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Fiscal policy under secular stagnation: An optimal pump-priming strategy
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-04-03 DOI: 10.1016/j.jedc.2025.105097
Jean-Baptiste Michau
{"title":"Fiscal policy under secular stagnation: An optimal pump-priming strategy","authors":"Jean-Baptiste Michau","doi":"10.1016/j.jedc.2025.105097","DOIUrl":"10.1016/j.jedc.2025.105097","url":null,"abstract":"<div><div>How can a depressed economy escape a permanent liquidity trap, such as to restore full employment? This can be achieved through a temporary, but massive, fiscal stimulus to overheat the economy such as to raise the inflation anchor. Despite the substantial cost of overheating the economy, this pump-priming policy is typically optimal. The lack of fiscal space <em>cannot</em> prevent the government from pump priming the economy through fiscal policy.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105097"},"PeriodicalIF":1.9,"publicationDate":"2025-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143785164","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}
引用次数: 0
All models are wrong but all can be useful: Robust policy design using prediction pools
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-04-03 DOI: 10.1016/j.jedc.2025.105096
Szabolcs Deák , Paul Levine , Afrasiab Mirza , Joseph Pearlman
{"title":"All models are wrong but all can be useful: Robust policy design using prediction pools","authors":"Szabolcs Deák ,&nbsp;Paul Levine ,&nbsp;Afrasiab Mirza ,&nbsp;Joseph Pearlman","doi":"10.1016/j.jedc.2025.105096","DOIUrl":"10.1016/j.jedc.2025.105096","url":null,"abstract":"<div><div>We study the design of monetary policy rules robust to model uncertainty using a novel methodology. In our application, policymakers choose the optimal rule by attaching weights to a set of well-established DSGE models with varied financial frictions. The novelty of our methodology is to compute each model's weight based on their relative forecasting performance. Our results highlight the superiority of predictive pools over Bayesian model averaging and the need to combine models when none can be deemed as the true data generating process. In addition, we find that the optimal across-model robust policy rule exhibits attenuation, and nests a price level rule which has good robustness properties. Therefore, the application of our methodology offers a new rationale for price-level rules, namely the presence of uncertainty over the nature of financial frictions.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"176 ","pages":"Article 105096"},"PeriodicalIF":1.9,"publicationDate":"2025-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143817364","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}
引用次数: 0
Coinvestment games under uncertainty 不确定性下的共同投资博弈
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-04-03 DOI: 10.1016/j.jedc.2025.105098
Benoît Chevalier-Roignant , Stéphane Villeneuve , Fabien Delpech , May-Line Grapotte
{"title":"Coinvestment games under uncertainty","authors":"Benoît Chevalier-Roignant ,&nbsp;Stéphane Villeneuve ,&nbsp;Fabien Delpech ,&nbsp;May-Line Grapotte","doi":"10.1016/j.jedc.2025.105098","DOIUrl":"10.1016/j.jedc.2025.105098","url":null,"abstract":"<div><div>There are many business situations in which investments by a supplier and a producer (“coinvestments”) are both necessary for either of them to grasp a business opportunity. For instance, better quality tanks are needed to manufacture reliable hydrogen-powered vehicles. One of these two firms may be more willing to invest, but the cautionary attitude of the other delays the coinvestment. We model supply-chain interactions in a classical tractable way to derive the firms' net present values (NPVs) upon coinvestment and determine their Nash equilibrium investment (timing) strategies. Firms coinvest when the real option of the weaker firm is ‘deep in the money.’ These business situations are likely to be affected by evolving market circumstances, in particular due to changes in the demand dynamics or endogenous decision (by, say, the supplier) to conduct research and development (R&amp;D). We investigate related model extensions, which confirm the robustness of our key result.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105098"},"PeriodicalIF":1.9,"publicationDate":"2025-04-03","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143790902","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}
引用次数: 0
Sentiment-driven speculation in financial markets with heterogeneous beliefs: A machine learning approach
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-27 DOI: 10.1016/j.jedc.2025.105092
Tommaso Di Francesco , Cars Hommes
{"title":"Sentiment-driven speculation in financial markets with heterogeneous beliefs: A machine learning approach","authors":"Tommaso Di Francesco ,&nbsp;Cars Hommes","doi":"10.1016/j.jedc.2025.105092","DOIUrl":"10.1016/j.jedc.2025.105092","url":null,"abstract":"<div><div>We study an heterogenous asset pricing model in which different classes of investors coexist and evolve, switching among strategies over time according to a fitness measure. In the presence of boundedly rational agents, with biased forecasts and trend following rules, we study the effect of two types of speculation: one based on fundamentalist and the other on rational expectations. While the first is only based on knowledge of the asset underlying dynamics, the second takes also into account the behavior of other investors. We bring the model to data by estimating it on the Bitcoin Market with two contributions, relying on methods from Machine Learning. First, we construct the Bitcoin Twitter Sentiment Index (BiTSI) to proxy a time varying bias. Second, we propose a new method based on a Neural Network, for the estimation of the resulting heterogeneous agent model with rational speculators. We show that the switching finds support in the data and that while fundamentalist speculation amplifies volatility, rational speculation has a stabilizing effect on the market.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105092"},"PeriodicalIF":1.9,"publicationDate":"2025-03-27","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143746920","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}
引用次数: 0
Monetary policy, labor force participation, and wage rigidity
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-25 DOI: 10.1016/j.jedc.2025.105085
Yuto Iwasaki , Hiroyuki Kubota , Ichiro Muto , Mototsugu Shintani
{"title":"Monetary policy, labor force participation, and wage rigidity","authors":"Yuto Iwasaki ,&nbsp;Hiroyuki Kubota ,&nbsp;Ichiro Muto ,&nbsp;Mototsugu Shintani","doi":"10.1016/j.jedc.2025.105085","DOIUrl":"10.1016/j.jedc.2025.105085","url":null,"abstract":"<div><div>To understand the role of monetary policy in determining the labor force participation rate, we present empirical evidence for Japan and the US. The data suggests that labor force participation declines in Japan but temporarily increases in the US in response to a monetary tightening. To inspect the mechanism, we develop and estimate a New Keynesian model of endogenous labor force participation decisions incorporating wage rigidity. We find that the opposite response of labor force participation can be attributed to a difference in the degree of wage rigidity. Counterfactual analysis based on the estimated models shows that the large-scale monetary easing in recent years helped boost the labor force participation rate in Japan, while its effect was almost neutral in the US.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105085"},"PeriodicalIF":1.9,"publicationDate":"2025-03-25","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143785163","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}
引用次数: 0
Monetary policy and credit flows: A tale of two effective lower bounds
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-24 DOI: 10.1016/j.jedc.2025.105084
Timothy Bianco , Ana María Herrera
{"title":"Monetary policy and credit flows: A tale of two effective lower bounds","authors":"Timothy Bianco ,&nbsp;Ana María Herrera","doi":"10.1016/j.jedc.2025.105084","DOIUrl":"10.1016/j.jedc.2025.105084","url":null,"abstract":"<div><div>This paper evaluates the quantitative effects of monetary policy on credit flows. Using Compustat data and a factor-augmented vector autoregression where monetary policy shocks are identified via an external instrument, we show that monetary policy promotes long-term credit creation while delaying or preventing long-term credit destruction. In parallel, it reduces short-term credit creation and destruction, effectively reallocating credit toward longer maturities. Focusing on two effective lower bound periods, we show that monetary policy prompted a reshuffling of credit toward financially constrained firms, notably small, young, and high-default-probability firms. Our findings underscore the effectiveness of monetary policy in steering credit toward financially constrained firms and stimulating future economic activity near the effective lower bound.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"175 ","pages":"Article 105084"},"PeriodicalIF":1.9,"publicationDate":"2025-03-24","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143716314","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}
引用次数: 0
Robust algorithmic trading in a generalized lattice market 广义网格市场中的稳健算法交易
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-21 DOI: 10.1016/j.jedc.2025.105083
Chung-Han Hsieh , Xin-Yu Wang
{"title":"Robust algorithmic trading in a generalized lattice market","authors":"Chung-Han Hsieh ,&nbsp;Xin-Yu Wang","doi":"10.1016/j.jedc.2025.105083","DOIUrl":"10.1016/j.jedc.2025.105083","url":null,"abstract":"<div><div>This paper introduces a novel robust trading paradigm, called <em>multi-double linear policies</em>, within a <em>generalized</em> lattice market that incorporates serially correlated returns through a conditional probabilistic model as well as asset correlations. Our framework departs from existing discrete-time robust trading strategies, which are typically limited to single or paired assets and embed asset correlation within the trading strategy itself, rather than as an inherent market characteristic. In the nominal case, where model parameters are known, we demonstrate that the proposed policies ensure survivability and probabilistic positivity. We derive an analytic expression for the worst-case expected gain-loss and prove sufficient conditions under which the proposed policies can maintain <em>positive expected profits</em>, even within a seemingly nonprofitable symmetric lattice market. For unknown parameters requiring estimation, we show that the parameter space of the lattice model forms a convex polyhedron and present an efficient estimation method using a constrained least-squares approach. These theoretical findings are strengthened by extensive empirical studies using data from the top 30 companies within the S&amp;P 500 index, substantiating the effectiveness of the generalized model and the robustness of the proposed policies in sustaining the positive expected profit and providing downside risk protection.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"174 ","pages":"Article 105083"},"PeriodicalIF":1.9,"publicationDate":"2025-03-21","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143687602","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}
引用次数: 0
Dynamic labor demand and informality
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-20 DOI: 10.1016/j.jedc.2025.105082
Armela Mancellari
{"title":"Dynamic labor demand and informality","authors":"Armela Mancellari","doi":"10.1016/j.jedc.2025.105082","DOIUrl":"10.1016/j.jedc.2025.105082","url":null,"abstract":"<div><div>Formal firms across the size distribution face static and dynamic incentives to employ informal labor. In this paper, I explore the implications of these incentives for resource allocation within and across firms and for policies that address informality. I build and estimate a structural model in which firms employ informal labor to evade payroll taxes (a static incentive) and to avoid the adjustment costs incurred when hiring or firing formal workers (a dynamic incentive). Formal firms do not report informal labor in official data. I overcome this obstacle with a novel strategy that exploits a 2015 shock to the enforcement of Albanian tax laws to extract information about firms' use of informal labor which I use to estimate the model. I reach three conclusions. First, I show that the gains in allocative efficiency that accrue to better enforcement of labor laws are far more modest after accounting for firms' dynamic incentives to use informal labor to adjust to shocks. Second, failing to account for informal labor results in an overstatement of formal labor adjustment costs by a factor of two. Intuitively, firms use informal labor to avoid the cost of varying output, and thus the reported data understates variation in their actual use of labor. Third, I show that reducing the costs of rigidities in formal labor markets is as effective as enhanced enforcement in reducing the aggregate informal share of employment.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"174 ","pages":"Article 105082"},"PeriodicalIF":1.9,"publicationDate":"2025-03-20","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143688026","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}
引用次数: 0
Hidden information as a source of misallocation: An application to the opioid crisis
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-14 DOI: 10.1016/j.jedc.2025.105081
Bayarmaa Dalkhjav , Loris Rubini
{"title":"Hidden information as a source of misallocation: An application to the opioid crisis","authors":"Bayarmaa Dalkhjav ,&nbsp;Loris Rubini","doi":"10.1016/j.jedc.2025.105081","DOIUrl":"10.1016/j.jedc.2025.105081","url":null,"abstract":"<div><div>We develop a general equilibrium model where key employee information is hidden from managers, leading to a suboptimal allocation of resources. The health of the employees is not verifiable by managers, and an employee with poor health is less productive than a healthy one. We use this framework to study the loss of resources due to misallocation associated with the opioid crisis. Individuals with opioid use disorder are less productive and absent more often, which by itself generates output losses. In addition, since managers cannot distinguish unhealthy from healthy workers, wages differ from marginal productivity, creating a suboptimal allocation of resources. Calibrating the model to the U.S., we estimate that opioid misuse reduced output by $218.07 billion in 2023, with 12.4% of this loss attributable to misallocation.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"174 ","pages":"Article 105081"},"PeriodicalIF":1.9,"publicationDate":"2025-03-14","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143636340","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}
引用次数: 0
The role of international reserves in sovereign debt restructuring under fiscal adjustment
IF 1.9 3区 经济学
Journal of Economic Dynamics & Control Pub Date : 2025-03-06 DOI: 10.1016/j.jedc.2025.105080
Tiago Tavares
{"title":"The role of international reserves in sovereign debt restructuring under fiscal adjustment","authors":"Tiago Tavares","doi":"10.1016/j.jedc.2025.105080","DOIUrl":"10.1016/j.jedc.2025.105080","url":null,"abstract":"<div><div>Highly indebted developing economies commonly also hold large external reserves. This behavior seems puzzling given that governments borrow with an interest rate penalty to compensate lenders for default risk. Although reducing external debt to the same extent as international reserves would reduce the interest payment burden, reserves can have additional insurance benefits during default crises. Moreover, reserves can also be used to improve lenders recovery rates upon default, thus decreasing the interest rate penalty in non-defaulting times. A standard model of sovereign default risk, augmented with distortionary tax policies and debt restructuring, can replicate quantitatively the observed data patterns on external debt and reserves holdings.</div></div>","PeriodicalId":48314,"journal":{"name":"Journal of Economic Dynamics & Control","volume":"174 ","pages":"Article 105080"},"PeriodicalIF":1.9,"publicationDate":"2025-03-06","publicationTypes":"Journal Article","fieldsOfStudy":null,"isOpenAccess":false,"openAccessPdf":"","citationCount":null,"resultStr":null,"platform":"Semanticscholar","paperid":"143592416","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}
引用次数: 0
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