{"title":"Discussion of A Macroeconomic Model of Structural Monetary Policy in China","authors":"Dun Jia","doi":"10.1111/iere.70032","DOIUrl":"https://doi.org/10.1111/iere.70032","url":null,"abstract":"","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 5","pages":"1835-1837"},"PeriodicalIF":1.3,"publicationDate":"2025-09-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145695324","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We examine the feedback loop between shortages and consumer stockpiling. The expectation of shortages induces consumers to stockpile, which amplifies the shortages they experience, which further encourages stockpiling. We show that, when aggregate supply is insufficient to meet aggregate demand and prices cannot adjust to clear the market, multiple equilibria exist which feature stockpiling to different degrees. Even when the fundamental supply shortfall is small, significant stockpiling can arise in equilibrium. Stockpiling reduces welfare, and this welfare loss is particularly severe in the transitional phase following the supply shock, during which consumers accumulate inventories.
{"title":"Stockpiling and Shortages","authors":"Tilman Klumpp, Xuejuan Su","doi":"10.1111/iere.70029","DOIUrl":"https://doi.org/10.1111/iere.70029","url":null,"abstract":"<p>We examine the feedback loop between shortages and consumer stockpiling. The expectation of shortages induces consumers to stockpile, which amplifies the shortages they experience, which further encourages stockpiling. We show that, when aggregate supply is insufficient to meet aggregate demand and prices cannot adjust to clear the market, multiple equilibria exist which feature stockpiling to different degrees. Even when the fundamental supply shortfall is small, significant stockpiling can arise in equilibrium. Stockpiling reduces welfare, and this welfare loss is particularly severe in the transitional phase following the supply shock, during which consumers accumulate inventories.</p>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 4","pages":"1693-1712"},"PeriodicalIF":1.3,"publicationDate":"2025-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/iere.70029","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145297598","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the stability of cryptocurrency systems through difficulty adjustment. Bitcoin's difficulty adjustment algorithm (DAA) exhibits instability when the reward elasticity of the hash rate is high, implying that a sharp price reduction could disrupt the current Bitcoin system. By contrast, newer DAAs developed and installed for other cryptocurrencies remain stably under substantially weaker conditions; thus, Bitcoin can inherently address this concern by upgrading its DAA. However, miners with high marginal costs profit from the existing DAA's instability and may oppose reforms that are beneficial for users. This finding highlights a critical challenge for the sustainability of cryptocurrencies.
{"title":"An Economic Analysis of Difficulty Adjustment Algorithms in Proof-of-Work Blockchain Systems","authors":"Shunya Noda, Kyohei Okumura, Yoshinori Hashimoto","doi":"10.1111/iere.70028","DOIUrl":"https://doi.org/10.1111/iere.70028","url":null,"abstract":"<p>We study the stability of cryptocurrency systems through difficulty adjustment. Bitcoin's <i>difficulty adjustment algorithm</i> (DAA) exhibits instability when the reward elasticity of the hash rate is high, implying that a sharp price reduction could disrupt the current Bitcoin system. By contrast, newer DAAs developed and installed for other cryptocurrencies remain stably under substantially weaker conditions; thus, Bitcoin can inherently address this concern by upgrading its DAA. However, miners with high marginal costs profit from the existing DAA's instability and may oppose reforms that are beneficial for users. This finding highlights a critical challenge for the sustainability of cryptocurrencies.</p>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"67 1","pages":"259-285"},"PeriodicalIF":1.3,"publicationDate":"2025-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/iere.70028","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146193630","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
<p>The paper, “Quantifying the Macroeconomic Impact of Credit Expansions,” tackles a central question in macroeconomics: are households or firms more important when credit conditions transmit to the real economy? The authors address this question with both empirical clarity and theoretical discipline. The work combines causal estimates from a quasi-natural experiment (US bank deregulation in the 1980s) with a rich heterogeneous-agent New Keynesian (HANK) model that incorporates both household- and firm-heterogeneity in a small open economy framework.</p><p>The household-side channel, one of the two engines for the boom after deregulation, operates through consumer demand following improved credit access. This channel plays a dominant role in the rise of consumption and an important role in the output boom in the first 5 years after deregulation. Firm-side effects dominate investment dynamics, and the effects from this second engine can explain around 71% of the cumulative effects on most variables in the 10-year horizon. The structure and calibration of the model are disciplined by local projections of empirical impulse responses to banking deregulation, and the quantitative match is strong. In sum, the paper offers important food for thought for macroeconomists working at the intersection of financial frictions and the real economy.</p><p>Notably, the paper leverages banking deregulation as a quasi-experimental setting to trace the behavioral responses of households and firms. The local-projection method provides an effective way to identify interest rate shocks and yields estimated impulse responses of macro variables. These responses are then used to discipline the model parameters, enabling the analysis to disentangle household- and firm-side effects through the structural framework. By observing which agents respond more strongly to changes in borrowing costs, the model provides insight into the relative <i>elasticities</i> across sectors or agents under varying financial conditions. In this light, the paper's framework goes beyond macrofinancial transmission and has implications for optimal stabilization policy and tax design. For example, in recent work of Bassetto and Cui (<span>2024</span>), we show (in a Ramsey taxation setting with financial frictions) that comparing input elasticities is key to deciding whether optimal policy should rely on capital subsidies that can ease financial frictions on investment, or capital taxation that can reduce quasi-rents arising from financial frictions. From this perspective, I find the paper's approach particularly appealing.</p><p>The paper presents a compelling argument that the prominence of the firm channel reflects the gradual adjustment of labor and output observed in the data. This reasoning is sound. However, households and firms may not experience changes in interest rates at the same pace, and unfortunately, we lack detailed data to capture these differences. Fortunately, the paper offers a
{"title":"Two Engines, One Boom: Disentangling Credit's Real Effects","authors":"Wei Cui","doi":"10.1111/iere.70034","DOIUrl":"https://doi.org/10.1111/iere.70034","url":null,"abstract":"<p>The paper, “Quantifying the Macroeconomic Impact of Credit Expansions,” tackles a central question in macroeconomics: are households or firms more important when credit conditions transmit to the real economy? The authors address this question with both empirical clarity and theoretical discipline. The work combines causal estimates from a quasi-natural experiment (US bank deregulation in the 1980s) with a rich heterogeneous-agent New Keynesian (HANK) model that incorporates both household- and firm-heterogeneity in a small open economy framework.</p><p>The household-side channel, one of the two engines for the boom after deregulation, operates through consumer demand following improved credit access. This channel plays a dominant role in the rise of consumption and an important role in the output boom in the first 5 years after deregulation. Firm-side effects dominate investment dynamics, and the effects from this second engine can explain around 71% of the cumulative effects on most variables in the 10-year horizon. The structure and calibration of the model are disciplined by local projections of empirical impulse responses to banking deregulation, and the quantitative match is strong. In sum, the paper offers important food for thought for macroeconomists working at the intersection of financial frictions and the real economy.</p><p>Notably, the paper leverages banking deregulation as a quasi-experimental setting to trace the behavioral responses of households and firms. The local-projection method provides an effective way to identify interest rate shocks and yields estimated impulse responses of macro variables. These responses are then used to discipline the model parameters, enabling the analysis to disentangle household- and firm-side effects through the structural framework. By observing which agents respond more strongly to changes in borrowing costs, the model provides insight into the relative <i>elasticities</i> across sectors or agents under varying financial conditions. In this light, the paper's framework goes beyond macrofinancial transmission and has implications for optimal stabilization policy and tax design. For example, in recent work of Bassetto and Cui (<span>2024</span>), we show (in a Ramsey taxation setting with financial frictions) that comparing input elasticities is key to deciding whether optimal policy should rely on capital subsidies that can ease financial frictions on investment, or capital taxation that can reduce quasi-rents arising from financial frictions. From this perspective, I find the paper's approach particularly appealing.</p><p>The paper presents a compelling argument that the prominence of the firm channel reflects the gradual adjustment of labor and output observed in the data. This reasoning is sound. However, households and firms may not experience changes in interest rates at the same pace, and unfortunately, we lack detailed data to capture these differences. Fortunately, the paper offers a","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 5","pages":"1929-1931"},"PeriodicalIF":1.3,"publicationDate":"2025-09-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/iere.70034","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145695433","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We argue that transitional dynamics play a critical role in evaluating the effects of punitive incarceration reform on crime, inequality, and labor markets. Individuals' past choices regarding crime and employment under previous policies have persistent consequences that limit their responsiveness to policy changes. A quantitative model of this theory, calibrated using administrative data, predicts nuanced dynamics of crime and incarceration that are distinct across property and violent crime and similar to the US experience after 1980. Increased inequality and declining employment accompany these changes, with unequal impacts across generations.
{"title":"Dynamics of Deterrence: A Macroeconomic Perspective on Punitive Justice Policy","authors":"Bulent Guler, Amanda Michaud","doi":"10.1111/iere.70016","DOIUrl":"https://doi.org/10.1111/iere.70016","url":null,"abstract":"<div>\u0000 \u0000 <p>We argue that transitional dynamics play a critical role in evaluating the effects of punitive incarceration reform on crime, inequality, and labor markets. Individuals' past choices regarding crime and employment under previous policies have persistent consequences that limit their responsiveness to policy changes. A quantitative model of this theory, calibrated using administrative data, predicts nuanced dynamics of crime and incarceration that are distinct across property and violent crime and similar to the US experience after 1980. Increased inequality and declining employment accompany these changes, with unequal impacts across generations.</p></div>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"67 1","pages":"35-57"},"PeriodicalIF":1.3,"publicationDate":"2025-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146154879","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
We study the role of international trade in cross-country financial shock transmission using an equilibrium business cycle model calibrated to the United States and Canada. Heterogeneous firms have differing needs for external finance and face occasionally binding collateral constraints hindering their investments, while input–output linkages drive trade in final goods and intermediate inputs. Transmission of a U.S. financial shock recession into Canada's economy is qualitatively different from productivity shock transmission and asymmetric. We trace the first result to a unique investment channel operating through persistent trade balance adjustments and the second to differences in the two countries' exposure to trade.
{"title":"Productive Misallocation and International Transmission of Credit Shocks","authors":"Yuko Imura, Julia K. Thomas","doi":"10.1111/iere.70005","DOIUrl":"https://doi.org/10.1111/iere.70005","url":null,"abstract":"<p>We study the role of international trade in cross-country financial shock transmission using an equilibrium business cycle model calibrated to the United States and Canada. Heterogeneous firms have differing needs for external finance and face occasionally binding collateral constraints hindering their investments, while input–output linkages drive trade in final goods and intermediate inputs. Transmission of a U.S. financial shock recession into Canada's economy is qualitatively different from productivity shock transmission and asymmetric. We trace the first result to a unique investment channel operating through persistent trade balance adjustments and the second to differences in the two countries' exposure to trade.</p>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 4","pages":"1395-1423"},"PeriodicalIF":1.3,"publicationDate":"2025-09-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/iere.70005","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145297254","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Corina Boar, Kjetil Storesletten, Matthew Knowles, Yicheng Wang
Credit expansions stimulate the economy. We quantify the contribution of households versus firms for this stimulus. Using causal evidence from the quasi-natural experiment of bank deregulation across US states, we estimate a small open-economy heterogeneous-agent New Keynesian model. Deregulation generated lower borrowing costs. Firms' responses to such shocks account for most of the long-run rise in output and employment. For short-run dynamics, firms and households are equally important. Firms' large role is identified by an empirical observation: output and employment expanded gradually following deregulation. In the model, lower interest rates generate increasing capital stocks which in turn increases economic activity gradually.
{"title":"Quantifying the Macroeconomic Impact of Credit Expansions","authors":"Corina Boar, Kjetil Storesletten, Matthew Knowles, Yicheng Wang","doi":"10.1111/iere.70024","DOIUrl":"https://doi.org/10.1111/iere.70024","url":null,"abstract":"<div>\u0000 \u0000 <p>Credit expansions stimulate the economy. We quantify the contribution of households versus firms for this stimulus. Using causal evidence from the quasi-natural experiment of bank deregulation across US states, we estimate a small open-economy heterogeneous-agent New Keynesian model. Deregulation generated lower borrowing costs. Firms' responses to such shocks account for most of the long-run rise in output and employment. For short-run dynamics, firms and households are equally important. Firms' large role is identified by an empirical observation: output and employment expanded gradually following deregulation. In the model, lower interest rates generate increasing capital stocks which in turn increases economic activity gradually.</p></div>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 5","pages":"1913-1928"},"PeriodicalIF":1.3,"publicationDate":"2025-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145695470","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
After 2000, ratios of tax collections to GDP and government expenditures to GDP have departed from 19th and 20th century US patterns. Before 2000, wartime government expenditure/GDP surges were accompanied by permanent rises in expenditure/GDP and tax collection/GDP ratios. Part of the War on COVID expenditure/GDP surge has persisted, but so far tax collections have not risen relative to GDP. If that discrepancy persists, the consolidated federal government budget constraint portends permanently higher US inflation and higher nominal interest rates on US government interest-bearing bonds.
{"title":"Fiscal Consequences of the US War on COVID","authors":"George J. Hall, Thomas J. Sargent","doi":"10.1111/iere.70022","DOIUrl":"https://doi.org/10.1111/iere.70022","url":null,"abstract":"<div>\u0000 \u0000 <p>After 2000, ratios of tax collections to GDP and government expenditures to GDP have departed from 19th and 20th century US patterns. Before 2000, wartime government expenditure/GDP surges were accompanied by permanent rises in expenditure/GDP and tax collection/GDP ratios. Part of the War on COVID expenditure/GDP surge has persisted, but so far tax collections have not risen relative to GDP. If that discrepancy persists, the consolidated federal government budget constraint portends permanently higher US inflation and higher nominal interest rates on US government interest-bearing bonds.</p></div>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"66 5","pages":"1753-1780"},"PeriodicalIF":1.3,"publicationDate":"2025-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145695471","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Francesco Andreoli, Mathieu Faure, Nicolas Gravel, Tista Kundu
This paper provides a robust criterion for comparing lists of probability distributions—interpreted as allocations of opportunities—faced by different social groups. We axiomatically argue in favor of comparing those lists of probability distributions on the basis of a uniform—among groups—valuation of their expected utility. We identify an empirically implementable criterion for comparing allocations of opportunities that coincides with the unanimity of all such uniform valuations of expected utility that exhibit aversion to inequality of opportunity. We illustrate our criterion by evaluating allocations of educational opportunities among castes and genders in 14 Indian states.
{"title":"Evaluating Allocations of Opportunities","authors":"Francesco Andreoli, Mathieu Faure, Nicolas Gravel, Tista Kundu","doi":"10.1111/iere.70020","DOIUrl":"https://doi.org/10.1111/iere.70020","url":null,"abstract":"<p>This paper provides a robust criterion for comparing lists of probability distributions—interpreted as allocations of opportunities—faced by different social groups. We axiomatically argue in favor of comparing those lists of probability distributions on the basis of a uniform—among groups—valuation of their expected utility. We identify an empirically implementable criterion for comparing allocations of opportunities that coincides with the unanimity of all such uniform valuations of expected utility that exhibit aversion to inequality of opportunity. We illustrate our criterion by evaluating allocations of educational opportunities among castes and genders in 14 Indian states.</p>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"67 1","pages":"365-397"},"PeriodicalIF":1.3,"publicationDate":"2025-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://onlinelibrary.wiley.com/doi/epdf/10.1111/iere.70020","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146155007","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
This paper examines engine-specific tax programs that are widely used in developing countries to limit car emissions. Using China's tax abatement program for small vehicles in 2015, we find significant price and sales responses for both small and large vehicles, indicating strong competition spillovers. The quantification model shows that an increase in car ownership generates more car emissions than the reduction resulting from the relocation from large to small vehicles. Welfare analysis further shows that the reduced government tax revenue and increased car emissions significantly outweigh the increased household welfare and firm profits, rendering the engine-specific tax program socially unbeneficial.
{"title":"Do Engine-Specific Tax Programs Work? A Structural Analysis of Market Spillovers and Welfare Implications","authors":"Jiasheng Li, Pei Li, Yi Lu","doi":"10.1111/iere.70021","DOIUrl":"https://doi.org/10.1111/iere.70021","url":null,"abstract":"<div>\u0000 \u0000 <p>This paper examines engine-specific tax programs that are widely used in developing countries to limit car emissions. Using China's tax abatement program for small vehicles in 2015, we find significant price and sales responses for both small and large vehicles, indicating strong competition spillovers. The quantification model shows that an increase in car ownership generates more car emissions than the reduction resulting from the relocation from large to small vehicles. Welfare analysis further shows that the reduced government tax revenue and increased car emissions significantly outweigh the increased household welfare and firm profits, rendering the engine-specific tax program socially unbeneficial.</p></div>","PeriodicalId":48302,"journal":{"name":"International Economic Review","volume":"67 1","pages":"287-312"},"PeriodicalIF":1.3,"publicationDate":"2025-09-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146162782","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"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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