{"title":"On Differential Fertility and the Intergenerational Dynamics of Inequality","authors":"Francis Dennig, Bassel Tarbush","doi":"10.2139/ssrn.3926772","DOIUrl":"https://doi.org/10.2139/ssrn.3926772","url":null,"abstract":"We study the implications of differential fertility on cross-sectional inequality in a canonical model of the intergenerational transmission of capital. Our main theoretical result shows that, with differential fertility, there exist stable atomless steady state distributions of capital where there would be only degenerate steady states without differential fertility. We establish convergence results and derive a mathematical expression for these novel atomless steady states in terms of the primitives of the model, thus providing the tools to analytically study the implications on inequality that result from differential fertility within the standard family economics framework. We use our framework to extend existing comparative static results on the relationship between differential fertility and inequality, and to shed new light on the question of public versus private education by developing an intergenerational model with endogenous differential fertility in which there is a long run equity-efficiency trade-off in the choice of educational provision.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"229 ","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-09-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"114089490","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Harrodians and Kaleckians: A Suggested Reconciliation and Synthesis","authors":"M. Setterfield","doi":"10.2139/ssrn.3859512","DOIUrl":"https://doi.org/10.2139/ssrn.3859512","url":null,"abstract":"The Kaleckian and Harrodian approaches to growth frequently arrive at antagonistic<br>positions with respect to key issues in heterodox macrodynamics, including the treatment <br>of the rate of capacity utilization and the very nature of the long-run growth<br>process. Nevertheless, this paper is devoted to exploring the possibilities for reconciling <br>and even synthesizing these traditions. It does so by directly addressing three key<br>areas of dispute: the Keynesian stability condition; Harrodian instability; and the question <br>as to whether long-run growth is best conceived in terms of a stable steady state<br>or `corridor instability'. It is shown that reconciliation and even synthesis is possible<br>- the latter producing a `corridor within a corridor' conception of the growth process<br>in which the economy switches between Kaleckian and Harrodian dynamics depending<br>on the extent to which the rate of capacity utilization departs from its normal rate.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"24 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2021-06-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127728963","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Computing Time-Consistent Equilibria: A Perturbation Approach","authors":"Richard Dennis","doi":"10.2139/ssrn.3750528","DOIUrl":"https://doi.org/10.2139/ssrn.3750528","url":null,"abstract":"Time-consistency is a key feature of many important policy problems, such as those relating to optimal fiscal policy and optimal monetary policy. It is also important for private-sector decision-making through mechanisms such as quasi-hyperbolic discounting. These problems are generally solved using some form of projection method. The difficultly with projection methods is that their computational complexity increases rapidly with the number of state variables, limiting the sophistication of the models that can be solved. This paper develops a perturbation method for solving models with time-inconsistency that enables larger models to be more readily solved and analyzed. The method operates on a model’s (generalized) Euler equations; it does not require forming a quadratic approximation to household welfare and it does not require that the model’s steady state be efficient. We apply the method to several models featuring time-inconsistency and show that it exhibits good accuracy.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"98 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-17","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127237838","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Deep Learning: Solving HANC and HANK Models in the Absence of Krusell-Smith Aggregation","authors":"L. Maliar, Serguei Maliar","doi":"10.2139/ssrn.3758315","DOIUrl":"https://doi.org/10.2139/ssrn.3758315","url":null,"abstract":"Heterogeneous-agent neoclassical model (HANC) studied by Krusell and Smith (1998) has savings through capital. This model has a remarkable feature of approximate aggregation: the mean of wealth distribution can be accurately predicted with the mean of past wealth distribution. However, if savings are done through bonds, the HANC model does not have this feature (because the mean of bond holding is zero). We solve such model using deep learning solution method in which the decision function and price functions are approximated in terms of true state space of individual and aggregate state variables. The problem has high dimensionlaity (hundreds of state variables) and ill-conditioning but neural network reduces dimensionality and restore numerical stability. Our deep learning method delivers accurate and reliable solutions. We also show how to solve a heterogeneous-agent new Keynesian (HANK) model with savings through bonds and a zero lower bound on the nominal interest rate in the absence of Krusell and Smith (1998) aggregation.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"45 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-12","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"121984030","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Business Cycles as Collective Risk Fluctuations","authors":"Victor Olkhov","doi":"10.2139/ssrn.3745027","DOIUrl":"https://doi.org/10.2139/ssrn.3745027","url":null,"abstract":"We suggest use continuous numerical risk grades [0,1] of R for a single risk or the unit cube in Rn for n risks as the economic domain. We consider risk ratings of economic agents as their coordinates in the economic domain. Economic activity of agents, economic or other factors change agents risk ratings and that cause motion of agents in the economic domain. Aggregations of variables and transactions of individual agents in small volume of economic domain establish the continuous economic media approximation that describes collective variables, transactions and their flows in the economic domain as functions of risk coordinates. Any economic variable A(t,x) defines mean risk XA(t) as risk weighted by economic variable A(t,x). Collective flows of economic variables in bounded economic domain fluctuate from secure to risky area and back. These fluctuations of flows cause time oscillations of macroeconomic variables A(t) and their mean risks XA(t) in economic domain and are the origin of any business and credit cycles. We derive equations that describe evolution of collective variables, transactions and their flows in the economic domain. As illustration we present simple self-consistent equations of supply-demand cycles that describe fluctuations of supply, demand and their mean risks.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"21 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-08","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"131897000","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Specialization, Market Access and Real Income","authors":"Dominick Bartelme, Ting Lan, A. Levchenko","doi":"10.3386/w28274","DOIUrl":"https://doi.org/10.3386/w28274","url":null,"abstract":"This paper estimates the impact of external demand shocks on real income. Our empirical strategy is based on a first order approximation to a wide class of small open economy models that feature sector-level gravity in trade flows. The framework allows us to measure foreign shocks and characterize their impact on income in terms of reduced-form elasticities. We use machine learning techniques to group 4-digit manufacturing sectors into a smaller number of clusters, and show that the cluster-level elasticities of income with respect to foreign shocks can be estimated using high-dimensional statistical techniques. We find clear evidence of heterogeneity in the income responses to different foreign shocks. Foreign demand shocks in complex intermediate and capital goods have large positive impacts on real income, whereas impacts in other sectors are negligible. The estimates imply that the pattern of sectoral specialization plays a quantitatively large role in how foreign shocks affect real income, while geographic position plays a smaller role. Finally, a calibrated multi-sector production and trade model can rationalize both the average and the heterogeneity in real income elasticities to foreign shocks under reasonable values of structural parameters.<br><br>Institutional subscribers to the NBER working paper series, and residents of developing countries may download this paper without additional charge at <a href=\"http://www.nber.org/papers/w28274\" TARGET=\"_blank\">www.nber.org</a>.<br>","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"47 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"128440691","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Financial or Non-financial Shocks: Rivals That Play Together","authors":"Hamed Ghiaie","doi":"10.2139/ssrn.3605006","DOIUrl":"https://doi.org/10.2139/ssrn.3605006","url":null,"abstract":"\u0000 This paper estimates a model using Bayesian methods and data from the USA (1990Q1–2019Q2) to explore how the financial sector contributes to business cycles through banks’ asset channel and the quality of capital adequacy constraint. The paper shows that the contribution of financial and non-financial shocks varied before, during, and after the 2008 financial crisis; housing demand and asset price shocks are the main contributors, and the credit shocks are the most persistent. In addition, the paper presents the application of macroprudential tools, along with their impact on the economy in general, and on welfare in particular. The findings illustrate that the tools which control household borrowing ability, such as loan-to-value or debt-to-income ratios, do not impact welfare significantly. However, the impact of policies on the leveraged sector is substantial. The paper proposes macroprudential policies that allow policy-makers to stabilize the economy without changing welfare. Such policies, however, should be timely, targeted, and temporary; otherwise, they may cause disruptions.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"23 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-13","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"133227469","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Support for Small Businesses Amid COVID-19","authors":"C. Goodhart, D. Tsomocos, Xuan Wang","doi":"10.2139/ssrn.3646495","DOIUrl":"https://doi.org/10.2139/ssrn.3646495","url":null,"abstract":"A sizeable proportion of enterprises, especially SMEs, in receipt of financial assistance from the government, will fail to repay. In this paper we asked whether, and to what extent, it may be beneficial to apply a screening mechanism to deter those mostly likely to fail to repay from seeking such financial assistance in the first place. The answer largely turns on the relative weights attached for the objectives of stabilisation as compared with allocative efficiency. For this purpose, we develop a two-sector infinite horizon model featuring oligopolistic small businesses and a screening contract in the presence of a pandemic shock with asymmetric information. The adversely affected sector with private information can apply for government loans to reopen businesses once the pandemic has passed. First, we show that a pro-allocation government sets a harsh default sanction to deter entrepreneurs with bad projects from reentering and improves aggregate productivity in the long run, but the economy suffers persistent unemployment in the near term. However, a pro-stabilisation government sets a lenient default sanction or provides full guarantees to reach full employment in the short term, but the economy will be shifted to a lower equilibrium in the long run. The optimal default sanction balances the trade-off between allocation and stabilisation. Then, we derive an analytic measure of \"Stabilisation Proclivity\" and characterise the parameter space and the macro-financial frictions that render the government either more pro-allocation or more pro-stabilisation. Finally, we solve for the optimal default sanction numerically and conducts comparative statics for various policy analyses.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"55 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-07-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"127122544","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Implementing the Commitment Solution via Discretionary Policy-Making","authors":"Volker Hahn","doi":"10.2139/ssrn.3549448","DOIUrl":"https://doi.org/10.2139/ssrn.3549448","url":null,"abstract":"\u0000 This paper demonstrates that, in a large class of linear-quadratic models with rational expectations, losses due to time-inconsistency problems can be avoided, as the commitment solution can be implemented by a policy-maker who acts under discretion. We focus on two approaches. First, we show that a non-Markovian, reputational equilibrium that implements the commitment solution always exists. Second, we show how delegation to a policy-maker with an additional objective for the policy instrument can be used to implement the commitment solution via a standard discretionary Markov equilibrium. Implementation is facilitated by the fact that the commitment outcome can be attained irrespective of the weight that the policy-maker assigns to the additional target. Using the standard new Keynesian model as an example, we study the dynamics of the economy under optimal additional output targets as well as optimal interest-rate targets for central banks.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"17 4","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-06-19","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"113974596","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Aggregate Elasticity of Substitution between Skills: Estimates from a Macroeconomic Approach","authors":"Michał Jerzmanowski, Robert Tamura","doi":"10.2139/ssrn.3614518","DOIUrl":"https://doi.org/10.2139/ssrn.3614518","url":null,"abstract":"\u0000 We estimate the elasticity of substitution between high-skill and low-skill workers using panel data from 32 countries during 1970–2015. Most existing estimates, which are based only on US microdata, find a value close to 1.6. We bring international data together with a theory-informed macro-approach to provide new evidence on this important macroeconomic parameter. Using the macro-approach, we find that the elasticity of substitution between tertiary-educated workers and those with lower education levels falls between 1.7 and 2.6, which is higher than previous estimates but within a plausible range. In some specifications, estimated elasticity is above the value required for strong skill-bias of technology, suggesting strong skill-bias is possible.","PeriodicalId":123778,"journal":{"name":"ERN: Theoretical Dynamic Models (Topic)","volume":"33 1","pages":"0"},"PeriodicalIF":0.0,"publicationDate":"2020-05-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"132663466","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":0,"RegionCategory":"","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
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