Journal of Economic Dynamics & Control最新文献

We characterize optimal unconventional monetary and fiscal-financial policies against supply- and demand-driven liquidity traps within a tractable New Keynesian model featuring a cash-in-advance constraint and a monetary policy cost channel. Deposit subsidies circumvent the inflation-output trade-off arising from stagflationary shocks and supply-driven liquidity traps by enabling negative nominal interest rates. Additionally, deposit taxes facilitate modest interest rate hikes to escape demand-driven deflationary traps. Notably, discretionary and commitment policies with deposit taxes / subsidies deliver virtually equivalent welfare gains, rendering time-inconsistent forward guidance schedules unnecessary. We also derive robust and implementable optimal policy rules when the sources of shocks are unknown.

It is common in applied work to estimate responses of macroeconomic aggregates to news shocks derived from surprise changes in daily futures prices around the date of policy announcements. This requires mapping the daily surprises into a monthly shock that may be used as an external instrument in a monthly VAR model or local projection. The standard approach has been to sum these daily surprises over the course of a given month when constructing the monthly proxy variable, ignoring the accounting relationship between daily and average monthly price data. In this paper, I discuss an alternative approach to constructing monthly proxies from daily surprises that takes account of this link and revisit the question of how to use OPEC announcements to identify news shocks in VAR models of the global oil market. The proposed approach calls into question the interpretation of the identified shock as oil supply news and implies quantitatively and qualitatively different estimates of the macroeconomic impact of OPEC announcements.

Many countries emphasize gender equality and ban gender-based annuity pricing, leading to more heterogeneous health characteristics and market inefficiency. Governments may respond by offering deferred annuities when annuitants' health characteristics are more similar at an earlier age. The two combined policies benefit most female annuitants without adversely affecting too many male annuitants, contrasting to the well-known result that imposing gender-neutral pricing benefits all women but adversely affects all men, when only immediate annuities are available. Within each gender group, these two policy interventions benefit annuitants with average health, but may adversely affect those on either end.

Using more than one million firm-year observations of small and medium European firms between 2003 and 2019, this paper introduces new stylized facts on how firms' relative demand for labor and capital evolved as their capital structure adjusted to the events of the 2008 crisis. It also provides micro-level evidence that firms substitute capital for labor when financing costs rise. The empirical evidence lends support to the hypothesis that substitution is driven by an incentive to raise holdings of collateralizable capital. Identification of exogenous variations in firm financing costs relies on the heterogeneous effects of ECB monetary policy surprises on financing costs across the firm distribution.

We analyze a model of endogenous two-sided network formation where players are affected by uncertainty about their opponents' decisions. We model this uncertainty using the notion of equilibrium under ambiguity as in Eichberger and Kelsey (2014). Unlike the set of Nash equilibria, the set of equilibria under ambiguity does not always include underconnected and thus inefficient networks such as the empty network. On the other hand, it may include networks with unreciprocated, one-way links, which comes with an efficiency loss as linking efforts are costly. We characterize equilibria under ambiguity and provide conditions under which increased player optimism comes with an increase in connectivity and realized benefits in equilibrium. Next, we analyze network realignment under a myopic updating process with optimistic shocks and derive a global stability condition of efficient networks in the sense of Kandori et al. (1993). Under this condition, a subset of the Pareto optimal equilibrium networks is reached, specifically, networks that maximize the players' total benefits of connections.

When economic growth is driven by the discovery of new ideas and physical labor is the input in ideas production, population decline inevitably leads to the stagnation of living standards. Here, I reconsider the problem of declining population when ideas are produced by an educated workforce and show that steady positive growth of ideas and income is a plausible outcome. The reason is that the accumulation of human capital offsets the negative effects of population growth. In a general equilibrium model with diminishing returns to education, I show that households generate the constant education effort needed to sustain high economic growth.

This paper develops a model of the effects of tax rates chosen optimally to promote growth and public welfare in the face of corruption. For a given level of corruption, public spending can promote growth but high tax rates in pursuit of various social goals have potentially significant supply-side economics effects that reduce income. Governments faced with rampant corruption optimally choose low tax rates, thus associating poor countries with low tax rates, and confounding the observed relation between tax rates and income. The model is estimated using cross-country data on income, tax rates, and corruption and is shown to match key features of the data. The chief contribution of this paper is to stress the importance of jointly considering the effects of corruption and taxation in documenting evidence in support of supply-side economics.

We study an optimal pairs trading model with costly short-selling. When the investor has logarithm utility function, we derive the solution in closed form, which shows that: the optimal allocation functions are piece-wise linear in the pair's relative price; stock borrowing fees asymmetrically reduce the optimal size of the long/short position; and for risk-hedging purpose, it can be optimal to short sell even when the stock borrowing fees outweigh the expected return earned from short selling. When the investor has power utility function, we propose analytical allocation functions adopting which only causes a small utility loss. When the investor is constrained from borrowing funds, the margin requirement for short selling can significantly affect the trading strategy. Empirically, we demonstrate the importance of incorporating short selling costs when trading pairs in China's stock market and verify the model-implied relation between short selling costs and profitability of pairs trading.

Risk-averse entrepreneurs interact with financiers to fund their projects. Projects can be operated under green or dirty technologies. We explore the role of limited commitment in determining the adoption of green technologies when governments enact carbon taxes and/or directed investment subsidies. We show that entrepreneurial (respectively, financier) limited commitment makes it more (less) costly for governments to encourage green technology adoption. Because green technologies are still at an early stage, the cash flows they generate are back-loaded. Entrepreneurial limited commitment forces consumption to increase over time, thereby undermining risk-sharing and making dirty technologies more attractive. By contrast, under financier limited commitment, the possibility that front-loaded dirty technologies become obsolete forces consumption to decrease over time, thereby impairing risk-sharing and making green technologies more attractive. We also show that carbon taxes (directed technology subsidies) are more cost-effective when entrepreneurs (financiers) display limited commitment.