can drive up actual inflation. We assess this by devising a novel method for identifying shocks to inflation expectations, estimating a semi-structural VAR where an expectation shock is identified as that which causes measured forecasts to diverge from the rational expectation. Surprisingly, using data for the United States we find that a positive inflation expectation shock is contractionary and deflationary: output, inflation, and interest rates all fall. These results are inconsistent with the standard New Keynesian model, which predicts inflation and interest rate hikes.

This paper measures option-implied skewness for individual firms and the S&P 500 index between 1980 and 2021, giving real-time measures of conditional micro and macro skewness. There are three key results: 1. Micro skewness is significantly procyclical, while macro skewness is acyclical; 2. Micro skewness leads the business cycle and is strongly linked to credit spreads, suggesting one potential causal channel; 3. Micro skewness is significantly, and not mechanically, correlated with macro volatility, implying that there is a common shock driving them both, which is also linked to the business cycle.