Pub Date : 2026-01-24DOI: 10.1016/j.jedc.2026.105276
Yoosoon Chang , Fabio Gómez-Rodríguez , Christian Matthes
We study how fiscal and monetary policy shape the nominal yield curve and associated term premia. Government spending affects the long end of the curve, while tax changes and monetary policy influence the short end at impact. Within spending categories, only government consumption shifts the short end, but these effects dissipate within a year. While monetary policy and government consumption operate primarily through expected short rates, other fiscal interventions affect yields mainly by altering term premia.
{"title":"The influence of fiscal and monetary policies on the shape of the yield curve","authors":"Yoosoon Chang , Fabio Gómez-Rodríguez , Christian Matthes","doi":"10.1016/j.jedc.2026.105276","DOIUrl":"10.1016/j.jedc.2026.105276","url":null,"abstract":"<div><div>We study how fiscal and monetary policy shape the nominal yield curve and associated term premia. Government spending affects the long end of the curve, while tax changes and monetary policy influence the short end at impact. Within spending categories, only government consumption shifts the short end, but these effects dissipate within a year. While monetary policy and government consumption operate primarily through expected short rates, other fiscal interventions affect yields mainly by altering term premia.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105276"},"PeriodicalIF":2.3,"publicationDate":"2026-01-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146080125","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}
Pub Date : 2026-01-22DOI: 10.1016/j.jedc.2026.105265
Xia Han , Bin Li , Yao Luo
We propose a new framework for studying optimal insurance under information asymmetry within the Stackelberg game framework. In this setting, a monopolistic insurer faces uncertainty regarding a customer’s loss distribution or risk attitude. The customer is assumed to follow a mean-variance preference in continuous time, while the insurer sets premiums through a risk loading based on the expected loss. An optimal menu is explicitly derived for a general class of aggregate loss models.
Our approach connects with the extensive literature on optimal insurance demand, stemming from the seminal work of Arrow (1963), and leads to an interesting finding: a nonlinear pricing structure for risk-type uncertainty versus a linear pricing structure for risk-attitude uncertainty. Specifically, if an insurer is uncertain about a customer’s risk type and seeks to elicit this information, the risk loading (premium minus expected loss) is set lower for high-risk individuals to encourage them to select the corresponding contract. In contrast, if the insurer is only uncertain about the customer’s risk attitude, no such discounts—in terms of risk loading—are provided. This reveals that information about customers’ risk types is more valuable than information about their risk attitudes. Additionally, we compare our optimal menu with the worst-case contract derived from the maxmin expected utility, we find that our optimal menu increases the insurer’s expected profit and enhances the likelihood of trading.
{"title":"Optimal insurance with information asymmetry: Nonlinear and linear pricing","authors":"Xia Han , Bin Li , Yao Luo","doi":"10.1016/j.jedc.2026.105265","DOIUrl":"10.1016/j.jedc.2026.105265","url":null,"abstract":"<div><div>We propose a new framework for studying optimal insurance under information asymmetry within the Stackelberg game framework. In this setting, a monopolistic insurer faces uncertainty regarding a customer’s loss distribution or risk attitude. The customer is assumed to follow a mean-variance preference in continuous time, while the insurer sets premiums through a risk loading based on the expected loss. An optimal menu is explicitly derived for a general class of aggregate loss models.</div><div>Our approach connects with the extensive literature on optimal insurance demand, stemming from the seminal work of Arrow (1963), and leads to an interesting finding: a nonlinear pricing structure for risk-type uncertainty versus a linear pricing structure for risk-attitude uncertainty. Specifically, if an insurer is uncertain about a customer’s risk type and seeks to elicit this information, the risk loading (premium minus expected loss) is set lower for high-risk individuals to encourage them to select the corresponding contract. In contrast, if the insurer is only uncertain about the customer’s risk attitude, no such discounts—in terms of risk loading—are provided. This reveals that information about customers’ risk types is more valuable than information about their risk attitudes. Additionally, we compare our optimal menu with the worst-case contract derived from the maxmin expected utility, we find that our optimal menu increases the insurer’s expected profit and enhances the likelihood of trading.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105265"},"PeriodicalIF":2.3,"publicationDate":"2026-01-22","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146039644","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}
Pub Date : 2026-01-18DOI: 10.1016/j.jedc.2026.105273
Guillermo Hausmann-Guil
This paper shows that, when solving DSGE models with strong volatility by perturbation, the approximation point matters. In particular, the standard solution can deliver misleading results if the deterministic steady state is far from where the model’s stochastic dynamics occur. This problem can be corrected by approximating around the stochastic steady state instead, a strategy that is now easy to implement with standard software thanks to two-parameter perturbation. Using the small open economy model by Fernández-Villaverde et al. (2011, AER) as a laboratory, I find that approximating their model around the stochastic steady state yields much more accurate dynamics, in which the real effect of uncertainty shocks loses quantitative relevance. The reason is that the debt level is much smaller at this point compared to the deterministic steady state, which greatly diminishes the precautionary incentive to reduce outstanding debt in response to riskier interest rates. The results are robust to the choice of emerging economy, the device used to close the model, slight recalibrations that significantly improve the model’s ability to match data, and alternative solution methods. Overall, the findings suggest that, from a theoretical perspective, uncertainty shocks play a significantly smaller role in driving aggregate fluctuations in small open economies than previously thought.
{"title":"Approximating around the stochastic steady state matters: rethinking uncertainty shocks in small open economies","authors":"Guillermo Hausmann-Guil","doi":"10.1016/j.jedc.2026.105273","DOIUrl":"10.1016/j.jedc.2026.105273","url":null,"abstract":"<div><div>This paper shows that, when solving DSGE models with strong volatility by perturbation, the approximation point matters. In particular, the standard solution can deliver misleading results if the deterministic steady state is far from where the model’s stochastic dynamics occur. This problem can be corrected by approximating around the stochastic steady state instead, a strategy that is now easy to implement with standard software thanks to two-parameter perturbation. Using the small open economy model by Fernández-Villaverde et al. (2011, AER) as a laboratory, I find that approximating their model around the stochastic steady state yields much more accurate dynamics, in which the real effect of uncertainty shocks loses quantitative relevance. The reason is that the debt level is much smaller at this point compared to the deterministic steady state, which greatly diminishes the precautionary incentive to reduce outstanding debt in response to riskier interest rates. The results are robust to the choice of emerging economy, the device used to close the model, slight recalibrations that significantly improve the model’s ability to match data, and alternative solution methods. Overall, the findings suggest that, from a theoretical perspective, uncertainty shocks play a significantly smaller role in driving aggregate fluctuations in small open economies than previously thought.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105273"},"PeriodicalIF":2.3,"publicationDate":"2026-01-18","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146039642","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}
Pub Date : 2026-01-14DOI: 10.1016/j.jedc.2026.105264
Audrey Hu , Liang Zou
We study a discrete-time, two-armed “breakthrough” bandit in which an agent allocates a perfectly divisible resource each period between a safe arm and a risky arm. Departing from the binary “either–or” paradigm, we consider continuous allocation strategies and a general success technology F with nonincreasing hazard rate. Using a variational, pathwise approach combined with dynamic programming, we characterize the unique optimal belief–allocation path via a time-invariant backward/forward transformation. The optimal path features interior, tapering allocations that never stop prior to a breakthrough, and it delivers a strictly higher eventual success probability and expected payoff than the optimal binary (bang-bang) benchmark. In the exponential case, the mappings become explicit, making computation immediate and revealing a Goldilocks principle: total planned allocations to exploration is maximized at intermediate task difficulty. The framework highlights comparative dynamics—how entire optimal paths shift with primitives—while remaining robust to the functional form of F.
{"title":"Optimal allocation strategies in a discrete-time bandit problem","authors":"Audrey Hu , Liang Zou","doi":"10.1016/j.jedc.2026.105264","DOIUrl":"10.1016/j.jedc.2026.105264","url":null,"abstract":"<div><div>We study a discrete-time, two-armed “breakthrough” bandit in which an agent allocates a perfectly divisible resource each period between a safe arm and a risky arm. Departing from the binary “either–or” paradigm, we consider continuous allocation strategies and a general success technology <em>F</em> with nonincreasing hazard rate. Using a variational, pathwise approach combined with dynamic programming, we characterize the unique <em>optimal belief–allocation path</em> via a time-invariant backward/forward transformation. The optimal path features interior, tapering allocations that never stop prior to a breakthrough, and it delivers a strictly higher eventual success probability and expected payoff than the optimal binary (bang-bang) benchmark. In the exponential case, the mappings become explicit, making computation immediate and revealing a Goldilocks principle: total planned allocations to exploration is maximized at intermediate task difficulty. The framework highlights comparative dynamics—how entire optimal paths shift with primitives—while remaining robust to the functional form of <em>F</em>.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105264"},"PeriodicalIF":2.3,"publicationDate":"2026-01-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146080126","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}
Pub Date : 2026-01-13DOI: 10.1016/j.jedc.2026.105263
Daniel Bird, David Weiss
In a recent influential paper, Schilling et al. (2024) caution that the introduction of a central bank digital currency gives rise to a central bank trilemma in a nominal version of the quintessential (Diamond and Dybvig, 1983) model of bank-runs. Specifically, the central bank can achieve at most two out of three policy objectives: attaining the socially efficient allocation, financial stability, and price stability. We show that the central bank can employ a natural policy to evade their concerns. In particular, the central bank can create debt, backed by assets, to provide to patient runners. Giving patient households the option to save, rather than spend, with a safe asset solves the inflationary pressures of a run. The key mechanism is thus liability composition: accommodating safe-asset demand without monetizing goods-market demand.
在最近一篇有影响力的论文中，Schilling等人（2024）警告说，央行数字货币的引入会在典型的银行挤兑模型（Diamond and Dybvig, 1983）的名义版本中引发央行的三困境。具体而言，中央银行最多可以实现三个政策目标中的两个：实现社会有效配置、金融稳定和价格稳定。我们表明，央行可以采用一种自然的政策来规避他们的担忧。特别是，央行可以在资产的支持下创造债务，向耐心的投资者提供资金。让病人家庭选择用安全资产储蓄，而不是消费，可以解决挤兑带来的通胀压力。因此，关键机制是负债构成：在不将商品市场需求货币化的情况下，调节安全资产需求。
{"title":"Central bank digital currency: When price and bank stability (Don’t) collide","authors":"Daniel Bird, David Weiss","doi":"10.1016/j.jedc.2026.105263","DOIUrl":"10.1016/j.jedc.2026.105263","url":null,"abstract":"<div><div>In a recent influential paper, Schilling et al. (2024) caution that the introduction of a central bank digital currency gives rise to a central bank trilemma in a nominal version of the quintessential (Diamond and Dybvig, 1983) model of bank-runs. Specifically, the central bank can achieve at most two out of three policy objectives: attaining the socially efficient allocation, financial stability, and price stability. We show that the central bank can employ a natural policy to evade their concerns. In particular, the central bank can create debt, backed by assets, to provide to patient runners. Giving patient households the option to save, rather than spend, with a safe asset solves the inflationary pressures of a run. The key mechanism is thus liability composition: accommodating safe-asset demand without monetizing goods-market demand.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105263"},"PeriodicalIF":2.3,"publicationDate":"2026-01-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146039643","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}
Pub Date : 2026-01-09DOI: 10.1016/j.jedc.2025.105253
Long Ma, Sichuang Xu
Credit market interventions that stabilize economies ex post are typically blamed for the moral hazard arising from firms’ anticipation of government relief. This view, based on short-term debt models, overlooks the important role of long-term debt in corporate finance. We develop a dynamic general equilibrium model to study the design of credit market interventions in the context of long-term debt and financial frictions. In the model, firms overborrow due to pecuniary externalities, where collective investments inflate factor prices, resulting in excessive debt and amplified financial fragility. With interest rate subsidies in sight, firms anticipate cheaper future borrowing and, constrained by collateral limits, reduce current long-term debt to preserve future capacity, curbing overborrowing. Optimal Pigovian taxes that take into account this incentive effect of long-term debt lead to a welfare gain of 1.02% ∼ 1.23%, and we find empirical support for this mechanism using US manufacturing data.
{"title":"Long-term debt and the efficiency of crisis-contingent policies: Taming overborrowing externalities","authors":"Long Ma, Sichuang Xu","doi":"10.1016/j.jedc.2025.105253","DOIUrl":"10.1016/j.jedc.2025.105253","url":null,"abstract":"<div><div>Credit market interventions that stabilize economies ex post are typically blamed for the moral hazard arising from firms’ anticipation of government relief. This view, based on short-term debt models, overlooks the important role of long-term debt in corporate finance. We develop a dynamic general equilibrium model to study the design of credit market interventions in the context of long-term debt and financial frictions. In the model, firms overborrow due to pecuniary externalities, where collective investments inflate factor prices, resulting in excessive debt and amplified financial fragility. With interest rate subsidies in sight, firms anticipate cheaper future borrowing and, constrained by collateral limits, reduce current long-term debt to preserve future capacity, curbing overborrowing. Optimal Pigovian taxes that take into account this incentive effect of long-term debt lead to a welfare gain of 1.02% ∼ 1.23%, and we find empirical support for this mechanism using US manufacturing data.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105253"},"PeriodicalIF":2.3,"publicationDate":"2026-01-09","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"146039759","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}
Pub Date : 2026-01-07DOI: 10.1016/j.jedc.2025.105252
Marek Weretka , Marcin Dec
The canonical infinite-horizon framework with heterogeneous consumers, commonly used in macroeconomic and financial literature, lacks a preference-based index that consistently quantifies the welfare impacts of economic policies. In particular, the classic money-metric indices, such as equivalent and compensating variations, are not additive across sets of policies, and predictions may depend on the assumed status quo or the order in which alternatives are implemented. This paper offers a positive result. We show that, for arbitrary heterogeneous von Neumann-Morgenstern preferences with a common discount factor, the equivalent (or compensating) variation is nearly additive and aggregates effectively as long as consumers are patient. Consequently, the index provides consistent quantitative welfare predictions for a wide variety of short-lived policies studied in the macroeconomic and finance literature.
{"title":"Welfare measurements with heterogeneous agents","authors":"Marek Weretka , Marcin Dec","doi":"10.1016/j.jedc.2025.105252","DOIUrl":"10.1016/j.jedc.2025.105252","url":null,"abstract":"<div><div>The canonical infinite-horizon framework with heterogeneous consumers, commonly used in macroeconomic and financial literature, lacks a preference-based index that consistently quantifies the welfare impacts of economic policies. In particular, the classic money-metric indices, such as equivalent and compensating variations, are not additive across sets of policies, and predictions may depend on the assumed <em>status quo</em> or the order in which alternatives are implemented. This paper offers a positive result. We show that, for arbitrary heterogeneous von Neumann-Morgenstern preferences with a common discount factor, the equivalent (or compensating) variation is nearly additive and aggregates effectively as long as consumers are patient. Consequently, the index provides consistent quantitative welfare predictions for a wide variety of short-lived policies studied in the macroeconomic and finance literature.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"184 ","pages":"Article 105252"},"PeriodicalIF":2.3,"publicationDate":"2026-01-07","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145993597","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}
Pub Date : 2026-01-06DOI: 10.1016/j.jedc.2025.105254
Bertrand Achou , Philippe De Donder , Franca Glenzer , Minjoon Lee , Marie-Louise Leroux
Marginal utility of spending when needing long-term care, and the related incentives for precautionary savings and insurance, may vary significantly by whether one receives care at home or in a nursing home. In this paper, we develop strategic survey questions to estimate those differences. All else equal, we find that the marginal utility of spending (net of the minimum cost of care) is significantly higher when receiving care at home rather than in a nursing home. Using an illustrative calibrated life-cycle model with these LTC-setting-specific preferences, we obtain that the higher marginal utility of spending under home care generates stronger precautionary savings incentives and a higher valuation of home care subsidies relative to nursing homes. Overall, our results suggest that shifts (e.g., due to Covid) leading to a stronger preference for home care could significantly increase savings as well as the benefits of allocating resources to long-term care.
{"title":"At home versus in a nursing home: Long-term care settings and marginal utility","authors":"Bertrand Achou , Philippe De Donder , Franca Glenzer , Minjoon Lee , Marie-Louise Leroux","doi":"10.1016/j.jedc.2025.105254","DOIUrl":"10.1016/j.jedc.2025.105254","url":null,"abstract":"<div><div>Marginal utility of spending when needing long-term care, and the related incentives for precautionary savings and insurance, may vary significantly by whether one receives care at home or in a nursing home. In this paper, we develop strategic survey questions to estimate those differences. All else equal, we find that the marginal utility of spending (net of the minimum cost of care) is significantly higher when receiving care at home rather than in a nursing home. Using an illustrative calibrated life-cycle model with these LTC-setting-specific preferences, we obtain that the higher marginal utility of spending under home care generates stronger precautionary savings incentives and a higher valuation of home care subsidies relative to nursing homes. Overall, our results suggest that shifts (e.g., due to Covid) leading to a stronger preference for home care could significantly increase savings as well as the benefits of allocating resources to long-term care.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"183 ","pages":"Article 105254"},"PeriodicalIF":2.3,"publicationDate":"2026-01-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145978267","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}
Pub Date : 2026-01-05DOI: 10.1016/j.jedc.2026.105255
Jonathan J․ Adams
Behavioral expectations affect determinacy in macroeconomic models. Relaxing rational expectations can make models more or less well behaved, depending on the behavioral assumptions. In some cases, multiplicity is created; in other cases, multiplicity is eliminated. Is it possible to tell exactly when there are multiple solutions? Yes: I derive a Behavioral Blanchard-Kahn sufficient condition that ensures a unique equilibrium exists. An equilibrium must be unique if the BBK condition holds, or if a Sunspot Admissibility (SSA) condition fails. When SSA holds and the BBK condition fails, multiplicity occurs. These conditions depend on the spectrum of the behavioral expectation operator. I describe how to check these conditions for an arbitrary behavioral expectation, and illustrate with a large variety of popular types of expectations, heuristics, and information frictions. As an example, I demonstrate that a large class of behavioral expectations imply a unique solution to the New Keynesian model with an interest rate peg, including all strictly backwards-looking heuristics. Another class of expectations imply that asset prices exhibit non-fundamental volatility in a standard model.
{"title":"Equilibrium determinacy with behavioral expectations","authors":"Jonathan J․ Adams","doi":"10.1016/j.jedc.2026.105255","DOIUrl":"10.1016/j.jedc.2026.105255","url":null,"abstract":"<div><div>Behavioral expectations affect determinacy in macroeconomic models. Relaxing rational expectations can make models more or less well behaved, depending on the behavioral assumptions. In some cases, multiplicity is created; in other cases, multiplicity is eliminated. Is it possible to tell exactly when there are multiple solutions? Yes: I derive a Behavioral Blanchard-Kahn sufficient condition that ensures a unique equilibrium exists. An equilibrium must be unique if the BBK condition holds, or if a Sunspot Admissibility (SSA) condition fails. When SSA holds and the BBK condition fails, multiplicity occurs. These conditions depend on the spectrum of the behavioral expectation operator. I describe how to check these conditions for an arbitrary behavioral expectation, and illustrate with a large variety of popular types of expectations, heuristics, and information frictions. As an example, I demonstrate that a large class of behavioral expectations imply a unique solution to the New Keynesian model with an interest rate peg, including all strictly backwards-looking heuristics. Another class of expectations imply that asset prices exhibit non-fundamental volatility in a standard model.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"183 ","pages":"Article 105255"},"PeriodicalIF":2.3,"publicationDate":"2026-01-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145978268","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}
Pub Date : 2026-01-01DOI: 10.1016/j.jedc.2025.105221
Marco Del Negro , Ibrahima Diagne , Keshav Dogra , Pranay Gundam , Donggyu Lee , Brian Pacula
We use an estimated medium-scale HANK model to investigate how the tradeoff between stabilizing inflation and consumption volatility varies for households with different levels of wealth. Consumption for the rich is mostly affected by demand shocks via their exposure to highly procyclical profits—for them, stabilizing consumption and inflation coincide. The poor are more vulnerable to supply shocks, hence aggressively stabilizing inflation is costly in terms of their consumption volatility. While they dislike inflation because it erodes real wages, they are hurt even more by an aggressive monetary policy response to inflation, which reduces real wages further while increasing unemployment.
{"title":"Tradeoffs for the poor, divine coincidence for the rich","authors":"Marco Del Negro , Ibrahima Diagne , Keshav Dogra , Pranay Gundam , Donggyu Lee , Brian Pacula","doi":"10.1016/j.jedc.2025.105221","DOIUrl":"10.1016/j.jedc.2025.105221","url":null,"abstract":"<div><div>We use an estimated medium-scale HANK model to investigate how the tradeoff between stabilizing inflation and consumption volatility varies for households with different levels of wealth. Consumption for the rich is mostly affected by demand shocks via their exposure to highly procyclical profits—for them, stabilizing consumption and inflation coincide. The poor are more vulnerable to supply shocks, hence aggressively stabilizing inflation is costly in terms of their consumption volatility. While they dislike inflation because it erodes real wages, they are hurt even more by an aggressive monetary policy response to inflation, which reduces real wages further while increasing unemployment.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"182 ","pages":"Article 105221"},"PeriodicalIF":2.3,"publicationDate":"2026-01-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145884302","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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