{"title":"The risk-premium channel of uncertainty: Implications for unemployment and inflation","authors":"Lukas B. Freund , Hanbaek Lee , Pontus Rendahl","doi":"10.1016/j.red.2022.12.002","DOIUrl":"https://doi.org/10.1016/j.red.2022.12.002","url":null,"abstract":"<div><p>This paper studies the role of macroeconomic uncertainty in a search-and-matching framework with risk-averse households. Heightened uncertainty about future productivity reduces current economic activity even in the absence of nominal rigidities. A risk-premium mechanism accounts for this result. As future asset prices become more volatile and covary more positively with aggregate consumption, the risk premium rises in the present. The associated downward pressure on current asset values lowers firm entry, making it harder for workers to find jobs and reducing the supply of goods. With nominal rigidities the recession is exacerbated, as a more uncertain future reinforces households' precautionary behavior, which causes demand to contract. Counterfactual analyses using a calibrated model imply that unemployment would rise by less than half as much absent the risk-premium channel. The presence of this mechanism implies that uncertainty shocks are less deflationary than regular demand shocks, nor can they be fully neutralized by monetary policy.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 117-137"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1094202522000655/pdfft?md5=f2fc5d8502334a2c9f3c558918cbe731&pid=1-s2.0-S1094202522000655-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138739247","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Rescue policies for small businesses in the COVID-19 recession","authors":"Alessandro Di Nola , Leo Kaas , Haomin Wang","doi":"10.1016/j.red.2023.06.003","DOIUrl":"10.1016/j.red.2023.06.003","url":null,"abstract":"<div><p>While the COVID-19 pandemic had a large and asymmetric impact on firms, many countries quickly enacted massive business rescue programs which are specifically targeted to smaller firms. Little is known about the effects of such policies on business entry and exit, investment, factor reallocation, and macroeconomic outcomes. This paper builds a general equilibrium model with heterogeneous and financially constrained firms in order to evaluate the short- and long-term consequences of small firm rescue programs in a pandemic recession. We calibrate the stationary equilibrium and the pandemic shock to the U.S. economy, taking into account the factual Paycheck Protection Program (PPP) as a specific policy. We find that the policy has only a modest impact on aggregate output and employment because (i) jobs are saved predominately in the smallest firms that account for a minor share of employment and (ii) the grant reduces the reallocation of resources towards larger and less impacted firms. Much of the reallocation effects occur in the aftermath of the pandemic episode. By preventing inefficient liquidations, the policy dampens the long-term declines of aggregate consumption and of the real wage, thus delivering small welfare gains.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 579-603"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"https://www.sciencedirect.com/science/article/pii/S1094202523000224/pdfft?md5=b388eb21a2fb0949abec3e701f90a524&pid=1-s2.0-S1094202523000224-main.pdf","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"85255310","PeriodicalName":null,"FirstCategoryId":null,"ListUrlMain":null,"RegionNum":3,"RegionCategory":"经济学","ArticlePicture":[],"TitleCN":null,"AbstractTextCN":null,"PMCID":"OA","EPubDate":null,"PubModel":null,"JCR":null,"JCRName":null,"Score":null,"Total":0}
{"title":"Optimal GDP-indexed bonds","authors":"Yasin Kürşat Önder","doi":"10.1016/j.red.2023.08.002","DOIUrl":"10.1016/j.red.2023.08.002","url":null,"abstract":"<div><p>I investigate the introduction of GDP-indexed bonds as an additional source of government borrowing in a quantitative default model. The idea of linking debt payments to developments in GDP resurfaced with the 1980s debt crisis and peaked with the COVID-19 outbreak. I show that the gains from this idea depend on the underlying indexation method and are highest if payments are symmetrically tied to developments in GDP. Optimized indexed debt can eradicate default risk, halve consumption volatility, and increase asset prices while raising the government's debt balances. These changes occur because an optimally chosen indexation method does a better job at completing the markets.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 747-777"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"78974358","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}
{"title":"Fiscal policy and the monetary transmission mechanism","authors":"Nicolas Caramp , Dejanir H. Silva","doi":"10.1016/j.red.2023.08.001","DOIUrl":"10.1016/j.red.2023.08.001","url":null,"abstract":"<div><p><span><span>The economy's response to monetary policy depends on its fiscal backing. We present a novel decomposition of the equilibrium that links the </span>wealth<span> effect, i.e. the revaluation of households' financial and human wealth, to the fiscal response to monetary policy. When monetary policy has fiscal consequences, monetary variables affect the timing of aggregate output while fiscal variables shape its present value and the wealth effect. Consequently, a contractionary monetary policy reduces </span></span>inflation only if followed by contractionary fiscal policy. The slope of the Phillips curve determines the importance of monetary-fiscal coordination for the effectiveness of monetary policy.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 716-746"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"90007164","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}
{"title":"Contract enforcement and preventive healthcare: Theory and evidence","authors":"Shiv Dixit","doi":"10.1016/j.red.2023.09.008","DOIUrl":"10.1016/j.red.2023.09.008","url":null,"abstract":"<div><p>I study how enforcement frictions in health insurance contracts determine the distribution of preventive care. I show that when contracts are weakly enforced, insurers underinvest in preventive care to perpetuate the need for insurance. This mechanism is self-enforcing, whereby low levels of prevention today breed low levels of prevention in the future. In contrast, I show that dynamic contracts that are perfectly enforced do not feature such history dependence. Leveraging these results, I devise a test to show that the hypothesis of limited commitment cannot be rejected in the data.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 1048-1094"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"134977991","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}
{"title":"Market uncertainty and international trade","authors":"Haichao Fan , Guangyu Nie , Zhiwei Xu","doi":"10.1016/j.red.2023.05.001","DOIUrl":"10.1016/j.red.2023.05.001","url":null,"abstract":"<div><p><span>We study the consequences of market uncertainty on international trade. An increase in foreign market uncertainty dampens China's aggregate exports on both the extensive and intensive margins. The adverse effects are more pronounced in </span>industries facing tighter financial constraints than in others. We propose a dynamic trade model to explain the facts. Greater uncertainty depresses a firm's expected value of exporting and borrowing capacity, leading to fewer exporters and smaller average size of exports. Under calibrated parameters, the uncertainty shock accounts for a sizable fraction of China's trade collapse in the 2008 financial crisis.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 450-478"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135658844","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}
Dario Bonciani , David Gauthier , Derrick Kanngiesser
{"title":"Slow recoveries, endogenous growth and macro-prudential policy","authors":"Dario Bonciani , David Gauthier , Derrick Kanngiesser","doi":"10.1016/j.red.2023.07.001","DOIUrl":"10.1016/j.red.2023.07.001","url":null,"abstract":"<div><p><span>Financial crises have severe short and long-term consequences. We develop a general equilibrium model with financial frictions and </span>endogenous growth<span> in which macro-prudential policy supports economic activity and productivity growth by strengthening the resilience of financial intermediaries to adverse shocks. The improved intermediation capacity of a safer financial system leads to a higher steady-state growth rate. The optimal capital ratio increases welfare by 8%, one order of magnitude more than in the case without endogenous growth.</span></p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 698-715"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"135409575","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}
{"title":"When to lock, not whom: Managing epidemics using time-based restrictions","authors":"Yinon Bar-On , Tatiana Baron , Ofer Cornfeld , Eran Yashiv","doi":"10.1016/j.red.2023.01.004","DOIUrl":"10.1016/j.red.2023.01.004","url":null,"abstract":"<div><p>We present novel policy tools to manage epidemics. Rather than using prevalent population restrictions, these policy strategies are based on cyclical time restrictions. Key findings on the outcomes of such policy strategies include: a significant improvement of social welfare, substantially lessening the trade-offs between economic activity and health outcomes; optimally-derived timings of interventions are shown to suppress the disease, while maintaining reasonable economic activity; and outcomes are superior to the actual experience of New York State and Florida over the course of 2020.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"51 ","pages":"Pages 292-321"},"PeriodicalIF":2.0,"publicationDate":"2023-12-01","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"74351677","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}
{"title":"Changing marital transitions and homeownership among young households","authors":"Minsu Chang","doi":"10.1016/j.red.2023.11.002","DOIUrl":"10.1016/j.red.2023.11.002","url":null,"abstract":"<div><p>This paper shows that the evolving likelihood of marriage and divorce is an important factor that helps account for the changes in homeownership rates among young single households and married couples from 1970 to the mid 1990s. To investigate potential mechanisms behind these observed changes, I develop and estimate a life-cycle model that incorporates housing decisions and age-dependent shocks associated with marriage and divorce. The findings indicate that the declined likelihood of marriage, along with increased returns on non-housing assets, helps generate the observed rise in homeownership among singles aged 25-44 years. Conversely, the increased likelihood of divorce, in addition to higher house prices<span> and labor market volatility, contributes to the decrease in homeownership among young couples.</span></p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"52 ","pages":"Pages 46-63"},"PeriodicalIF":2.0,"publicationDate":"2023-11-28","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138516127","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}
{"title":"Blocking patents, rent protection and economic growth","authors":"Michael A. Klein , Yibai Yang","doi":"10.1016/j.red.2023.11.003","DOIUrl":"https://doi.org/10.1016/j.red.2023.11.003","url":null,"abstract":"<div><p>We develop a Schumpeterian growth model to analyze the interaction between patent policy and firms' internal strategies to capture value from innovations. We consider two dimensions of patent policy: backward protection against imitation and forward protection, also known as blocking patents, against subsequent innovation that builds on a patented technology. Incumbent patent holders endogenously invest resources to protect their monopoly rents by impeding market entry of innovative competitors. We show that patent policy impacts economic growth through its influence on both the ex ante R&D incentives of potential innovators and the post-innovation rent protection incentives of incumbent firms. Most importantly, our analysis formalizes a novel growth-promoting role of forward protection; by guaranteeing previous innovators a share of future innovators' profits, forward protection reduces the incentive to actively obstruct follow-on innovations. We identify conditions under which the selective use of forward protection can stimulate economic growth through this mechanism.</p></div>","PeriodicalId":47890,"journal":{"name":"Review of Economic Dynamics","volume":"52 ","pages":"Pages 1-20"},"PeriodicalIF":2.0,"publicationDate":"2023-11-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"138466485","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}