Creator: Lacker, Jeffrey Malcolm. and Schreft, Stacey Lee Series: Monetary theory and financial intermediation Abstract:
We describe a stochastic economic environment in which the mix of money and trade credit used as means of payment is endogenous. The economy has an infinite horizon, spatial separation and a credit-related transaction cost, but no capital. We find that the equilibrium prices of arbitrary contingent claims to future currency differ from those from one-good cash-in-advance models. This anomaly is directly related to the endogeneity of the mix of media of exchange used. In particular, nominal interest rates affect the risk-free real rate of return. The model also has implications for some long-standing issues in monetary policy and for time series analysis using money and trade credit.
Fach: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates and E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems
Creator: İmrohoroglu, 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.
Fach: H21 - Taxation, subsidies and revenue - Efficiency ; Optimal taxation and D52 - General equilibrium and disequilibrium - Incomplete markets
Creator: Goodfriend, Marvin. and McDermott, John H. Series: Economic growth and development Abstract:
We explain how a long period of slow pre-industrial development triggers an Industrial Revolution that leads to modern balanced growth. Development in the preindustrial period is driven by increasing returns to specialization made possible by a growing population. Increasing access to specialized intermediate goods eventually makes fundamental technological innovation possible. Innovation initiates the Industrial Revolution, after which productivity grows endogenously regardless of population growth. Industrialization reconciles the crucial role of population early on with its weak relation to per capita product in developed economies. Faster population growth speeds early development, though if it results from a highly productive primitive technology, the consequences for development are ambiguous.
Stichwort: Growth and Industrial Revolution Fach: N10 - Macroeconomics and monetary economics ; Growth and fluctuations - General, international, or comparative and O11 - Economic development - Macroeconomic analyses of economic development
Creator: Grossman, Gene M. and Helpman, Elhanan. Series: International perspectives on debt, growth, and business cycles Abstract:
We construct a model of the product cycle featuring endogenous innovation and endogenous technology transfer. Competitive entrepreneurs in the North expend resources to bring out new products whenever expected present discounted value of future oligopoly profits exceeds current product development costs. Each Northern oligopolist continuously faces the risk that its product will be copied by a Southern imitator, at which time its profit stream will come to an end. In the South, competitive entrepreneurs may devote resources to learning the production processes that have been developed in the North. There too, costs (of reverse engineering) must be covered by a stream of operating profits. We study the determinants of the long-run rate of growth of the world economy, and the long-run rate of technological diffusion. We also provide an analysis of the effects of exogenous events and of public policy on relative wage rates in the two regions.
Stichwort: North-South trade, Product cycles, Imitation, Long-run growth, Technological change, and Innovation Fach: O33 - Technological change ; Research and development - Technological change : Choices and consequences ; Diffusion processes, F11 - Trade - Neoclassical models of trade, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Joint committee on business and financial analysis Abstract:
This paper proposes a simple method for guiding researchers in developing quantitative models of economic fluctuations. We show that a large class of models, including models with various frictions, are equivalent to a prototype growth model with time varying wedges that, at least on face value, look like time-varying productivity, labor taxes, and capital income taxes. We label the time varying wedges as efficiency wedges, labor wedges, and investment wedges. We use data to measure these wedges and then feed them back into the prototype growth model. We then assess the fraction of fluctuations accounted for by these wedges during the great depressions of the 1930s in the United States, Germany, and Canada. We find that the efficiency and labor wedges in combination account for essentially all of the declines and subsequent recoveries. Investment wedge plays at best a minor role.
Stichwort: Business cycle, Cycle, Economic fluctuations, Fluctuation, and Growth Fach: O41 - One, Two, and Multisector Growth Models, O47 - Economic growth and aggregate productivity - Measurement of economic growth ; Aggregate productivity ; Cross-country output convergence, and E32 - Prices, business fluctuations, and cycles - Business fluctuations ; Cycles
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.
Stichwort: Equilibrium, Planned Growth economy, and Monetary Growth economy Fach: E31 - Prices, business fluctuations, and cycles - Price level ; Inflation ; Deflation, O41 - One, Two, and Multisector Growth Models, O42 - Economic growth and aggregate productivity - Monetary growth models, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
Creator: Cole, Harold Linh, 1957- and Ohanian, Lee E. Series: Great depressions of the twentieth century Abstract:
There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate whether New Deal cartelization policies designed to limit competition among firms and increase labor bargaining power can account for the persistence of the Depression. We develop a model of the intraindustry bargaining process between labor and firms that occurred with these policies, and embed that model within a multi-sector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the post-1933 Depression. We also find that the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion.
Stichwort: New Deal, Great Depression, Competition, Cartels, Wages, and Collective bargaining Fach: D50 - General equilibrium and disequilibrium - General and J58 - Labor-management relations, trade unions, and collective bargaining - Public policy