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on Dynamic General Equilibrium |
| By: | Ruthira Naraidoo |
| Abstract: | Commodity-exporting economies, such as South Africa, are susceptible to wide fluctuations in their business cycles, closely tied to commodity price fluctuations. In this research, we develop a prototype dynamic stochastic general equilibrium (DSGE) model with specific features for emerging small open commodity-exporting economies, together with investigating the implications for monetary and fiscal policies following a commodity price shock. |
| Keywords: | Emerging markets, Commodity shocks, Monetary and fiscal policy |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:unu:wpaper:wp-2026-24 |
| By: | Paweł Kopiec |
| Abstract: | When central banks announce future interest rate cuts, the expected costs of servicing government debt decrease, freeing up additional resources in future budgets. This paper demonstrates that if the rational-expectations assumption is dropped, fiscal authority can exploit these savings by allocating them to future transfers. By announcing these transfers to households today, fiscal authorities can enhance the output effects of forward guidance. Employing a version of the New Keynesian setup with bounded rationality in the form of level-k thinking, I derive an analytical expression that captures the output effects of this additional fiscal announcement. A similar formula is then derived in a tractable heterogeneous agent New Keynesian model, incorporating bounded rationality, uninsured idiosyncratic risk, and targeted transfers. Finally, these analytical insights are used to investigate the effects of a forward-guidance-induced fiscal announcement in a fully-blown heterogeneous agent New Keynesian model with level-k thinking, calibrated to match U.S. data. The findings suggest that fiscal communication can amplify the output effects of standard one-year-ahaed forward guidance by 42%. Moreover, those gains can reach 85% when the debt-to-GDP ratio doubles. This indicates that forward guidance, when complemented by fiscal announcements regarding future transfers, can be an effective policy tool, particularly when both monetary and fiscal policies are constrained, such as during liquidity trap episodes accompanied by high levels of public debt. |
| Keywords: | Forward Guidance, Monetary Policy, Fiscal Policy, Heterogeneous Agents, Bounded Rationality |
| JEL: | D31 D52 D81 E21 E43 E52 E58 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025109 |
| By: | Adjemian, Stéphane; Juillard, Michel; Karamé, Fréderic; Mutschler, Willi; Pfeifer, Johannes; Ratto, Marco; Rion, Normann; Villemot, Sébastien |
| Abstract: | Dynare is a software platform for handling a wide class of economic models, in particular dynamic stochastic general equilibrium (DSGE), overlapping generations (OLG) models, heterogeneous agent models (HA) and semi-structural macroeconomic models. The models solved by Dynare include those relying on the rational expectations hypothesis, wherein agents form their expectations about the future in a way consistent with the model. But Dynare is also able to handle models where expectations are formed differently: on one extreme, models where agents perfectly anticipate the future; on the other extreme, models where agents have limited rationality or imperfect knowledge of the state of the economy and, hence, form their expectations through a learning process. Dynare offers a user-friendly and intuitive way of describing these models. It is able to perform simulations of the model given a calibration of the model parameters and is also able to estimate these parameters given a dataset. Dynare is a free software, which means that it can be downloaded free of charge, that its source code is freely available, and that it can be used for both non-profit and for-profit purposes. |
| Keywords: | Dynare; Numerical methods; Perturbation; Rational expectations |
| JEL: | C5 C6 C8 |
| Date: | 2026–03–19 |
| URL: | https://d.repec.org/n?u=RePEc:cpm:dynare:087 |
| By: | Marcin Bielecki; Michał Brzoza-Brzezina; Marcin Kolasa |
| Abstract: | How do business cycles redistribute between generations, what are the redistribution channels and what role is played by monetary policy? We construct a New-Keynesian life-cycle model and estimate it for the United States. Business cycles redistribute significantly: fluctuations impact welfare of some cohorts by an equivalent of 30% of annual consumption. These first-order effects do not net out over a typical life cycle: some cohorts have been much less lucky than others. Life cycle aspects also amplify second-order costs of fluctuations. Monetary policy shocks are highly redistributive and, hence play an over-proportional role in driving redistribution: they are responsible for over 20% of its total amount. Systematic monetary policy has a quantitatively significant impact on redistribution as well: policy that responds strongly to inflation and output can substantially increase intergenerational redistribution. |
| Keywords: | Business Cycles, Welfare Redistribution, Monetary Policy, Life-cycle Model |
| JEL: | E24 E32 E47 E52 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2026121 |
| By: | Amélie Barbier-Gauchard; Carlos Berrout-Amezaga; Thierry Betti |
| Abstract: | This paper studies how fiscal noise affects macroeconomic dynamics through the informational content of fiscal policy announcements. We develop a New Keynesian DSGE model in which government spending signals combine credible news with uninformative noise that agents cannot disentangle. In this environment, fiscal noise weakens anticipatory behavior by reducing the perceived credibility of future policy changes. As a result, households optimally adopt a wait-and-see approach, delaying consumption adjustments until implementation. The impact of a restrictive fiscal policy (through a reduction in public spending) is all the greater when the level of noise is high. In other words, the more unstable the political context, the more economic agents will distrust government announcements and underreact to any fiscal austerity measures, thus inducing a strong negative effect on output. Furthermore, the presence of non-Ricardian agents accentuates the recessionary effect of noise. |
| Keywords: | Fiscal multiplier, Political instability, News, Noise, DSGE |
| JEL: | D84 E62 E71 H31 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ulp:sbbeta:2026-10 |
| By: | Anienwe, Prince; Bhattarai, Keshab |
| Abstract: | A ten-equation Dynamic Stochastic General Equilibrium (DSGE) model is designed to capture household optimization, firm production decisions, environmental dynamics, and banking sector vulnerabilities during Net Zero Emission transition periods. It is calibrated to Polish macroeconomic data from 2000 to 2019 to evaluate various policy scenarios, including gradual versus rapid carbon tax implementation and different emission reduction targets. Results highlight critical trade-offs among environmental goals, economic stability, and financial system resilience. The analysis shows that Poland can reach its net-zero emissions target while maintaining macroeconomic stability through coordinated policy measures, with productivity gains generating positive spillovers across the economy. This study addresses significant gaps in environmental macroeconomic modelling for Central and Eastern European contexts, providing new insights for Poland's EU-mandated decarbonization policy while preserving economic and financial stability. |
| Keywords: | DSGE Modelling; Net-Zero Transition; Carbon Taxation; Environmental Policy; Macroeconomic Stability; Financial Stability |
| JEL: | C54 E6 O5 Q5 |
| Date: | 2026–01–13 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:127741 |
| By: | Magda Malec |
| Abstract: | Motivated by ongoing debates about the effectiveness of inheritance taxation in reducing wealth concentration—especially in contexts marked by strong family ties and rising wealth accumulation—this study employs an overlapping generations model calibrated to Polish data to investigate whether such policies truly mitigate inequality. By incorporating ex ante heterogeneity and human capital investment, I find that increasing inheritance taxes while lowering labor taxes fails to improve welfare or lessen inequality. Instead, these changes distort saving incentives, disproportionately lowering retirees’ incomes and intensifying disparities across generations. Although redistributing tax revenues can benefit certain groups, it ultimately widens inequalities between retirees and working-age households. These results underscore the need for careful policy design and question the political feasibility of inheritance taxation, suggesting that inheritance taxation alone is insufficient as a policy tool for narrowing inequality. |
| Keywords: | Inheritance taxation, Welfare analysis, OLG modelling |
| JEL: | D15 D64 H23 I38 D58 |
| Date: | 2024–12 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2024105 |
| By: | Gero Stiepelmann |
| Abstract: | Short-time work (STW) is a subsidy program linked to a reduction in working hours that has been widely used across Europe and partly used in some US states to combat job losses in the Great Recession and the COVID-19 pandemic. Although typically used alongside an unemployment insurance (UI) system, the interaction between STW and UI remains conceptually unclear. To close this gap in the literature, I develop a search and matching model of the labor market with risk-averse workers, flexible hours choice, endogenous separations, and generalized Nash bargaining. Deriving closed-form expressions for the optimal policy mix, I demonstrate that while the UI system provides income insurance to workers, the STW system mitigates the fiscal externality of UI-induced separations. Notably, STW only exists due to the UI system. Consistent with often observed policy practice, I allow the STW system to adjust over the business cycle while keeping the UI system constant. In line with the actual policy, my findings indicate that optimal STW benefits have to increase in recessions, while in contrast to the actual policy, optimal eligibility criteria have to be tightened. Using UI with an optimal STW system is fiscally less expensive than the UI system on its own. |
| Keywords: | Short-time work; unemployment insurance; optimal policy; labor markets; search and matching; business cycles |
| JEL: | E24 E32 H21 J63 J64 J65 |
| Date: | 2026–03–23 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedcwq:102917 |
| By: | Marcin Kolasa; Sahil Ravgotra; Pawel Zabczyk |
| Abstract: | We analyze the implications of adding boundedly rational agents a la Gabaix (2020) to the canonical New Keynesian open economy model. We show that accounting for myopia mitigates several ``puzzling" aspects of the relationship between exchange rates and interest rates and helps explain why some of them only arise in the nested case of rational expectations. Bayesian estimation of the model demonstrates that a high degree of ``cognitive discounting" significantly improves empirical fit. We also show that this form of bounded rationality makes positive international monetary spillovers more likely and exacerbates the unit root problem in small open economy models with incomplete markets. On the normative side, the model with behavioral agents provides arguments against using the exchange rate as a nominal anchor. |
| Keywords: | Monetary Policy, Exchange Rates, UIP Condition, Bounded Rationality |
| JEL: | F41 E70 E52 E58 G40 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025111 |
| By: | Guimarães, Luis; Lourenço, Diogo |
| Abstract: | Only a few of the eligible take up Unemployment Insurance (UI). Yet, the literature evaluating UI in macroeconomic settings typically assumes that take-up is costless and complete. We show that this assumption leads to an overestimation of UI’s net welfare gains in a general equilibrium model with incomplete markets. In fact, when we account for incomplete take-up, we find that the current UI program lowers welfare in the US. Take-up costs are key: they lower individual net gains from UI to the extent that they fail to outweigh the program’s aggregate distortions. Suitably reformed, UI could slightly increase welfare. A uniform transfer of about USD 500 for 14 months to UI recipients would discourage take-up among the better off, reducing distortions and take-up costs, and enhancing redistribution. |
| Keywords: | Unemployment Insurance; Take-up; Welfare; Take-up costs |
| JEL: | D52 E21 H24 J21 J64 J65 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:pra:mprapa:128341 |
| By: | Olympia Bover; Alessandro Ruggieri; Carlos Sanz; Yuliya Kulikova; Nezih Guner |
| Abstract: | Family-friendly policies aim to help women balance work and family life, encouraging them to participate in the labor market. How effective are such policies in increasing fertility? We answer this question using a search model of the labor market where firms make hiring, promotion, and firing decisions, taking into account how these decisions affect workers' fertility incentives and labor force participation decisions. We estimate the model using administrative data from Spain, a country with very low fertility and a highly regulated labor market. We use the model to study family-friendly policies and demonstrate that firms' reactions result in a trade-off: policies that increase fertility reduce women's participation in the labor market and lower their lifetime earnings. |
| Keywords: | family-friendly policies, fertility, flexibility, gender gaps, Human Capital Accumulation, search and matching, welfare |
| JEL: | E24 J08 J13 J18 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:bge:wpaper:1568 |
| By: | Shantanu Bagchi (Department of Economics, Towson University) |
| Abstract: | This paper uses a stylized overlapping-generations model to examine the effect of borrowing constraints on the economic implications of Social Security. In this framework, Social Security provides partial insurance against income risk that is uninsured due to incomplete markets. I find that when borrowing consistent with life cycle behavior is allowed in this framework, the micro- and macroeconomic effects of a downsizing in Social Security are considerably smaller than when borrowing is prohibited. I also find that the key mechanism behind this result is labor supply: with endogenous borrowing, households are able to exploit increasing labor productivity in early life to better self-insure against income risk. |
| Keywords: | Social Security, Borrowing constraint, Incomplete markets, Partial insurance, Labor supply. |
| JEL: | E21 G51 H55 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:tow:wpaper:2026-04 |
| By: | Michał Brzoza-Brzezina; Paweł Galiński; Makarski Krzysztof |
| Abstract: | We check how monetary and fiscal policies (in particular their open-economy dimensions) are affected by expectations being behavioral in the spirit of Gabaix (2020). We first show that the data strongly favor this setting compared with the standard rational expectations (RE) assumption. Then we document several novel findings. First, monetary policy is less powerful and faces a higher sacrifice ratio when agents are behavioral. Second, the Taylor principle is affected: determinacy regions are larger if the economy is more open or the central bank abroad is more hawkish. Third, fiscal policy and its international spillovers are amplified under behavioral expectations (BE). In contrast, the spillovers of monetary policy are dampened. Fourth, BE contribute to solving the puzzle of excess foreign currency returns (UIP puzzle). |
| Keywords: | behavioral agents, monetary and fiscal policy, open-economy model |
| JEL: | E30 E43 E52 E70 |
| Date: | 2025–03 |
| URL: | https://d.repec.org/n?u=RePEc:sgh:kaewps:2025110 |
| By: | Qingyin Ma; Xinxin Zhang |
| Abstract: | This paper studies optimal consumption and saving decisions under uncertainty about the transition dynamics of the economic environment. We consider a general optimal savings problem in which the exogenous state governing discounting, capital returns, and nonfinancial income follows a Markov process with unknown transition probability, and agents update their beliefs over time through Bayesian learning. Despite the added endogenous state from belief updating, we establish the existence, uniqueness, and key structural properties of the optimal policy, including monotonicity and concavity. We also develop an efficient computational method and use it to study how transition uncertainty and learning interact with precautionary motives and wealth accumulation, highlighting a dynamic mechanism through which uncertainty about regime persistence shapes consumption dynamics and long-run household wealth. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.08663 |
| By: | Hyeongwoo Kim (Department of Economics, Auburn University); Shuwei Zhang (Department of Economics, Towson University) |
| Abstract: | This paper investigates the design of optimal monetary policy responses to technology shocks in a two-country model framework featuring sticky prices and local currency pricing, where technology shocks propagate internationally. We demonstrate that technology shocks originating in the tradable sector, regardless of their country of origin, elicit monetary policy responses that are symmetric and closely aligned across countries, thereby providing a rationale for a fixed exchange rate regime. In contrast, technology shocks in the nontradable sector generate asymmetric policy reactions and weaken the source country's currency, supporting the case for exchange rate flexibility. In addition, the international transmission of technology shocks amplifies real-sector dynamics through news effects, prompting central banks to adopt contractionary policies, starkly contrasting with the findings of previous literature. |
| Keywords: | Sticky Price; Local Currency Pricing, Exchange Rate Regimes, Technology Diffusion, Interest Rate Rules. |
| JEL: | F31 F41 O0 E52 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:tow:wpaper:2026-03 |
| By: | Kazuharu Yanagimoto |
| Abstract: | This paper introduces a new factor contributing to the decline in marriage and fertility: the growth of leisure technology. Over recent decades, high-income countries have experienced two notable shifts in household and family dynamics. First, there has been a significant decline in marriage rates and fertility. Second, time has increasingly been allocated to leisure activities. This paper presents a unified model of marriage and fertility, incorporating intra-household bargaining dynamics. The model, calibrated using data from Japan between 2019 and 2023, is employed to assess the impact of leisure technology growth on marriage and fertility during 2005-2009. The findings highlight that leisure technology growth makes single life relatively more appealing compared to marriage and parenthood. The model explains 21.1% of the decline in marriage and 73.1% of the decrease in fertility. |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:arx:papers:2603.14758 |
| By: | Martín Rossi (Universidad de San Andrés) |
| Abstract: | Egg freezing relaxes the biological deadline associated with female fertility and is widely viewed as an empowering technology expected to increase lifetime fertility. This paper challenges that intuition. We develop a finite-horizon dynamic stopping model in which fertility initiation requires the simultaneous alignment of multiple, imperfectly persistent dimensions, including partnership quality, economic conditions, and personal readiness. Initiating childbearing is irreversible and occurs only when the joint realization of these evolving states exceeds an endogenous reservation threshold. By lowering the hazard of irreversible infertility, egg freezing increases the continuation value of waiting and raises this reservation standard. Individuals optimally become more selective. However, the technology insures only against biological decline, not against partnership instability or the tightening of other age-dependent constraints. When these dimensions do not improve with age, greater selectivity can delay initiation and reduce the probability of crossing the threshold within a finite horizon. As a result, relaxing the biological deadline can reduce fertility initiation and expected completed fertility in a non-empty region of parameters. We derive formal propositions and discuss empirical implications. |
| Keywords: | fertility;eggfreezing;dynamicdecision-making;familyformation |
| JEL: | J13 D91 I15 |
| Date: | 2026–02 |
| URL: | https://d.repec.org/n?u=RePEc:sad:wpaper:181 |
| By: | Federico Mandelman; Yang Yu; Francesco Zanetti |
| Abstract: | Immigration has become a central driver of U.S. labor force growth. We document new empirical findings that shed light on the relationships between immigration, labor shortages, wage growth, and job openings during the high-immigration period of 2021-2024. The textbook search-and-matching model implies highly counterfactual labor market dynamics: it predicts that a surge in immigration lowers hiring costs and stimulates vacancy posting, leaving labor market tightness and wages largely unchanged. This prediction contradicts the data, which shows a negative correlation between immigration and vacancy growth. To reconcile the evidence, we extend the framework to incorporate complementarities between native and immigrant workers together with a Leontief-type production technology that generates labor shortages similar to those observed in the post-pandemic period. In this environment, immigration alleviates these shortages by helping fill vacancies and dampening wage growth, consistent with the data. |
| Keywords: | immigration, labor shortages, search-and-matching models |
| JEL: | E24 E32 J63 J64 F22 |
| Date: | 2026 |
| URL: | https://d.repec.org/n?u=RePEc:ces:ceswps:_12546 |
| By: | Òscar Jordà; Fernanda Nechio; Toan Phan; Felipe Schwartzman |
| Abstract: | We show, both theoretically and empirically, that tight financial conditions shift investment toward cheaper but less energy-efficient capital. In a small open-economy model with vintage capital, higher financing costs reduce the present value of future energy savings, tilting firms’ choices along a cost efficiency frontier. Using 150 years of macroeconomic and energy data from 17 advanced economies, we find that tighter financial conditions reduce output, capital, and total energy consumption, but raise the amount of energy per unit of capital (energy intensity), a composition effect that persists for 6 to 8 years. Tight financial conditions lower energy use in the short run by depressing activity, but increase energy use in the medium run through worse energy efficiency. |
| Keywords: | energy efficiency; capital vintages; monetary policy; interest rates; local projections; small open economy |
| Date: | 2026–02–26 |
| URL: | https://d.repec.org/n?u=RePEc:fip:fedfwp:102910 |
| By: | Kirill Borissov (European University of St. Petersburg (EUSP)); Mikhail Pakhnin (University of the Balearic Islands, Spain); Ronald Wendner (University of Graz, Austria) |
| Abstract: | We analyze the effects of envy (relative consumption concerns), drawing on evidence that preferences exhibit present bias. We introduce present-biased envy, whereby naive agents compare their consumption to that of others only in the current period, into a Ramsey model in which agents differ in their initial capital endowments. Unlike permanent envy, present-biased envy generates the Matthew effect (the relatively rich become richer while the relatively poor become poorer) and eventually divides society into two classes. The initially wealthiest agents own the entire capital stock and the debts of others, while all other agents are in the maximum borrowing state. |
| Keywords: | Envy, Time inconsistency, Matthew effect, Wealth distribution, Sliding equilibrium, Ramsey conjecture |
| JEL: | D15 D31 D50 D91 O40 |
| Date: | 2026–03 |
| URL: | https://d.repec.org/n?u=RePEc:grz:wpaper:2026-01 |