Pub Date : 2025-10-10DOI: 10.1016/j.euroecorev.2025.105163
Prateek Arora , Dongwan Choo , Chenyue Hu
This paper investigates how bilateral economic linkages influence consumption synchronization across economies in response to idiosyncratic shocks. Using the US state-level data, we find the degree of bilateral consumption smoothing to decrease with geographic distance. To explain this fact, we develop an open economy DSGE model that incorporates trade, migration, and finance as channels of risk sharing subject to bilateral frictions that potentially covary with distance. Calibrated to the US data, this structural model enables us to examine interactions of different channels in general equilibrium and quantify their impacts on states’ consumption. Through counterfactual exercises, we find that turning off the three channels weakens consumption correlations across states in general, while trade is more effective than migration and financial channels in stabilizing consumption fluctuations.
{"title":"Spatial consumption risk sharing","authors":"Prateek Arora , Dongwan Choo , Chenyue Hu","doi":"10.1016/j.euroecorev.2025.105163","DOIUrl":"10.1016/j.euroecorev.2025.105163","url":null,"abstract":"<div><div>This paper investigates how bilateral economic linkages influence consumption synchronization across economies in response to idiosyncratic shocks. Using the US state-level data, we find the degree of bilateral consumption smoothing to decrease with geographic distance. To explain this fact, we develop an open economy DSGE model that incorporates trade, migration, and finance as channels of risk sharing subject to bilateral frictions that potentially covary with distance. Calibrated to the US data, this structural model enables us to examine interactions of different channels in general equilibrium and quantify their impacts on states’ consumption. Through counterfactual exercises, we find that turning off the three channels weakens consumption correlations across states in general, while trade is more effective than migration and financial channels in stabilizing consumption fluctuations.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105163"},"PeriodicalIF":2.4,"publicationDate":"2025-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145325956","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-10DOI: 10.1016/j.euroecorev.2025.105163
Prateek Arora , Dongwan Choo , Chenyue Hu
This paper investigates how bilateral economic linkages influence consumption synchronization across economies in response to idiosyncratic shocks. Using the US state-level data, we find the degree of bilateral consumption smoothing to decrease with geographic distance. To explain this fact, we develop an open economy DSGE model that incorporates trade, migration, and finance as channels of risk sharing subject to bilateral frictions that potentially covary with distance. Calibrated to the US data, this structural model enables us to examine interactions of different channels in general equilibrium and quantify their impacts on states’ consumption. Through counterfactual exercises, we find that turning off the three channels weakens consumption correlations across states in general, while trade is more effective than migration and financial channels in stabilizing consumption fluctuations.
{"title":"Spatial consumption risk sharing","authors":"Prateek Arora , Dongwan Choo , Chenyue Hu","doi":"10.1016/j.euroecorev.2025.105163","DOIUrl":"10.1016/j.euroecorev.2025.105163","url":null,"abstract":"<div><div>This paper investigates how bilateral economic linkages influence consumption synchronization across economies in response to idiosyncratic shocks. Using the US state-level data, we find the degree of bilateral consumption smoothing to decrease with geographic distance. To explain this fact, we develop an open economy DSGE model that incorporates trade, migration, and finance as channels of risk sharing subject to bilateral frictions that potentially covary with distance. Calibrated to the US data, this structural model enables us to examine interactions of different channels in general equilibrium and quantify their impacts on states’ consumption. Through counterfactual exercises, we find that turning off the three channels weakens consumption correlations across states in general, while trade is more effective than migration and financial channels in stabilizing consumption fluctuations.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105163"},"PeriodicalIF":2.4,"publicationDate":"2025-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145325829","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-10DOI: 10.1016/j.euroecorev.2025.105157
E. Accinelli , G. Giombini , H. Muñiz , L. Owen , L. Policardo , E.J. Sánchez Carrera
This paper analyzes the complex interactions between consumers, firms, and banks within an evolutionary game model to understand pathways to green sustainability or environmental traps. Our dynamic model examines how individual decisions – consumers choosing green or brown products, firms investing in eco-friendly technologies or paying environmental taxes, and banks offering preferential loan rates for green initiatives – influence broader outcomes. Our findings indicate that environmental traps emerge when there are no initial green consumers in the economy. A steady state in which all consumers, firms, and banks adopt green strategies arises when banks’ net gains from green consumers exceed the cost differential between green and brown firms. This cost differential is determined by the loans offered to each type of firm, weighted by their respective interest rates. Thus, if citizens show strong green preferences and monetary policy provides sufficiently preferential interest rates for green investments, the economy will eventually stabilize in green equilibrium, ensuring environmental sustainability. Numerical simulations support the analytical findings and demonstrate how different values of the model’s parameters can lead to an environmentally responsible economic system against environmental traps.
{"title":"On the game of going green: How do consumers, firms, and banks struggle to escape environmental traps?","authors":"E. Accinelli , G. Giombini , H. Muñiz , L. Owen , L. Policardo , E.J. Sánchez Carrera","doi":"10.1016/j.euroecorev.2025.105157","DOIUrl":"10.1016/j.euroecorev.2025.105157","url":null,"abstract":"<div><div>This paper analyzes the complex interactions between consumers, firms, and banks within an evolutionary game model to understand pathways to green sustainability or environmental traps. Our dynamic model examines how individual decisions – consumers choosing green or brown products, firms investing in eco-friendly technologies or paying environmental taxes, and banks offering preferential loan rates for green initiatives – influence broader outcomes. Our findings indicate that environmental traps emerge when there are no initial green consumers in the economy. A steady state in which all consumers, firms, and banks adopt green strategies arises when banks’ net gains from green consumers exceed the cost differential between green and brown firms. This cost differential is determined by the loans offered to each type of firm, weighted by their respective interest rates. Thus, if citizens show strong green preferences and monetary policy provides sufficiently preferential interest rates for green investments, the economy will eventually stabilize in green equilibrium, ensuring environmental sustainability. Numerical simulations support the analytical findings and demonstrate how different values of the model’s parameters can lead to an environmentally responsible economic system against environmental traps.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105157"},"PeriodicalIF":2.4,"publicationDate":"2025-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145325822","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-10DOI: 10.1016/j.euroecorev.2025.105157
E. Accinelli , G. Giombini , H. Muñiz , L. Owen , L. Policardo , E.J. Sánchez Carrera
This paper analyzes the complex interactions between consumers, firms, and banks within an evolutionary game model to understand pathways to green sustainability or environmental traps. Our dynamic model examines how individual decisions – consumers choosing green or brown products, firms investing in eco-friendly technologies or paying environmental taxes, and banks offering preferential loan rates for green initiatives – influence broader outcomes. Our findings indicate that environmental traps emerge when there are no initial green consumers in the economy. A steady state in which all consumers, firms, and banks adopt green strategies arises when banks’ net gains from green consumers exceed the cost differential between green and brown firms. This cost differential is determined by the loans offered to each type of firm, weighted by their respective interest rates. Thus, if citizens show strong green preferences and monetary policy provides sufficiently preferential interest rates for green investments, the economy will eventually stabilize in green equilibrium, ensuring environmental sustainability. Numerical simulations support the analytical findings and demonstrate how different values of the model’s parameters can lead to an environmentally responsible economic system against environmental traps.
{"title":"On the game of going green: How do consumers, firms, and banks struggle to escape environmental traps?","authors":"E. Accinelli , G. Giombini , H. Muñiz , L. Owen , L. Policardo , E.J. Sánchez Carrera","doi":"10.1016/j.euroecorev.2025.105157","DOIUrl":"10.1016/j.euroecorev.2025.105157","url":null,"abstract":"<div><div>This paper analyzes the complex interactions between consumers, firms, and banks within an evolutionary game model to understand pathways to green sustainability or environmental traps. Our dynamic model examines how individual decisions – consumers choosing green or brown products, firms investing in eco-friendly technologies or paying environmental taxes, and banks offering preferential loan rates for green initiatives – influence broader outcomes. Our findings indicate that environmental traps emerge when there are no initial green consumers in the economy. A steady state in which all consumers, firms, and banks adopt green strategies arises when banks’ net gains from green consumers exceed the cost differential between green and brown firms. This cost differential is determined by the loans offered to each type of firm, weighted by their respective interest rates. Thus, if citizens show strong green preferences and monetary policy provides sufficiently preferential interest rates for green investments, the economy will eventually stabilize in green equilibrium, ensuring environmental sustainability. Numerical simulations support the analytical findings and demonstrate how different values of the model’s parameters can lead to an environmentally responsible economic system against environmental traps.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105157"},"PeriodicalIF":2.4,"publicationDate":"2025-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145325824","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-10DOI: 10.1016/j.euroecorev.2025.105149
Stefan Bach , Charlotte Bartels , Theresa Neef
This paper estimates and analyzes the distribution and composition of pre-tax national income in Germany since reunification, combining personal income tax returns, household survey data, and national accounts. We find that pre-tax national income inequality has increased since the 1990s, though to a lesser extent than suggested by previous studies. Our results draw parallels in top income structure and concentration to the United States: Half of the top 1% earners are non-corporate business owners in labor-intensive professions contrasting with corporate top incomes in France. Also the concentration of pre-tax national income in Germany is similar to the United States and higher than in France.
{"title":"The distribution of national income in Germany, 1992–2019","authors":"Stefan Bach , Charlotte Bartels , Theresa Neef","doi":"10.1016/j.euroecorev.2025.105149","DOIUrl":"10.1016/j.euroecorev.2025.105149","url":null,"abstract":"<div><div>This paper estimates and analyzes the distribution and composition of pre-tax national income in Germany since reunification, combining personal income tax returns, household survey data, and national accounts. We find that pre-tax national income inequality has increased since the 1990s, though to a lesser extent than suggested by previous studies. Our results draw parallels in top income structure and concentration to the United States: Half of the top 1% earners are non-corporate business owners in labor-intensive professions contrasting with corporate top incomes in France. Also the concentration of pre-tax national income in Germany is similar to the United States and higher than in France.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"181 ","pages":"Article 105149"},"PeriodicalIF":2.4,"publicationDate":"2025-10-10","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145419638","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What determines the stochastic path of inflation? We study this question in a monetary economy featuring imperfect information and rational expectations. The central bank targets inflation and releases noisy information about future non-monetary fundamentals through its non-systematic component. We show that real interest rate increases following such information releases lead the private sector to revise upward its expectations of future output — an outcome arising from “Fed information effects”. Through this channel, central bank communication influences market expectations about the economic outlook, adding further constraints to the equilibrium and ultimately determining the stochastic path of inflation. We propose a novel role for Fed information effects: their ability to serve as a mechanism for equilibrium selection.
{"title":"Controlling inflation with central bank news","authors":"Nikolaos Kokonas , Michalis Rousakis , Efthymios Smyrniotis","doi":"10.1016/j.euroecorev.2025.105176","DOIUrl":"10.1016/j.euroecorev.2025.105176","url":null,"abstract":"<div><div>What determines the stochastic path of inflation? We study this question in a monetary economy featuring imperfect information and rational expectations. The central bank targets inflation and releases noisy information about future non-monetary fundamentals through its non-systematic component. We show that real interest rate increases following such information releases lead the private sector to revise upward its expectations of future output — an outcome arising from “Fed information effects”. Through this channel, central bank communication influences market expectations about the economic outlook, adding further constraints to the equilibrium and ultimately determining the stochastic path of inflation. We propose a novel role for Fed information effects: their ability to serve as a mechanism for equilibrium selection.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105176"},"PeriodicalIF":2.4,"publicationDate":"2025-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145269448","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
What determines the stochastic path of inflation? We study this question in a monetary economy featuring imperfect information and rational expectations. The central bank targets inflation and releases noisy information about future non-monetary fundamentals through its non-systematic component. We show that real interest rate increases following such information releases lead the private sector to revise upward its expectations of future output — an outcome arising from “Fed information effects”. Through this channel, central bank communication influences market expectations about the economic outlook, adding further constraints to the equilibrium and ultimately determining the stochastic path of inflation. We propose a novel role for Fed information effects: their ability to serve as a mechanism for equilibrium selection.
{"title":"Controlling inflation with central bank news","authors":"Nikolaos Kokonas , Michalis Rousakis , Efthymios Smyrniotis","doi":"10.1016/j.euroecorev.2025.105176","DOIUrl":"10.1016/j.euroecorev.2025.105176","url":null,"abstract":"<div><div>What determines the stochastic path of inflation? We study this question in a monetary economy featuring imperfect information and rational expectations. The central bank targets inflation and releases noisy information about future non-monetary fundamentals through its non-systematic component. We show that real interest rate increases following such information releases lead the private sector to revise upward its expectations of future output — an outcome arising from “Fed information effects”. Through this channel, central bank communication influences market expectations about the economic outlook, adding further constraints to the equilibrium and ultimately determining the stochastic path of inflation. We propose a novel role for Fed information effects: their ability to serve as a mechanism for equilibrium selection.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105176"},"PeriodicalIF":2.4,"publicationDate":"2025-10-04","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145270090","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-03DOI: 10.1016/j.euroecorev.2025.105162
Paul Hufe , Martyna Kobus , Andreas Peichl , Paul Schüle
Is the United States still a land of opportunity? We provide new insights on this question by leveraging a novel approach that allows us to measure inequality of opportunity in the joint distribution of income and wealth. We show that inequality of opportunity in the US has increased by 58% from the cohort born in 1935 to the cohort of 1980. Increases are driven by a less opportunity-egalitarian income distribution for birth cohorts after 1950 and a less opportunity-egalitarian wealth distribution after 1960. Our findings suggest that the United States has consistently moved further away from a level playing field in recent decades.
{"title":"Multidimensional equality of opportunity in the United States","authors":"Paul Hufe , Martyna Kobus , Andreas Peichl , Paul Schüle","doi":"10.1016/j.euroecorev.2025.105162","DOIUrl":"10.1016/j.euroecorev.2025.105162","url":null,"abstract":"<div><div>Is the United States still a land of opportunity? We provide new insights on this question by leveraging a novel approach that allows us to measure inequality of opportunity in the joint distribution of income and wealth. We show that inequality of opportunity in the US has increased by 58% from the cohort born in 1935 to the cohort of 1980. Increases are driven by a less opportunity-egalitarian income distribution for birth cohorts after 1950 and a less opportunity-egalitarian wealth distribution after 1960. Our findings suggest that the United States has consistently moved further away from a level playing field in recent decades.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105162"},"PeriodicalIF":2.4,"publicationDate":"2025-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145270093","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-03DOI: 10.1016/j.euroecorev.2025.105162
Paul Hufe , Martyna Kobus , Andreas Peichl , Paul Schüle
Is the United States still a land of opportunity? We provide new insights on this question by leveraging a novel approach that allows us to measure inequality of opportunity in the joint distribution of income and wealth. We show that inequality of opportunity in the US has increased by 58% from the cohort born in 1935 to the cohort of 1980. Increases are driven by a less opportunity-egalitarian income distribution for birth cohorts after 1950 and a less opportunity-egalitarian wealth distribution after 1960. Our findings suggest that the United States has consistently moved further away from a level playing field in recent decades.
{"title":"Multidimensional equality of opportunity in the United States","authors":"Paul Hufe , Martyna Kobus , Andreas Peichl , Paul Schüle","doi":"10.1016/j.euroecorev.2025.105162","DOIUrl":"10.1016/j.euroecorev.2025.105162","url":null,"abstract":"<div><div>Is the United States still a land of opportunity? We provide new insights on this question by leveraging a novel approach that allows us to measure inequality of opportunity in the joint distribution of income and wealth. We show that inequality of opportunity in the US has increased by 58% from the cohort born in 1935 to the cohort of 1980. Increases are driven by a less opportunity-egalitarian income distribution for birth cohorts after 1950 and a less opportunity-egalitarian wealth distribution after 1960. Our findings suggest that the United States has consistently moved further away from a level playing field in recent decades.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105162"},"PeriodicalIF":2.4,"publicationDate":"2025-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145270095","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
Pub Date : 2025-10-03DOI: 10.1016/j.euroecorev.2025.105156
Renaud Foucart , Jonathan H.W. Tan , Zichen Zhao
We study the role of incentives in determining how individuals with high and low ability endogenously form teams with homogeneous or heterogeneous abilities. Standard incentives that reward the best-performing team (team incentives) or the best member of each team (individual incentives) consistently lead to the formation of homogeneous teams, even when socially inefficient. Conversely, equal sharing rules, which offer all members an identical share of total production, elicit optimal matching but are vulnerable to moral hazard. We show that hybrid incentives, which combine team and individual incentives, elicit optimal matching and are robust to moral hazard. We conduct two experimental studies showing that hybrid incentives produce significantly more optimal teams than standard incentives, though fewer than under equal sharing.
{"title":"Endogenous formation of optimal teams","authors":"Renaud Foucart , Jonathan H.W. Tan , Zichen Zhao","doi":"10.1016/j.euroecorev.2025.105156","DOIUrl":"10.1016/j.euroecorev.2025.105156","url":null,"abstract":"<div><div>We study the role of incentives in determining how individuals with high and low ability endogenously form teams with homogeneous or heterogeneous abilities. Standard incentives that reward the best-performing team (<em>team incentives</em>) or the best member of each team (<em>individual incentives</em>) consistently lead to the formation of homogeneous teams, even when socially inefficient. Conversely, <em>equal sharing</em> rules, which offer all members an identical share of total production, elicit optimal matching but are vulnerable to moral hazard. We show that <em>hybrid incentives</em>, which combine team and individual incentives, elicit optimal matching and are robust to moral hazard. We conduct two experimental studies showing that hybrid incentives produce significantly more optimal teams than standard incentives, though fewer than under equal sharing.</div></div>","PeriodicalId":48389,"journal":{"name":"European Economic Review","volume":"180 ","pages":"Article 105156"},"PeriodicalIF":2.4,"publicationDate":"2025-10-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"145270092","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":2,"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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