Creator: Rotemberg, Julio Series: Lucas expectations anniversary conference Abstract:
I show that a simple sticky price model based on Rotemberg (1982) is consistent with a variety of facts concerning the correlation of prices, hours and output. In particular, I show that it is consistent with a negative correlation between the detrended levels of output and prices when the Beveridge-Nelson method is used to detrend both the price and output data. Such a correlation, i.e.,a negative correlation between the predictable movements in output and the predictable movements in prices is present (and very strong) in U.S. data. Consistent with the model, this correlation is stronger than correlations between prices and hours of work. I also study the size of the predictable price movements that are associated with predictable output movements as well as the degree to which there are predictable movements in monetary aggregates associated with predictable movements in output. These facts are used to shed light on the degree to which the Federal Reserve has pursued a policy designed to stabilize expected inflation.
Keyword: Output, Prices, Monetary policy, Inflation, and Federal Reserve Subject (JEL): E23 - Macroeconomics : Consumption, saving, production, employment, and investment - Production, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and E50 - Monetary policy, central banking, and the supply of money and credit - General
Creator: Persson, Torsten and Tabellini, Guido Enrico, 1956- Series: Conference on economics and politics Abstract:
Inspired by the current European developments, we study equilibrium fiscal policy under alternative constitutional arrangements in a "federation" of countries. There are two levels of government: local and federal. Local policy redistributes across individuals and affects the probability of aggregate shocks, while federal policy shares international risk. Policies are chosen under majority rule. There is a moral hazard problem: federal risk-sharing can induce the local governments to enact policies that increase local risk. We investigate this incentive problem under alternative fiscal constitutions. In particular, we contrast a vertically ordered system like the EC with a horizontally ordered federal system like the US. These alternative arrangements are not neutral, in the sense that they create different incentives for policymakers and voters, and give rise to different political equilibria. A general conclusion is that, centralization of functions and power can be welfare improving under appropriate institutions. However, this conclusion only applies to the moral hazard problem and a federation where the countries are not too dissimilar.
Keyword: Principal—agent models, Risk sharing, Politics, and Fiscal federalism Subject (JEL): D70 - Analysis of Collective Decision-Making: General, H10 - Structure and Scope of Government: General, and E60 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - General
Creator: İmrohoroǧlu, Selahattin Series: Macroeconomics with heterogenous agents, incomplete markets, liquidity constraints, and transaction costs Abstract:
This paper investigates the optimal tax structure in an overlapping generations model in which individuals face idiosyncratic income risk, borrowing constraints and lifetime uncertainty. The calibrated model economy produces some quantitative results that differ significantly from the findings of the previous research. The main finding in this imperfect insurance setup is that moving away from capital income taxation toward higher labor income taxation yields a (steady-state) welfare benefit of 1% of aggregate consumption compared with the 6% figure Lucas (1990) finds in an infinite-horizon, complete markets model. This is because replacing the tax on capital income with a higher tax on labor income redistributes resources away from the young working years during which borrowing constraints are more likely to bind. Furthermore, when the individuals have access to a private annuity market to insure against uncertain lifetimes, it becomes optimal to tax capital. When a consumption tax is made available, it is optimal to switch to consumption taxation. The welfare benefit from implementing this optimal plan is on the order of 1.5-3.2% of GNP.
Subject (JEL): H21 - Taxation, subsidies and revenue - Efficiency ; Optimal taxation and D52 - General equilibrium and disequilibrium - Incomplete markets
Creator: Huggett, Mark and Ospina, Sandra Series: Productivity and the industrial revolution Abstract:
A number of theoretical models of technology adoption have been proposed that emphasize technological switching, loss of expertise and subsequent technology-specific learning. These models imply that measured productivity may initially fall and then later rise after the adoption of a new technology. This paper investigates whether or not this implication is a feature of plant-level data from the Colombian manufacturing sector. We regress measures of productivity growth at the plant level on a plant-specific measure of technology adoption and its lagged values. We find that...
Keyword: Embodied, Productivity, Latin America, Manufacturing, South America, Technology, and Colombia Subject (JEL): D24 - Production and organizations - Production ; Cost ; Capital and total factor productivity ; Capacity, L60 - Industry Studies: Manufacturing: General, O14 - Economic development - Industrialization ; Manufacturing and service industries ; Choice of technology, and O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes
Creator: Coleman, Wilbur John Series: Nonlinear rational expectations modeling group Abstract:
A cash-in-advance constraint on consumption is incorporated into a standard model of consumption and capital accumulation. Monetary policy consists of lump-sum cash transfers. Methods are developed for establishing the existence and uniqueness of an equilibrium. and for explicitly constructing this equilibrium. The model economy's dependence on monetary policy is explored.
Also published in the International Finance Discussion Paper series, number 323.
Keyword: Planned Growth economy, Monetary Growth economy, and Equilibrium Subject (JEL): O42 - Economic growth and aggregate productivity - Monetary growth models, E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, O41 - One, Two, and Multisector Growth Models, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Bertola, Giuseppe Series: Economic growth and development Abstract:
This paper proposes a model of diversifiable uncertainty, irreversible investment decisions, and endogenous growth. The detailed microeconomic structure of the model makes it possible to study the. general equilibrium effects of obstacles to labor mobility, due to institutional as well as technological features of the economy. Labor mobility costs reduce private returns to investment, and the resulting slower rate of endogenous growth unambiguously lowers a representative individual's welfare. Turnover costs can have positive effects on full employment equilibrium wages when all external effects are disregarded: this may help explain why policy and institutions often tend to decrease labor mobility in reality, rather than to enhance it. Lower flexibility, however, reduces the growth rate of wages in endogenous growth equilibrium, with negative welfare effects even for agents who own only labor.
Subject (JEL): E25 - Aggregate Factor Income Distribution, E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital, and O41 - One, Two, and Multisector Growth Models