Creator: Duncan, George T. and Lin, Lizbie Gee-Sun Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 000 描述:
This paper was published with no issue number.
关键词: Time series and Entry and exit 学科: C12 - Hypothesis Testing: General and C32 - Multiple or Simultaneous Equation Models: Time-Series Models; Dynamic Quantile Regressions; Dynamic Treatment Effect Models; Diffusion Processes; State Space Models
Creator: Geweke, John and Keane, Michael P. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 237 Abstract:
This paper generalizes the normal probit model of dichotomous choice by introducing mixtures of normals distributions for the disturbance term. By mixing on both the mean and variance parameters and by increasing the number of distributions in the mixture these models effectively remove the normality assumption and are much closer to semiparametric models. When a Bayesian approach is taken, there is an exact finite-sample distribution theory for the choice probability conditional on the covariates. The paper uses artificial data to show how posterior odds ratios can discriminate between normal and nonnormal distributions in probit models. The method is also applied to female labor force participation decisions in a sample with 1,555 observations from the PSID. In this application, Bayes factors strongly favor mixture of normals probit models over the conventional probit model, and the most favored models have mixtures of four normal distributions for the disturbance term.
关键词: Normal mixture, Discrete choice, and Markov chain Monte Carlo 学科: C11 - Bayesian Analysis: General and C25 - Single Equation Models; Single Variables: Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
Creator: Christiano, Lawrence J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 415 Abstract:
This article studies the accuracy of two versions of Kydland and Prescott's (1980, 1982) procedure for approximating optimal decision rules in problems in which the objective fails to be quadratic and the constraints fail to be linear. The analysis is carried out using a version of the Brock-Mirman (1972) model of optimal economic growth. Although the model is not linear quadratic, its solution can nevertheless be computed with arbitrary accuracy using a variant of existing value-function iteration procedures. I find the Kydland-Prescott approximate decision rules are very similar to those implied by value-function iteration.
关键词: Production function, Optimization, Growth model, Markov chain, State space, and Decision rule 学科: C40 - Econometric and Statistical Methods: Special Topics: General
Creator: Geweke, John and Petrella, Lea Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 553 Abstract:
This paper provides a general and efficient method for computing density ratio class bounds on posterior moments, given the output of a posterior simulator. It shows how density ratio class bounds for posterior odds ratios may be formed in many situations, also on the basis of posterior simulator output. The computational method is used to provide density ratio class bounds in two econometric models. It is found that the exact bounds are approximated poorly by their asymptotic approximation, when the posterior distribution of the function of interest is skewed. It is also found that posterior odds ratios display substantial variation within the density ratio class, in ways that cannot be anticipated by the asymptotic approximation.
关键词: Bayesian inference, Markov-chain Monte Carlo, Normal mixture, and Probit model 学科: C11 - Bayesian Analysis: General and C63 - Computational Techniques; Simulation Modeling
Creator: Geweke, John Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 192 Abstract:
This is a survey of simulation methods in economics, with a specific focus on integration problems. It describes acceptance methods, importance sampling procedures, and Markov chain Monte Carlo methods for simulation from univariate and multivariate distributions and their application to the approximation of integrals. The exposition gives emphasis to combinations of different approaches and assessment of the accuracy of numerical approximations to integrals and expectations. The survey illustrates these procedures with applications to simulation and integration problems in economics.
Creator: Geweke, John Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 532 Abstract:
This paper integrates and extends some recent computational advances in Bayesian inference with the objective of more fully realizing the Bayesian promise of coherent inference and model comparison in economics. It combines Markov chain Monte Carlo and independence Monte Carlo with importance sampling to provide an efficient and generic method for updating posterior distributions. It exploits the multiplicative decomposition of marginalized likelihood into predictive factors, to compute posterior odds ratios efficiently and with minimal further investment in software. It argues for the use of predictive odds ratios in model comparison in economics. Finally, it suggests procedures for public reporting that will enable remote clients to conveniently modify priors, form posterior expectations of their own functions of interest, and update the posterior distribution with new observations. A series of examples explores the practicality and efficiency of these methods.
This paper was prepared for the inaugural Colin Clark Lecture, Australasian Meetings of the Econometric Society, July 1994.
关键词: Computation, Model comparison, Bayesian inference, and Econometric modeling 学科: C53 - Forecasting Models; Simulation Methods and C11 - Bayesian Analysis: General
Creator: Fernandez-Villaverde, Jesus and Rubio-Ramírez, Juan Francisco Series: Joint committee on business and financial analysis Abstract:
This paper presents a method to perform likelihood-based inference in nonlinear dynamic equilibrium economies. This type of models has become a standard tool in quantitative economics. However, existing literature has been forced so far to use moment procedures or linearization techniques to estimate these models. This situation is unsatisfactory: moment procedures suffer from strong small samples biases and linearization depends crucially on the shape of the true policy functions, possibly leading to erroneous answers. We propose the use of Sequential Monte Carlo methods to evaluate the likelihood function implied by the model. Then we can perform likelihood-based inference, either searching for a maximum (Quasi-Maximum Likelihood Estimation) or simulating the posterior using a Markov Chain Monte Carlo algorithm (Bayesian Estimation). We can also compare different models even if they are nonnested and misspecified. To perform classical model selection, we follow Vuong (1989) and use the Kullback-Leibler distance to build Likelihood Ratio Tests. To perform Bayesian model comparison, we build Bayes factors. As an application, we estimate the stochastic neoclassical growth model.
关键词: Sequential Monte Carlo methods, Nonlinear filtering, Dynamic equilibrium economies, and Likelihood-based inference 学科: C11 - Bayesian Analysis: General, C10 - Econometric and Statistical Methods and Methodology: General, C13 - Estimation: General, and C15 - Statistical Simulation Methods: General
Creator: Schulhofer-Wohl, Sam Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 462 Abstract:
This appendix contains seven sections. Section A reports results from running regressions of labor earnings on GDP using data from the PSID, for comparison with the results using HRS data in the body of the paper. Section B examines the relationship between family income, aggregate shocks, and risk preferences in the PSID. Section C gives technical details on the Markov Chain Monte Carlo estimation employed in table 1 of the paper and reports the complete parameter estimates for the regressions summarized in that table. Section D reports results when the relationship between earnings and aggregate shocks is estimated with individual-specific coecients rather than common coecients for each risk-tolerance group. Section E reports results comparable to table 1 of the paper and table D.1 of this appendix using only Social Security covered earnings instead of the combination of Social Security and W-2 earnings. Section F reports robustness checks for tables 2 and 3 of the paper under alternative definitions of the household and the consumption and income variables. Section G reports robustness checks for tables 2 and 3 under an alternative definition of the leisure variable.
关键词: Heterogeneity, Imperfect insurance, Risk preferences, and Risk sharing 学科: E21 - Macroeconomics : Consumption, saving, production, employment, and investment - Consumption ; Saving ; Wealth and E24 - Macroeconomics : Consumption, saving, production, employment, and investment - Employment ; Unemployment ; Wages ; Intergenerational income distribution ; Aggregate human capital
Creator: Geweke, John Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 540 Abstract:
The reduced rank regression model arises repeatedly in theoretical and applied econometrics. To date the only general treatment of this model have been frequentist. This paper develops general methods for Bayesian inference with noninformative reference priors in this model, based on a Markov chain sampling algorithm, and procedures for obtaining predictive odds ratios for regression models with different ranks. These methods are used to obtain evidence on the number of factors in a capital asset pricing model.
关键词: Factor model, Capital asset pricing model, and Predictive odds 学科: C11 - Bayesian Analysis: General and C15 - Statistical Simulation Methods: General
Creator: Todd, Richard M. Series: Business analysis committee meeting 描述:
Version without Software Appendix appears on the Federal Reserve Bank of Minneapolis Web site at http://www.minneapolisfed.org/publications_papers/pub_display.cfm?id=571
关键词: BVAR, Vector autoregression, and Bayesian analysis 学科: C53 - Econometric modeling - Forecasting and other model applications
Creator: Ostroy, Joseph M. and Potter, Simon M. Series: Finance, fluctuations, and development Abstract:
We formulate a representative consumer model of intertemporal resource reallocation in which fluctuations in equity prices contribute to the smoothing of consumption flows. Features of the model include (a) an incompletely observable stochastic process of productivity shocks leading to fluctuating confidence of beliefs and (b) technologies involving commitments of a resource good. These features are exploited to show that (1) equities are not a representative form of total wealth and (2) the valuation of currently active firms is not representative of the valuation of all firms. We examine the implications of (1) and (2) to argue that empirical findings for the volatility and 'value shortfall' of equity prices may be consistent with a frictionless representative consumer model having a low degree of risk-aversion. Simulation of a calibrated version of the model for a risk-neutral consumer shows that when the 'data' is analyzed according to current econometric procedures, it is found to exhibit volatility of the same order of magnitude as that found in the actual data, although the model contains no excess volatility.
关键词: Technological commitments, Equity premium, Uncertainty of beliefs, Excess volatility, and Value shortfall 学科: G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates, E44 - Money and interest rates - Financial markets and the macroeconomy, G14 - General financial markets - Information and market efficiency ; Event studies, and E13 - General aggregative models - Neoclassical
Creator: Mendoza, Enrique G., 1963- and Smith, Katherine A. Series: Advances in dynamic economics Abstract:
"Sudden Stops " experienced during emerging markets crises are characterized by large reversals of capital inflows and the current account, deep recessions, and collapses in asset prices. This paper proposes an open-economy equilibrium asset pricing model in which financial frictions cause Sudden Stops. Margin requirements impose a collateral constraint on foreign borrowing by domestic agents and trading costs distort asset trading by foreign securities firms. At equilibrium, margin constraints may or may not bind depending on portfolio decisions and equilibrium asset prices. If margin constraints do not bind, productivity shocks cause a moderate fall in consumption and a widening current account deficit. If debt is high relative to asset holdings, the same productivity shocks trigger margin calls forcing domestic agents to fire-sell equity to foreign traders. This sets off a Fisherian asset-price deflation and subsequent rounds of margin calls. A current account reversal and a collapse in consumption occur when equity sales cannot prevent a sharp rise in net foreign assets.
关键词: Collateral constraints, Fisherian deflation, Emerging markets, Margin calls, Open economy asset pricing, Asset pricing, Sudden stops, Nonlinear dynamics, and Trading costs 学科: F32 - International finance - Current account adjustment ; Short-term capital movements, D52 - General equilibrium and disequilibrium - Incomplete markets, E44 - Money and interest rates - Financial markets and the macroeconomy, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics
Creator: Den Haan, Wouter J., 1962- Series: Macroeconomics with heterogenous agents, incomplete markets, liquidity constraints, and transaction costs Abstract:
This paper is part of a project to model the interaction between heterogeneous agents in intertemporal stochastic models and to develop numerical algorithms to solve these kind of models. It is well-known that solving dynamic heterogeneous agent models is a challenging problem, since in these models the distribution of wealth and other characteristics evolve endogenously over time. Existing dynamic models in the literature contain therefore just two agents or other simplifying assumptions to limit the heterogeneity.
学科: D52 - General equilibrium and disequilibrium - Incomplete markets and C63 - Mathematical methods and programming - Computational techniques ; Simulation modeling
Creator: Stutzer, Michael J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 140 Abstract:
The qualitative dynamics of a discrete time version of a deterministic, continuous time, nonlinear macro model formulated by Haavelmo are fully characterized. The methods of symbolic dynamics and ergodic theory are shown to provide a simple, effective means of analyzing the behavior of the resulting one-parameter family of first-order, deterministic, nonlinear difference equations. A complex periodic and random "aperiodic" orbit structure dependent on a key structural parameter is present, which contrasts with the total absence of such complexity in Haavelmo's continuous time version. Several implications for dynamic economic modelling are discussed.
关键词: Symbolic dynamics, Continuous time model, and Erdogic theory 学科: E10 - General Aggregative Models: General and C01 - Econometrics
Creator: Hopenhayn, Hugo Andres and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 374 Abstract:
The existence of fixed points for monotone maps on spaces of measures is established. The case of monotone Markov processes is analyzed and a uniqueness and global stability condition is developed. A comparative statics result is presented and the problem of approximation to the invariant distribution is discussed. The conditions of the theorems are verified for the cases of Optimal Stochastic Growth and Industry Equilibrium.
关键词: Stochastic dynamic programming, Stochastic growth theory, Monotone functions, Investment theory, Stationay distributions, and Fixed points 学科: C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Geweke, John Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 526 关键词: Econometrics, Monte Carlo, and Simulation 学科: C15 - Statistical Simulation Methods: General and C63 - Computational Techniques; Simulation Modeling
Creator: Chari, V. V., Kehoe, Patrick J., and McGrattan, Ellen R. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 619_1 描述:
Technical appendix for Working Paper 619, https://doi.org/10.21034/wp.619
Creator: Zhang, Yuzhe Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 639 Abstract:
This paper studies the stability of a stochastic optimal growth economy introduced by Brock and Mirman [J. Econ. Theory 4 (1972)] by utilizing stochastic monotonicity in a dynamic system. The construction of two boundary distributions leads to a new method of studying systems with non-compact state space. The paper shows the existence of a unique invariant distribution. It also shows the equivalence between the stability and the uniqueness of the invariant distribution in this dynamic system.
关键词: Monotonic operator, Stochastic dominance, Stochastic growth, and Global stability 学科: O41 - One, Two, and Multisector Growth Models, C62 - Existence and Stability Conditions of Equilibrium, and C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Bianchi, Javier, Hatchondo, Juan Carlos, and Martinez, Leonardo Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 735 Abstract:
We study the optimal accumulation of international reserves in a quantitative model of sovereign default with long-term debt and a risk-free asset. Keeping higher levels of reserves provides a hedge against rollover risk, but this is costly because using reserves to pay down debt allows the government to reduce sovereign spreads. Our model, parameterized to mimic salient features of a typical emerging economy, can account for a significant fraction of the holdings of international reserves, and the larger accumulation of both debt and reserves in periods of low spreads and high income. We also show that income windfalls, improved policy frameworks, larger contingent liabilities, and an increase in the importance of rollover risk imply increases in the optimal holdings of reserves that are consistent with the upward trend in reserves in emerging economies. It is essential for our results that debt maturity exceeds one period.
关键词: Safe assets, Rollover risk, Sovereign default, and International reserves 学科: F32 - Current Account Adjustment; Short-term Capital Movements, F41 - Open Economy Macroeconomics, and F34 - International Lending and Debt Problems
Creator: Lagos, Ricardo and Zhang, Shengxing Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 734 Abstract:
We provide empirical evidence of a novel liquidity-based transmission mechanism through which monetary policy influences asset markets, develop a model of this mechanism, and assess the ability of the quantitative theory to match the evidence.
关键词: Liquidity, Monetary transmission, Monetary policy, and Asset prices 学科: G12 - Asset Pricing; Trading Volume; Bond Interest Rates, D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness, and E52 - Monetary Policy
Creator: Chodorow-Reich, Gabriel and Karabarbounis, Loukas Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 733 Abstract:
By how much does an extension of unemployment benefits affect macroeconomic outcomes such as unemployment? Answering this question is challenging because U.S. law extends benefits for states experiencing high unemployment. We use data revisions to decompose the variation in the duration of benefits into the part coming from actual differences in economic conditions and the part coming from measurement error in the real-time data used to determine benefit extensions. Using only the variation coming from measurement error, we find that benefit extensions have a limited influence on state-level macroeconomic outcomes. We use our estimates to quantify the effects of the increase in the duration of benefits during the Great Recession and find that they increased the unemployment rate by at most 0.3 percentage point.
关键词: Unemployment, Unemployment insurance, and Measurement error 学科: E62 - Fiscal Policy, J64 - Unemployment: Models, Duration, Incidence, and Job Search, J65 - Unemployment Insurance; Severance Pay; Plant Closings, and E24 - Employment; Unemployment; Wages; Intergenerational Income Distribution; Aggregate Human Capital; Aggregate Labor Productivity
Creator: Kaplan, Greg and Schulhofer-Wohl, Sam Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 725 Abstract:
This appendix contains eight sections. Section 1 gives technical details of how we calculate standard errors in the CPS data. Section 2 discusses changes in the ACS procedures before 2005. Section 3 examines demographic and economic patterns in migration over the past two decades, in more detail than in the main paper. Section 4 examines the cross-sectional variance of location-occupation interactions in earnings when we define locations by MSAs instead of states. Section 5 describes alternative methods to estimate the variance of location-occupation interactions in income. Section 6 measures the segregation of industries across states and of occupations and industries across MSAs. Section 7 gives technical details on the use of SIPP and census data to calculate repeat and return migration rates. Section 8 discusses transition dynamics in the model.
关键词: Gross flows, Labor mobility, Information technology, Interstate migration, and Learning 学科: R12 - Size and Spatial Distributions of Regional Economic Activity, J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J11 - Demographic Trends, Macroeconomic Effects, and Forecasts, J61 - Geographic Labor Mobility; Immigrant Workers, R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics, and D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Creator: Lepetyuk, Vadym and Stoltenberg, Christian Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 705 Abstract:
The rise in within-group consumption inequality in response to the increase in within-group income inequality over the last three decades in the U.S. is puzzling to expected-utility-based incomplete market models. The two-sided lack of commitment models exhibit too little consumption inequality while the standard incomplete markets models tend to predict too much consumption inequality. We show that a model with two-sided lack of commitment and chance attitudes, as emphasized by prospect theory, can explain the relationship and can avoid the systematic bias of the expected utility models. The chance attitudes, such as optimism and pessimism, imply that the households attribute a higher weight to high and low outcomes compared to their objective probabilities. For realistic values of risk aversion and of chance attitudes, the incentives for households to share the idiosyncratic risk decrease. The latter effect endogenously amplifies the increase in consumption inequality relative to the expected utility model, thereby improving the fit to the data.
关键词: Risk sharing, Prospect theory, Limited enforcement, and Consumption inequality 学科: D31 - Personal Income, Wealth, and Their Distributions, E21 - Macroeconomics: Consumption; Saving; Wealth, and D52 - Incomplete Markets
Creator: Kaplan, Greg and Schulhofer-Wohl, Sam Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 697 Abstract:
We analyze the secular decline in interstate migration in the United States between 1991 and 2011. Gross flows of people across states are about 10 times larger than net flows, yet have declined by around 50 percent over the past 20 years. We argue that the fall in migration is due to a decline in the geographic specificity of returns to occupations, together with an increase in workers’ ability to learn about other locations before moving there, through information technology and inexpensive travel. These explanations find support in micro data on the distribution of earnings and occupations across space and on rates of repeat migration. Other explanations, including compositional changes, regional changes, and the rise in real incomes, do not fit the data. We develop a model to formalize the geographic-specificity and information mechanisms and show that a calibrated version is consistent with cross-sectional and time-series patterns of migration, occupations, and incomes. Our mechanisms can explain at least one-third and possibly all of the decline in gross migration since 1991.
关键词: Gross flows, Labor mobility, Information technology, Learning, and Interstate migration 学科: R12 - Size and Spatial Distributions of Regional Economic Activity, J24 - Human Capital; Skills; Occupational Choice; Labor Productivity, J11 - Demographic Trends, Macroeconomic Effects, and Forecasts, J61 - Geographic Labor Mobility; Immigrant Workers, R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics: Regional Migration; Regional Labor Markets; Population; Neighborhood Characteristics, and D83 - Search; Learning; Information and Knowledge; Communication; Belief; Unawareness
Creator: Glover, Andrew, Heathcote, Jonathan, Krueger, Dirk, and Ríos-Rull, José-Víctor Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 684 Abstract:
In this paper we construct a stochastic overlapping-generations general equilibrium model in which households are subject to aggregate shocks that affect both wages and asset prices. We use a calibrated version of the model to quantify how the welfare costs of severe recessions are distributed across different household age groups. The model predicts that younger cohorts fare better than older cohorts when the equilibrium decline in asset prices is large relative to the decline in wages, as observed in the data. Asset price declines hurt the old, who rely on asset sales to finance consumption, but benefit the young, who purchase assets at depressed prices. In our preferred calibration, asset prices decline more than twice as much as wages, consistent with the experience of the US economy in the Great Recession. A model recession is approximately welfare-neutral for households in the 20–29 age group, but translates into a large welfare loss of around 10% of lifetime consumption for households aged 70 and over.
关键词: Aggregate risk, Recessions, Overlapping generations, and Asset prices 学科: D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, D31 - Personal Income, Wealth, and Their Distributions, D58 - Computable and Other Applied General Equilibrium Models, and E21 - Macroeconomics: Consumption; Saving; Wealth
Creator: Kaplan, Greg Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 677 Abstract:
This paper uses an estimated structural model to argue that the option to move in and out of the parental home is an important insurance channel against labor market risk for youths who do not attend college. Using data from the NLSY97, I construct a new monthly panel of parent-youth coresidence outcomes and use it to document an empirical relationship between these movements and individual labor market events. The data is then used to estimate the parameters of a dynamic game between youths and their altruistic parents, featuring coresidence, labor supply and savings decisions. Parents can provide both monetary support through explicit financial transfers, and non-monetary support in the form of shared residence. To account for the data, two types of exogenous shocks are needed. Preference shocks are found to explain most of the cross-section of living arrangements, while labor market shocks account for individual movements in and out of the parental home. I use the model to show that coresidence is a valuable form of insurance, particularly for youths from poorer families. The option to live at home also helps to explain features of aggregate data for low-skilled young workers: their low savings rates and their relatively small consumption responses to labor market shocks. An important implication is that movements in and out of home can reduce the consumption smoothing benefits of social insurance programs.
学科: J01 - Labor Economics: General
Creator: Hosseini, Roozbeh, Jones, Larry E., and Shourideh, Ali Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 674 Abstract:
We use an extended Barro-Becker model of endogenous fertility, in which parents are heterogeneous in their labor productivity, to study the efficient degree of consumption inequality in the long run. In our environment a utilitarian planner allows for consumption inequality even when labor productivity is public information. We show that adding private information does not alter this result. We also show that the informationally constrained optimal insurance contract has a resetting property—whenever a family line experiences the highest shock, the continuation utility of each child is reset to a (high) level that is independent of history. This implies that there is a non-trivial, stationary distribution over continuation utilities and there is no mass at misery. The novelty of our approach is that the no-immiseration result is achieved without requiring that the objectives of the planner and the private agents disagree. Because there is no discrepancy between planner and private agents' objectives, the policy implications for implementation of the efficient allocation differ from previous results in the literature. Two examples of these are: 1) estate taxes are positive and 2) there are positive taxes on family size.
学科: H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, D30 - Distribution: General, D63 - Equity, Justice, Inequality, and Other Normative Criteria and Measurement, D64 - Altruism; Philanthropy; Intergenerational Transfer, H23 - Taxation and Subsidies: Externalities; Redistributive Effects; Environmental Taxes and Subsidies, H43 - Project Evaluation; Social Discount Rate, and C61 - Optimization Techniques; Programming Models; Dynamic Analysis
Creator: Ales, Laurence and Maziero, Pricila Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 663 Abstract:
We study the quantitative properties of constrained efficient allocations in an environment where risk sharing is limited by the presence of private information. We consider a life cycle version of a standard Mirrlees economy where shocks to labor productivity have a component that is public information and one that is private information. The presence of private shocks has important implications for the age profiles of consumption and income. First, they introduce an endogenous dispersion of continuation utilities. As a result, consumption inequality rises with age even if the variance of the shocks does not. Second, they introduce an endogenous rise of the distortion on the marginal rate of substitution between consumption and leisure over the life cycle. This is because, as agents age, the ability to properly provide incentives for work must become less and less tied to promises of benefits (through either increased leisure or consumption) in future periods. Both of these features are also present in the data. We look at the data through the lens of our model and estimate the fraction of labor productivity that is private information. We find that for the model and data to be consistent, a large fraction of shocks to labor productivities must be private information.
关键词: Risk sharing, Private information, and Consumption inequality 学科: D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, D11 - Consumer Economics: Theory, D58 - Computable and Other Applied General Equilibrium Models, D86 - Economics of Contract: Theory, and D82 - Asymmetric and Private Information; Mechanism Design
Creator: Kehoe, Patrick J. and Midrigan, Virgiliu Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 661 Abstract:
In the data, a large fraction of price changes are temporary. We provide a simple menu cost model which explicitly includes a motive for temporary price changes. We show that this simple model can account for the main regularities concerning temporary and permanent price changes. We use the model as a benchmark to evaluate existing shortcuts that do not explicitly model temporary price changes. One shortcut is to take the temporary changes out of the data and fit a simple Calvo model to it. If we do so prices change only every 50 weeks and the Calvo model overestimates the real effects of monetary shocks by almost 70%. A second shortcut is to leave the temporary changes in the data. If we do so prices change every 3 weeks and the Calvo model produces only 1/9 of the real effects of money as in our benchmark. We show that a simple Calvo model can generate the same real effects as our benchmark model if we set parameters so that prices change every 17 weeks.
学科: E12 - General Aggregative Models: Keynes; Keynesian; Post-Keynesian, E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General, and E58 - Central Banks and Their Policies
Creator: Cagetti, Marco and De Nardi, Mariacristina Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 632 Abstract:
Entrepreneurship is a key determinant of investment, saving, wealth holdings, and wealth inequality. We study the aggregate and the distributional effects of several tax reforms in a model that recognizes the key role played by the entrepreneurs, and that matches very well the extreme degree of wealth inequality observed in the U.S. data. We find that the effects of tax reforms on output and capital formation can be particularly large when they affect the majority of small and medium-size businesses, which face the most severe financial constraints, rather than a small number of big businesses. We show that the consequences of changes in the estate tax depend heavily on the size of its exemption level. The current effective estate tax system seems to insulate most of the businesses from the negative effects of estate taxation thus minimizing the aggregate costs of redistribution. Abolishing the current estate tax would generate a modest increase in wealth inequality and slightly reduce aggregate output. Decreasing progressivity of the income tax can generate large increases in output, as this stimulates entrepreneurial savings and capital formation, but at the cost of large increases in wealth concentration.
关键词: Wealth, Taxation, and Entrepreneurship 学科: D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, E21 - Macroeconomics: Consumption; Saving; Wealth, and H20 - Taxation, Subsidies, and Revenue: General
Creator: Alvarez, Fernando, 1964-, Atkeson, Andrew, and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 627 Abstract:
Time-varying risk is the primary force driving nominal interest rate differentials on currency-denominated bonds. This finding is an immediate implication of the fact that exchange rates are roughly random walks. We show that a general equilibrium monetary model with an endogenous source of risk variation—a variable degree of asset market segmentation—can produce key features of actual interest rates and exchange rates. The endogenous segmentation arises from a fixed cost for agents to exchange money for assets. As inflation varies, the benefit of asset market participation varies, and that changes the fraction of agents participating. These effects lead the risk premium to vary systematically with the level of inflation. Our model produces variation in the risk premium even though the fundamental shocks have constant conditional variances.
关键词: Time-varying conditional variances, Pricing kernel, Fama puzzle, Segmented markets, Forward premium anomaly, and Asset pricing-puzzle 学科: F31 - Foreign Exchange, F41 - Open Economy Macroeconomics, G15 - International Financial Markets, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, F30 - International Finance: General, and E43 - Interest Rates: Determination, Term Structure, and Effects
Creator: Cagetti, Marco and De Nardi, Mariacristina Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 620 Abstract:
Although the role of financial constraints on entrepreneurial choices has received considerable attention, the effects of these constraints on aggregate capital accumulation and wealth inequality are less known. Entrepreneurship is an important determinant of capital accumulation and wealth concentration and, conversely, the distribution of wealth affects entrepreneurial choices in presence of borrowing constraints. We construct a model that matches wealth inequality very well, both for entrepreneurs and non-entrepreneurs, and find that more restrictive borrowing constraints generate less wealth concentration, but also reduce average firm size, aggregate capital and the fraction of entrepreneurs. We also find that voluntary bequests are an important channel that allows some high-ability workers to establish or enlarge an entrepreneurial activity: with accidental bequests only, there would be fewer large firms, fewer entrepreneurs, and less aggregate capital, but also less wealth concentration.
关键词: Wealth, Inequality, Borrowing constraints, and Entrepreneurship 学科: E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General, H20 - Taxation, Subsidies, and Revenue: General, H32 - Fiscal Policies and Behavior of Economic Agents: Firm, and E21 - Macroeconomics: Consumption; Saving; Wealth
Creator: Livshits, Igor, MacGee, James C., and Tertilt, Michèle Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 617 Abstract:
American consumer bankruptcy provides for a Fresh Start through the discharge of a household’s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income. We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.
学科: D14 - Household Saving; Personal Finance, K35 - Personal Bankruptcy Law, and D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
Creator: Cooper, Russell and Ejarque, Joao Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 611 Abstract:
Evidence of the statistical significance of profits in Q regressions remains one of the principal findings in the empirical investment literature. This result is frequently taken to support the view that capital market imperfections are an important element for understanding investment. This paper challenges that conclusion. We argue that allowing the profit function at the firm level to be strictly concave, reflecting, for example, market power, is sufficient to replicate the Q theory based regression results in which profits are a significant factor determining investment. To be clear, our ability to replicate the existing results does not require the specification of any capital market imperfections. Thus the friction that explains the statistical significance of profits could be market power by sellers rather than capital market imperfections.
Creator: Ayres, João, Navarro, Gaston, Nicolini, Juan Pablo, and Teles, Pedro Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 757 Abstract:
We explore quantitatively the possibility of multiple equilibria in a model of sovereign debt crises. The source of multiplicity is the one identified by Calvo (1988). This type of multiplicity has been at the heart of the policy debate through the recent European sovereign debt crisis. Key for multiplicity in the model is a stochastic process for output featuring long periods of either high or low growth. We calibrate the output process in the model using data for the southern European countries that were exposed to the debt crisis. We find that expectations-driven sovereign debt crises are empirically plausible, but only in periods of stagnation. Multiplicity is state dependent: in periods of stagnation and for intermediate levels of debt, interest rates may be high for reasons unrelated to fundamentals.
关键词: Good and bad times, Multiplicity, Sovereign default, Self-fulfilling debt crises, and Stagnation 学科: E44 - Financial Markets and the Macroeconomy and F34 - International Lending and Debt Problems
Creator: Diaz, Antonia and Luengo-Prado, Maria José, 1972- Series: Advances in dynamic economics Abstract:
In most developed countries, housing receives preferential tax treatment relative to other assets. In particular (i) the housing services provided by owner-occupied housing (generally referred to as imputed rents) are untaxed and (ii) mortgage interest payments reduce taxable income. The potential economic distortions resulting from the unique treatment of housing may be substantial, especially in light of the fact that residential capital accounts for more than half of the assets in the U.S. In particular, this tax treatment distorts the households' portfolio composition, their saving rates and their tenure choice. In this paper we build a general equilibrium model populated by heterogeneous agents subject to idiosyncratic risk. We use this framework to quantitatively assess the macroeconomic and distributional distortions introduced by this preferential tax treatment. We also study the effects of alternative tax schemes which could correct the current system's bias.
学科: D58 - General equilibrium and disequilibrium - Computable and other applied general equilibrium models, H20 - Taxation, subsidies and revenue - General, and D31 - Distribution - Personal income, wealth, and their distributions
Creator: Gintis, Herbert Series: Monetary theory and financial intermediation Abstract:
This paper develops the Kiyotaki-Wright model of monetary general equilibrium in which trade is bilateral and enforced by requiring that transactions be quid pro quo, and studies which goods are chosen, and under what conditions, as media of exchange. We prove the existence of a rational expectations equilibrium in which agents' expectations concerning trading opportunities are realized in the present and all future periods. We also show that, exceptional cases aside, no rational expectations barter equilibrium exists; that an equilibrium generally supports multiple money goods; and that a fiat money (i.e., a good that is produced, has minimum storage costs, but is not consumed) cannot be traded in rational expectations equilibrium.
学科: C62 - Mathematical methods and programming - Existence and stability conditions of equilibrium and D51 - General equilibrium and disequilibrium - Exchange and production economies
Creator: Chen, Daphne, Guvenen, Fatih, Kambourov, Gueorgui, Kuruscu, Burhanettin, and Ocampo, Sergio Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 764 Abstract:
How does wealth taxation differ from capital income taxation? When the return on investment is equal across individuals, a well-known result is that the two tax systems are equivalent. Motivated by recent empirical evidence documenting persistent heterogeneity in rates of return across individuals, we revisit this question. With such heterogeneity, the two tax systems have opposite implications for both efficiency and inequality. Under capital income taxation, entrepreneurs who are more productive, and therefore generate more income, pay higher taxes. Under wealth taxation, entrepreneurs who have similar wealth levels pay similar taxes regardless of their productivity, which expands the tax base, shifts the tax burden toward unproductive entrepreneurs, and raises the savings rate of productive ones. This reallocation increases aggregate productivity and output. In the simulated model parameterized to match the US data, replacing the capital income tax with a wealth tax in a revenue-neutral fashion delivers a significantly higher average lifetime utility to a newborn (about 7.5% in consumption-equivalent terms). Turning to optimal taxation, the optimal wealth tax (OWT) in a stationary equilibrium is positive and yields even larger welfare gains. In contrast, the optimal capital income tax (OCIT) is negative—a subsidy—and large, and it delivers lower welfare gains than the wealth tax. Furthermore, the subsidy policy increases consumption inequality, whereas the wealth tax reduces it slightly. We also consider an extension that models the transition path and find that individuals who are alive at the time of the policy change, on average, would incur large welfare losses if the new policy is OCIT but would experience large welfare gains if the new policy is an OWT. We conclude that wealth taxation has the potential to raise productivity while simultaneously reducing consumption inequality.
关键词: Capital income tax, Wealth taxation, Wealth inequality, Power law models, and Rate of return heterogeneity 学科: E21 - Macroeconomics: Consumption; Saving; Wealth, H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, E22 - Investment; Capital; Intangible Capital; Capacity, and E62 - Fiscal Policy
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.
学科: E42 - Money and interest rates - Monetary systems ; Standards ; Regimes ; Government and the monetary system ; Payment systems and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates
Creator: Phelan, Christopher Series: Macroeconomics with heterogenous agents, incomplete markets, liquidity constraints, and transaction costs Abstract:
This paper considers the unobserved endowment economy of Green (1987) with a restriction that agents can walk away from insurance contracts at the beginning of any period and contract with another insurer (one-sided commitment). An equilibrium is derived characterized by a unique, market determined insurance contract with the property that agents never want to walk away from it. I show that trade (or insurance) still occurs and that a non-degenerate long-ran distribution of consumption exists.
学科: D82 - Information, knowledge, and uncertainty - Asymmetric and private information and D31 - Distribution - Personal income, wealth, and their distributions