Review of Economic Dynamics最新文献

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.

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.

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 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 lower bound to bind, inducing a drop in demand via employment rationing. Decreased demand in turn lowers the return to entrepreneurship and innovation, endogenously lowering productivity. We find that a persistent recession induced by deleveraging can significantly influence growth in productivity. Our main result is a powerful feedback effect: households increase savings in response to future slow growth, exacerbate the fall in demand, and further slow the recovery.

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 of benefits on bequests. We match data moments generated by the Notch with a model of late life savings behavior that accounts for mortality risk and unobserved expenditure shocks to identify bequest motives. The model is used to decompose the importance of bequest motives as a driver of late life savings by comparing asset profiles with and without utility from bequests. We find that roughly 40% of accumulated assets and bequests are attributable to bequest motives among retirees. Our policy counterfactual features a more progressive Social Security benefits schedule that reduces benefits for the richest retirees. We show that although wealth declines, consumption remains largely unchanged since wealth generated by bequest motives acts as a cushion against benefit reduction.

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, depending on the state of economy and monetary policy. Specifically, a loan-to-value tightening is more than three times as contractionary as a loan-to-income tightening when debt is high and monetary policy cannot accommodate.

People often retire at a different age than expected. We construct a measure of retirement timing uncertainty and find that the standard deviation of the difference between retirement expectations and actual retirement dates ranges from 3 to 6 years. To understand the potential implications of this uncertainty, we develop a simple model of exogenous but risky retirement. In this environment, individuals would give up 1.0%-4.5% of total lifetime consumption to fully insure this risk and 0.8%-3.2% of lifetime consumption simply to know their actual retirement date upon entering the labor force. This is crucial for retirement planning purposes because not saving to hedge this risk would leave individuals with even larger welfare costs.

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 of taxes as it leads to smaller declines in capital and output. We find that incorporating entrepreneurship in generating a reasonable wealth distribution leads to revenue-maximizing progressivity to be smaller than found previously.

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 of anonymity but a low interest rate, then introducing CBDC will decrease the output from not only agents who launder money but also agents who do not. If CBDC instead offers low anonymity and a high interest rate, then introducing CBDC can increase aggregate welfare without lowering output. Furthermore, introducing CBDC needs not increase the funding costs of banks or decrease bank lending.

This paper studies the role of macroeconomic uncertainty in a search-and-matching framework with risk-averse households. Heightened uncertainty about future productivity reduces current economic activity even in the absence of nominal rigidities. A risk-premium mechanism accounts for this result. As future asset prices become more volatile and covary more positively with aggregate consumption, the risk premium rises in the present. The associated downward pressure on current asset values lowers firm entry, making it harder for workers to find jobs and reducing the supply of goods. With nominal rigidities the recession is exacerbated, as a more uncertain future reinforces households' precautionary behavior, which causes demand to contract. Counterfactual analyses using a calibrated model imply that unemployment would rise by less than half as much absent the risk-premium channel. The presence of this mechanism implies that uncertainty shocks are less deflationary than regular demand shocks, nor can they be fully neutralized by monetary policy.