Pub Date : 2025-08-06DOI: 10.1016/j.jedc.2025.105162
Markku Lanne, Savi Virolainen
We introduce a new smooth transition vector autoregressive model with a Gaussian conditional distribution and transition weights that, for a pth order model, depend on the full distribution of the preceding p observations. Specifically, the transition weight of each regime increases in its relative weighted likelihood. This data-driven approach facilitates capturing complex switching dynamics, enhancing the identification of gradual regime shifts. In an empirical application to the macroeconomic effects of a severe weather shock, we find that in monthly U.S. data from 1961:1 to 2022:3, the shock has stronger impact in the regime prevailing in the early part of the sample and in certain crisis periods than in the regime dominating the latter part of the sample. While the overall evidence is somewhat mixed, this may lend some support to overall adaptation of the U.S. economy to severe weather over time.
{"title":"A Gaussian smooth transition vector autoregressive model: An application to the macroeconomic effects of severe weather shocks","authors":"Markku Lanne, Savi Virolainen","doi":"10.1016/j.jedc.2025.105162","DOIUrl":"10.1016/j.jedc.2025.105162","url":null,"abstract":"<div><div>We introduce a new smooth transition vector autoregressive model with a Gaussian conditional distribution and transition weights that, for a <em>p</em>th order model, depend on the full distribution of the preceding <em>p</em> observations. Specifically, the transition weight of each regime increases in its relative weighted likelihood. This data-driven approach facilitates capturing complex switching dynamics, enhancing the identification of gradual regime shifts. In an empirical application to the macroeconomic effects of a severe weather shock, we find that in monthly U.S. data from 1961:1 to 2022:3, the shock has stronger impact in the regime prevailing in the early part of the sample and in certain crisis periods than in the regime dominating the latter part of the sample. While the overall evidence is somewhat mixed, this may lend some support to overall adaptation of the U.S. economy to severe weather over time.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105162"},"PeriodicalIF":2.3,"publicationDate":"2025-08-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144810461","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 : 2025-08-05DOI: 10.1016/j.jedc.2025.105158
Yingjie Niu , Zian Tang , Jinqiang Yang
We consider the optimal tax and borrowing plan of a government that worries about model uncertainty and seeks robust decisions. Quantitative implications show that the presence of model uncertainty makes the government more willing to borrow and enlarges its debt capacity. Under the worst-case scenario, the marginal benefit of taxation and the optimal tax rate decreases first and then increases. This is due to the game between two opposing effects induced by ambiguity. Moreover, the government should engage more in financial hedging while the amount of holdings is no longer linear in the debt-to-GDP ratio.
{"title":"Robust p theory of taxes and debt management","authors":"Yingjie Niu , Zian Tang , Jinqiang Yang","doi":"10.1016/j.jedc.2025.105158","DOIUrl":"10.1016/j.jedc.2025.105158","url":null,"abstract":"<div><div>We consider the optimal tax and borrowing plan of a government that worries about model uncertainty and seeks robust decisions. Quantitative implications show that the presence of model uncertainty makes the government more willing to borrow and enlarges its debt capacity. Under the worst-case scenario, the marginal benefit of taxation and the optimal tax rate decreases first and then increases. This is due to the game between two opposing effects induced by ambiguity. Moreover, the government should engage more in financial hedging while the amount of holdings is no longer linear in the debt-to-GDP ratio.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105158"},"PeriodicalIF":2.3,"publicationDate":"2025-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144781657","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 : 2025-08-05DOI: 10.1016/j.jedc.2025.105154
Peter Burgold , Anne Ernst , Natascha Hinterlang , Marius Jäger , Nikolai Stähler
In this paper, we compare the economic and welfare implications of two carbon pricing policies, namely the European Cap and Trade (CaT) regime and the Chinese Tradeable Performance Standard (TPS). The former sets an economy-wide emissions target and forces firms to purchase sufficient certificates. The latter sets an emissions intensity and requires firms with a higher intensity to either abate or buy emissions allowances from firms with lower-than-target intensities. It can be shown that TPS is equivalent to CaT when carbon pricing revenues are redistributed to firms according to output. In a dynamic two-agent general equilibrium model with heterogenous production sectors, we show that TPS outperforms a CaT regime that redistributes carbon revenues to households in a lump-sum manner, both, in terms of output gains and welfare due to lower costs on the production side. However, CaT with labor tax reduction increases welfare most because it alleviates distortions on the production side and improves the income situation of all households.
{"title":"Cap and trade versus tradable performance standard in a production network model with sectoral heterogeneity","authors":"Peter Burgold , Anne Ernst , Natascha Hinterlang , Marius Jäger , Nikolai Stähler","doi":"10.1016/j.jedc.2025.105154","DOIUrl":"10.1016/j.jedc.2025.105154","url":null,"abstract":"<div><div>In this paper, we compare the economic and welfare implications of two carbon pricing policies, namely the European Cap and Trade (CaT) regime and the Chinese Tradeable Performance Standard (TPS). The former sets an economy-wide emissions target and forces firms to purchase sufficient certificates. The latter sets an emissions intensity and requires firms with a higher intensity to either abate or buy emissions allowances from firms with lower-than-target intensities. It can be shown that TPS is equivalent to CaT when carbon pricing revenues are redistributed to firms according to output. In a dynamic two-agent general equilibrium model with heterogenous production sectors, we show that TPS outperforms a CaT regime that redistributes carbon revenues to households in a lump-sum manner, both, in terms of output gains and welfare due to lower costs on the production side. However, CaT with labor tax reduction increases welfare most because it alleviates distortions on the production side and improves the income situation of all households.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105154"},"PeriodicalIF":2.3,"publicationDate":"2025-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144781658","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 : 2025-08-05DOI: 10.1016/j.jedc.2025.105161
Benjamin Hemingway
The introduction of an unremunerated retail central bank digital currency (CBDC) is currently under consideration by several central banks. Motivated by the decline in transactional cash usage and the increase in online sales in the UK, this paper provides a theoretical framework to study the underlying drivers of these trends and the welfare implications of introducing an unremunerated retail CBDC. I develop a cash credit model with physical and digital retail sectors, endogenous entry of firms and directed consumer search. Calibrating to UK data between 2010 and 2022 the model suggests that there are positive welfare gains from introducing an unremunerated retail CBDC, but these have likely declined over time.
{"title":"The role of central bank digital currency in an increasingly digital economy","authors":"Benjamin Hemingway","doi":"10.1016/j.jedc.2025.105161","DOIUrl":"10.1016/j.jedc.2025.105161","url":null,"abstract":"<div><div>The introduction of an unremunerated retail central bank digital currency (CBDC) is currently under consideration by several central banks. Motivated by the decline in transactional cash usage and the increase in online sales in the UK, this paper provides a theoretical framework to study the underlying drivers of these trends and the welfare implications of introducing an unremunerated retail CBDC. I develop a cash credit model with physical and digital retail sectors, endogenous entry of firms and directed consumer search. Calibrating to UK data between 2010 and 2022 the model suggests that there are positive welfare gains from introducing an unremunerated retail CBDC, but these have likely declined over time.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"179 ","pages":"Article 105161"},"PeriodicalIF":2.3,"publicationDate":"2025-08-05","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144827238","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 : 2025-07-31DOI: 10.1016/j.jedc.2025.105159
Zhiming Zhao , Wenjie Chen , Pengfei Luo
We develop an investment and financing model in which a controlling shareholder holds write-down equity and extracts private benefits by diverting the firm's cash flows. The model highlights how write-down equity affects investment and financing decisions, and the aggregate agency costs arising from investment, financing, and private benefits diversion. We find that the write-down equity causes the controlling shareholder to delay investment, choose conservative debt financing, and reduce credit spreads. Additionally, under an exogenous capital structure, there exists an optimal write-down ratio that completely eliminates agency costs related to investment. An increase in the write-down ratio reduces agency costs from private benefits diversion. Conversely, under the optimal capital structure, increasing the write-down ratio increases agency costs related to financing and private benefits diversion. Thus, the write-down equity is an effective financial instrument to reduce agency conflicts between the controlling shareholder and principals (i.e., minority shareholders and debtholders), especially for firms with debt financing constraints.
{"title":"Investment, capital structure and agency costs with write-down equity","authors":"Zhiming Zhao , Wenjie Chen , Pengfei Luo","doi":"10.1016/j.jedc.2025.105159","DOIUrl":"10.1016/j.jedc.2025.105159","url":null,"abstract":"<div><div>We develop an investment and financing model in which a controlling shareholder holds write-down equity and extracts private benefits by diverting the firm's cash flows. The model highlights how write-down equity affects investment and financing decisions, and the aggregate agency costs arising from investment, financing, and private benefits diversion. We find that the write-down equity causes the controlling shareholder to delay investment, choose conservative debt financing, and reduce credit spreads. Additionally, under an exogenous capital structure, there exists an optimal write-down ratio that completely eliminates agency costs related to investment. An increase in the write-down ratio reduces agency costs from private benefits diversion. Conversely, under the optimal capital structure, increasing the write-down ratio increases agency costs related to financing and private benefits diversion. Thus, the write-down equity is an effective financial instrument to reduce agency conflicts between the controlling shareholder and principals (i.e., minority shareholders and debtholders), especially for firms with debt financing constraints.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105159"},"PeriodicalIF":2.3,"publicationDate":"2025-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144781742","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 : 2025-07-31DOI: 10.1016/j.jedc.2025.105160
Yuqian Zhang , Zhaojun Yang
We address a dynamic contracting model in which a principal hires an agent to manage a project. The key new ingredient is that either the principal or the agent can dynamically control the project risk. Increasing the risk has three effects: (i) a positive drift effect due to the risk premium, (ii) a negative drift effect that captures inefficiencies arising from risk-shifting, and (iii) a mechanical mean-preserving spread effect. We show that if the principal instead of agent controls the risk, we get a higher contract efficiency. The higher the agent's promised value, the more pronounced the advantage. The non-contractibility of risk induces the agent's risk-taking behavior. The contract efficiency in the exogenous no-savings environment is higher than that in the endogenous one due to additional costs of no-savings incentives. These findings contribute to the allocation of control rights, bringing forth a corporate governance perspective.
{"title":"Dynamic incentive contracts with controllable risk","authors":"Yuqian Zhang , Zhaojun Yang","doi":"10.1016/j.jedc.2025.105160","DOIUrl":"10.1016/j.jedc.2025.105160","url":null,"abstract":"<div><div>We address a dynamic contracting model in which a principal hires an agent to manage a project. The key new ingredient is that either the principal or the agent can dynamically control the project risk. Increasing the risk has three effects: (i) a positive drift effect due to the risk premium, (ii) a negative drift effect that captures inefficiencies arising from risk-shifting, and (iii) a mechanical mean-preserving spread effect. We show that if the principal instead of agent controls the risk, we get a higher contract efficiency. The higher the agent's promised value, the more pronounced the advantage. The non-contractibility of risk induces the agent's risk-taking behavior. The contract efficiency in the exogenous no-savings environment is higher than that in the endogenous one due to additional costs of no-savings incentives. These findings contribute to the allocation of control rights, bringing forth a corporate governance perspective.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105160"},"PeriodicalIF":2.3,"publicationDate":"2025-07-31","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144767175","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 : 2025-07-24DOI: 10.1016/j.jedc.2025.105147
Juergen Jung , Vinish Shrestha
We develop an overlapping generations model with labor supply, health risk, and health insurance choice to evaluate the effects of imposing work requirements for Medicaid eligibility. The model is calibrated to U.S. data and used to simulate counterfactual policies that condition Medicaid access on minimum weekly work hours, with exemptions for the sick and disabled. Our partial and general equilibrium analyses show that such requirements increase labor force participation, reduce Medicaid enrollment, raise the uninsured rate, and boost output. While long-run growth can offset short-run welfare losses, most scenarios lead to net welfare declines for low-income households. High-income households, by contrast, experience welfare gains. When work requirements are extended to include the sick and disabled, the policy yields stronger growth effects and larger welfare gains. Incorporating key features of the Affordable Care Act—such as Medicaid expansion and subsidized private insurance exchanges—creates a less risky environment in which low-income individuals can substitute Medicaid with subsidized private coverage, thereby reducing welfare losses. However, the fiscal burden of insurance subsidies offsets some of the government's savings from Medicaid contraction, resulting in more modest overall growth effects.
{"title":"Medicaid work requirements, labor market effects and welfare","authors":"Juergen Jung , Vinish Shrestha","doi":"10.1016/j.jedc.2025.105147","DOIUrl":"10.1016/j.jedc.2025.105147","url":null,"abstract":"<div><div>We develop an overlapping generations model with labor supply, health risk, and health insurance choice to evaluate the effects of imposing work requirements for Medicaid eligibility. The model is calibrated to U.S. data and used to simulate counterfactual policies that condition Medicaid access on minimum weekly work hours, with exemptions for the sick and disabled. Our partial and general equilibrium analyses show that such requirements increase labor force participation, reduce Medicaid enrollment, raise the uninsured rate, and boost output. While long-run growth can offset short-run welfare losses, most scenarios lead to net welfare declines for low-income households. High-income households, by contrast, experience welfare gains. When work requirements are extended to include the sick and disabled, the policy yields stronger growth effects and larger welfare gains. Incorporating key features of the Affordable Care Act—such as Medicaid expansion and subsidized private insurance exchanges—creates a less risky environment in which low-income individuals can substitute Medicaid with subsidized private coverage, thereby reducing welfare losses. However, the fiscal burden of insurance subsidies offsets some of the government's savings from Medicaid contraction, resulting in more modest overall growth effects.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105147"},"PeriodicalIF":2.3,"publicationDate":"2025-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144738423","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 : 2025-07-24DOI: 10.1016/j.jedc.2025.105146
Lilia Maliar , Christopher Naubert
We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank's response and decreases with the horizon of the innovation.
{"title":"Monetary policy transmission with endogenous central bank responses in TANK","authors":"Lilia Maliar , Christopher Naubert","doi":"10.1016/j.jedc.2025.105146","DOIUrl":"10.1016/j.jedc.2025.105146","url":null,"abstract":"<div><div>We study how the transmission of monetary policy innovations is affected by the endogenous response of the central bank to macroeconomic aggregates in a two-agent New Keynesian model. We focus on how the stance of monetary policy and the fraction of savers in the economy affect transmission. We show that the indirect effect of an innovation is negative when the indirect real rate effect exceeds the indirect income effect. The relative magnitude of the indirect real rate effect increases with the share of savers and the strength of the central bank's response and decreases with the horizon of the innovation.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105146"},"PeriodicalIF":2.3,"publicationDate":"2025-07-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144721893","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 : 2025-07-17DOI: 10.1016/j.jedc.2025.105145
Martín Gonzalez-Eiras , Dirk Niepelt
We develop a single-state model of epidemic control and equilibrium dynamics, and we show that its simplicity comes at very low cost during the early phase of an epidemic. Novel analytical results concern the continuity of the policy function; the reversal from lockdown to stimulus policies; and the relaxation of optimal lockdowns when testing is feasible. The model's enhanced computational efficiency over SIR-based frameworks allows for the quantitative assessment of various new scenarios and specifications. Calibrated to reflect the COVID-19 pandemic, the model predicts an optimal initial activity reduction of 38 percent, with subsequent stimulus measures accounting for one-third of the welfare gains from optimal government intervention. The threat of recurrent infection waves makes the optimal lockdown more stringent, while a linear or near-linear activity-infection nexus, or strong consumption smoothing needs, reduce its stringency.
{"title":"A tractable model of epidemic control and equilibrium dynamics","authors":"Martín Gonzalez-Eiras , Dirk Niepelt","doi":"10.1016/j.jedc.2025.105145","DOIUrl":"10.1016/j.jedc.2025.105145","url":null,"abstract":"<div><div>We develop a single-state model of epidemic control and equilibrium dynamics, and we show that its simplicity comes at very low cost during the early phase of an epidemic. Novel analytical results concern the continuity of the policy function; the reversal from lockdown to stimulus policies; and the relaxation of optimal lockdowns when testing is feasible. The model's enhanced computational efficiency over SIR-based frameworks allows for the quantitative assessment of various new scenarios and specifications. Calibrated to reflect the COVID-19 pandemic, the model predicts an optimal initial activity reduction of 38 percent, with subsequent stimulus measures accounting for one-third of the welfare gains from optimal government intervention. The threat of recurrent infection waves makes the optimal lockdown more stringent, while a linear or near-linear activity-infection nexus, or strong consumption smoothing needs, reduce its stringency.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105145"},"PeriodicalIF":1.9,"publicationDate":"2025-07-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144679755","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 : 2025-07-16DOI: 10.1016/j.jedc.2025.105144
Adam Kučera , Evžen Kočenda , Aleš Maršál
This paper examines how anticipated, unanticipated, and uncertainty shocks in U.S. government spending affect the term structure of interest rates, showing that fiscal policy design significantly influences the yield curve and financing costs. Combining a recursively-identified fiscal SVAR with an affine term-structure model that incorporates five-year Congressional Budget Office projections and the Economic Policy Uncertainty index, we recover three orthogonal fiscal shocks and trace their effects on bond markets and economic activity. We find that heightened fiscal policy uncertainty induces a flight to quality, causing immediate declines in Treasury yields. Unanticipated spending shocks have a limited impact on yields, underscoring the forward-looking nature of financial markets. Anticipated spending shocks also lower yields as investors adjust expectations about future macroeconomic conditions. Contrary to traditional views, we observe a contractionary effect on real GDP growth, as lower yields reinforce precautionary behavior among households and firms. Our macro-finance framework captures the bidirectional relationship between macroeconomic expectations and financial markets, highlighting the critical role of the yield curve in transmitting fiscal policy shocks to the real economy.
{"title":"Yield curve dynamics and fiscal policy shocks","authors":"Adam Kučera , Evžen Kočenda , Aleš Maršál","doi":"10.1016/j.jedc.2025.105144","DOIUrl":"10.1016/j.jedc.2025.105144","url":null,"abstract":"<div><div>This paper examines how anticipated, unanticipated, and uncertainty shocks in U.S. government spending affect the term structure of interest rates, showing that fiscal policy design significantly influences the yield curve and financing costs. Combining a recursively-identified fiscal SVAR with an affine term-structure model that incorporates five-year Congressional Budget Office projections and the Economic Policy Uncertainty index, we recover three orthogonal fiscal shocks and trace their effects on bond markets and economic activity. We find that heightened fiscal policy uncertainty induces a flight to quality, causing immediate declines in Treasury yields. Unanticipated spending shocks have a limited impact on yields, underscoring the forward-looking nature of financial markets. Anticipated spending shocks also lower yields as investors adjust expectations about future macroeconomic conditions. Contrary to traditional views, we observe a contractionary effect on real GDP growth, as lower yields reinforce precautionary behavior among households and firms. Our macro-finance framework captures the bidirectional relationship between macroeconomic expectations and financial markets, highlighting the critical role of the yield curve in transmitting fiscal policy shocks to the real economy.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"178 ","pages":"Article 105144"},"PeriodicalIF":1.9,"publicationDate":"2025-07-16","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"144679756","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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