Review of Economic Dynamics最新文献

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 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.

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.

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' investment in information are negatively correlated. While there exists a sequence of equilibria converging to perfect competition when trading frictions vanish, there exist other equilibria that fail to approach perfect competition. Our findings are robust to firm heterogeneity, entry, noisy signals, and consumers' price-setting power.

This paper investigates the endogenous search intensity of traders in the OTC market, examining both competitive equilibrium and socially optimal scenario. Our study introduces a random search-and-matching model, where traders have the flexibility to ex post choose and adjust their search intensities based on two trader-level states: asset position and preference type. Our findings uncover the following key insights: (1) Changes in the level of search friction and/or the frequency of shocks on traders' preference type may lead to traders switching between high and low search intensities, shifting between the core and periphery of the trading network; and (2) Social optimality is achieved in the absence of intermediation, where no trader simultaneously invests in positive buying intensity and positive selling intensity. In contrast, competitive equilibrium reveals that some traders tend to over-search while others under-search, compared to the socially optimal outcome.

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.

Because matches do not internalize the specific capital loss from employer changes, specific human capital can be over-accumulated, more so in low type firms. The analysis also establishes that general training can be efficient regardless of the level of labor market frictions.

We calibrate the model to the US economy using Compustat and NLSY79. While validating the Acemoglu and Pischke (1999) mechanisms, the analysis nevertheless arrives at the opposite conclusion: increased labor market friction reduces training in equilibrium.

Our central banks set interest rates, and do not even pretend to control money supplies. How do interest rates affect inflation? We finally have a complete economic theory of inflation under interest rate targets and unconstrained liquidity. Its long-run properties mirror those of monetary theory: Inflation can be stable and determinate under interest rate targets, including a peg, analogous to a k-percent rule.

Uncomfortably, stability means that higher interest rates eventually raise inflation, just as higher money growth eventually raises inflation. Sticky prices generate some short-run non-neutrality: Higher nominal interest rates can raise real rates and lower output. A model in which higher nominal interest rates temporarily lower inflation, without a change in fiscal policy, is a harder task. I exhibit one such model, but it paints a more limited picture than standard beliefs. Generically, without a change in fiscal policy, monetary policy can only move inflation from one time to another.

The last decade has provided a near-ideal set of natural experiments to distinguish the principal theories of inflation. Inflation did not show spirals or indeterminacies at the long zero bound. The large monetary-fiscal expansion of the covid era produced a temporary spurt of inflation. The same money unleashed in quantitative easing had no such effect.

We characterize optimal unemployment insurance (UI) in a heterogeneous-agent model with unemployment risk and sticky prices. In the long run, the optimal reform calls for a lower replacement rate that raises vacancies and lowers unemployment. In the short run, the optimal reform raises the replacement rate initially to smooth real wage adjustments along the transition and attenuate short-run welfare losses. Once at its optimal level, the replacement rate should vary counter-cyclically in response to demand shocks. Productivity shocks generate quasi-efficient fluctuations and call for a quasi-constant replacement rate. The aggregate welfare gains from an optimal reform are large, around 1% of equivalent consumption. The aggregate welfare gains from an optimal UI policy over the business cycle are smaller, around 0.2%, and essentially vanish with flexible prices because the aggregate demand stabilization motive is muted.

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 housing booms can reduce social welfare both in the steady state and in the transitional dynamics only when the production externalities in the non-housing sector are sufficiently large. We quantitatively evaluate our model and demonstrate its robustness with model extensions. Policies that target labor, housing transactions and output generate different welfare implications.

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 distancing, deaths resulting from the disease, and the cost of vaccination. Even though a disease-free steady state is attainable, optimal policy leads to an endemic steady state, albeit with a small number of deaths and negligible loss of output.