Published by De Gruyter

Volume 18 Issue 1

January 2018

Issue of The B.E. Journal of Macroeconomics

Contents
Journal Overview

Advances

Publicly Available May 30, 2017

Luxury consumption, precautionary savings and wealth inequality

Claudio Campanale

Article number: 20150196

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Abstract

Most macroeconomic models are based on the assumption of a single homogeneous consumption good. In the present paper we consider a model with two goods: a basic good and a luxury good. We then apply this assumption to a standard general equilibrium heterogeneous agent model. We find a substantial reduction in precautionary savings compared to a standard model. The effect on wealth inequality turns out to be ambiguous and to depend on the size of the assumed earnings risk.

July 18, 2017

Unemployment insurance with limited commitment wage contracts and savings

Rigas Oikonomou

Article number: 20140162

Abstract

I present a model of optimal contracts between firms and workers, under limited commitment and with worker savings. In the model, firms provide insurance against unemployment through targeting a frontloaded path of wages which encourages wealth accumulation. I provide analytical results characterising the wage and savings schedules and the path of consumption during employment and unemployment. I then consider how unemployment benefits affect risk sharing through private markets. I find that benefits should be frontloaded; the government has the incentive to drive the allocation to the point where the firm’s participation constraint binds. At this point wages are equal to productivity in every period, wealth exceeds the buffer stock level, and consumption and savings drop over time. The drop in the level of consumption during unemployment is mitigated. Finally, I compare the optimal contract model to the standard heterogeneous agent model whereby wealth is utilized for self-insurance purposes. I show that the two models are equivalent under the optimal UI policy.

June 6, 2017

The marriage unemployment gap

Sekyu Choi, Arnau Valladares-Esteban

Article number: 20160060

Abstract

In this paper we document that married individuals face a lower unemployment rate than their single counterparts. We refer to this phenomenon as the marriage unemployment gap. Despite dramatic demographic changes in the labor market over the last decades, this gap has been remarkably stable both for men and women. Using a flow-decomposition exercise, we assess which transition probabilities (across labor force states) are behind this phenomenon: For men, the main driver is the higher job losing probabilities faced by single workers. For females, the participation margin also plays a crucial role.

August 19, 2017

Fertility and labor supply of the old with pay-as-you-go pension and child allowances

Hung-Ju Chen, Koichi Miyazaki

Article number: 20160182

Abstract

We investigate the effects of pay-as-you-go pension and child allowances on fertility, labor supply of the old, and welfare. For this purpose, we analyze a small open overlapping-generations model in which fertility and an old agent’s labor supply (retirement time) are endogenized with pay-as-you-go pension and child allowances. We find that how the pay-as-you-go pension tax rate affects the fertility rate depends on whether an old agent retires. When an old agent fully retires, then the size of the interest rate and fertility rate determine the effect of the pay-as-you-go pension tax rate on the fertility rate. When an old agent works, the pay-as-you-go pension tax rate certainly reduces the fertility rate. In addition, how child allowances affect the fertility rate depends on whether an old agent works. If an old agent retires fully, then an increase in the child allowance tax rate increases the fertility rate. When an old agent works, this is not necessarily true, which suggests that an old agent’s labor status should be taken into account when we evaluate the effects of the social security system on economic variables. In addition, we examine the effect of the social security tax rates on welfare and provide numerical examples.

August 18, 2017

Optimal pensions in aging economies

Burkhard Heer

Article number: 20150166

Abstract

We derive the optimal replacement ratio of the pay-as-you-go public pension system for the US economy in a life-cycle model that 1) replicates the empirical wage heterogeneity and 2) endogenizes the individual’s labor supply decision. The optimal net pension replacement ratio is found to be in the range of 0%–43% depending on demographic parameters and, in particular, the Frisch labor supply elasticity. Reducing the pensions from the present to the optimal pension policies implies considerable welfare gains amounting to approximately 0.1%–4.1% of total consumption. The welfare increase is particularly pronounced for the greyer US population that is projected for the time after the demographic transition.

May 18, 2017

Estimating the New Keynesian Phillips Curve for the UK: evidence from the inflation-indexed bonds market

Hardik A. Marfatia

Article number: 20160005

Abstract

This paper utilizes the information in the inflation-indexed bonds market to estimate the New Keynesian Phillips Curve for the UK using an unobserved component approach. The main advantage of this approach comes from using the Kalman filter to explicitly estimate the unobserved expected inflation from the observed break-even inflation rates – the yield difference between the inflation-indexed bonds and the nominal bonds. Our results show that the expected inflation estimated from the unobserved component model plays a significant role in explaining the inflation dynamics in the UK. The evidence also suggests that the estimated inflation expectations are better able to capture the evolution of actual inflation process as compared to the break-even inflation rate as a proxy for expected inflation.

July 21, 2017

An empirical note on the long-run relationship between education and religiosity in Christian countries

Dierk Herzer

Article number: 20170062

Abstract

The economics of religion is a relatively new field of research in economics. This note examines whether and how permanent changes in religiosity, measured by church attendance, in the long run are affected by permanent changes in education, measured by three categories: primary, secondary, and tertiary education. Applying panel cointegration techniques to data from 20 Christian countries over the period 1925–1990, it is found that (i) only secondary education has a long-run relationship with religiosity, while there is no long-run relationship between religiosity and primary and tertiary education; (ii) secondary education has a strong negative long-run influence on religiosity; and (iii) long-run causality is unidirectional from secondary education to religiosity.

July 5, 2017

Accounting for changing returns to experience

Lutz Hendricks

Article number: 20150201

Abstract

Returns to experience for U.S. workers have changed over the post-war period. This paper argues that a simple model goes a long way towards replicating these changes. The model features three well-known ingredients: (i) an aggregate production function with constant skill-biased technical change; (ii) cohort qualities that vary with average years of schooling; and crucially (iii) time-invariant age-efficiency profiles. The model quantitatively accounts for changes in longitudinal and cross-sectional returns to experience, as well as the differential evolution of the college wage premium for young and old workers.

August 25, 2017

Development accounting with intermediate goods

Jan Grobovšek

Article number: 20160223

Abstract

I use a simple development accounting framework that distinguishes between goods and service industries on the one hand, and final and intermediate output on the other hand, to document the following facts. First, poorer countries are particularly inefficient in the production of intermediate relative to final output. Second, they are not necessarily inefficient in goods relative to service industries. Third, they present low measured labor productivity in goods industries because these are intensive intermediate users, and because their intermediate TFP is relatively low. Fourth, the elasticity of aggregate GDP with respect to sector-neutral TFP is large.

August 29, 2017

The post-crisis slump in Europe: a business cycle accounting analysis

Florian Gerth, Keisuke Otsu

Article number: 20160189

Abstract

This paper analyzes the post-crisis slump in 30 European economies during the 2008Q1–2014Q4 period using the business cycle accounting (BCA) method à la [Chari, V. V., P. Kehoe, and E. McGrattan. 2007. “Business Cycle Accounting.” Econometrica 75 (3): 781–836]. We find that the deterioration in the efficiency wedge is the most important driver of the European Great Recession and that this adverse shock persists throughout our sample. Moreover, we find that countries with higher growth in nonperforming loans feature a smaller decline in efficiency wedges. These findings support the emerging literature on resource misallocation triggered by financial crises.

September 4, 2017

Rational bubbles in a monetary economy

Ge Zhou

Article number: 20160242

Abstract

This study explores rational bubbles in a monetary economy using an endogenous growth model with status seeking. Rational bubbles may arise when the money growth rate is higher than some threshold level. In a bubbly economy, a higher money growth rate leads to a larger bubble size, while the monetary policy is super-neutral. However, in a bubbleless economy, the monetary policy is non-neutral. Based on a comparative analysis of the calibrated model, I argue that an optimal monetary policy that maximizes the social welfare of a bubbleless economy may trigger bubbles and hurt the economy.

October 11, 2017

Capital controls as a credit policy tool in a small open economy

Shigeto Kitano, Kenya Takaku

Article number: 20160231

Abstract

We develop a sticky price, small open economy model with financial frictions à la [Gertler, Mark, and Peter Karadi. 2011. “A Model of Unconventional Monetary Policy.” Journal of Monetary Economics 58 (1): 17–34.], in combination with liability dollarization. An agency problem between domestic financial intermediaries and foreign investors of emerging economies introduces financial frictions in the form of time-varying endogenous balance sheet constraints on the domestic financial intermediaries. We consider a shock that tightens the balance sheet constraint and show that capital controls, the effects of which are rigorously examined as a policy tool for the emerging economies, can be a credit policy tool to mitigate the negative shock.

September 15, 2017

Labor income share and imperfectly competitive product market

Hyein Shim, Chune Young Chung, Doojin Ryu

Article number: 20160188

Abstract

This study examines the long-run determinants of the income distribution between capital and labor in the Korean market, a leading emerging market. We develop a model of a special type of oligopolistic market, controlled by a group of dominant firms, and a general oligopolistic market, with heterogeneously sized firms. This model provides empirically testable implications related to the long-run determinants of the income distribution. Using two measures of the degree of market concentration, the k -firm concentration ratio (CR k ) and the Hirschman–Herfindahl index (HHI), we find a negative association between these concentration measures (CR k and HHI) and the labor income share. In addition, analyzing a unique dataset of manufacturing firms based on five- and three-digit Korean Standard Industry Classifications from 2000 to 2011, we find a significantly negative relationship between the labor income share and the market concentration, which is consistent with the implications of the model. Overall, our results suggest that building a more competitive product market environment could alleviate national income inequality.

December 27, 2017

Macroeconomic costs of gender gaps in a model with entrepreneurship and household production

David Cuberes, Marc Teignier

Article number: 20170031

Abstract

This paper examines the quantitative effects of gender gaps in entrepreneurship and workforce participation in an occupational choice model with a household sector and endogenous female labor supply. Gender gaps in workforce participation have a direct negative effect on market, while gender gaps in entrepreneurship affect negatively market output not only by reducing wages and labor force participation but also by reducing the average talent of entrepreneurs and aggregate productivity. We estimate the effects of these gender gaps for 37 European countries, as well as the United States, and find that gender gaps cause an average loss of 17.5% in market output and 13.2% in total output, which also includes household output. Interestingly, the total output loss would be similar (12%) in a model without household sector, since the market output loss is larger when the female labor supply is endogenous. Eastern Europe is the region with the lowest income fall due to gender gaps, while Southern Europe is the region with the largest fall. Northern Europe is the region with the largest productivity fall, which is due to the presence of high gender gaps in entrepreneurship.

Contributions

September 25, 2017

Comparing the effects of discretionary tax changes between the US and the UK

Syed M. Hussain, Lin Liu

Article number: 20160041

Abstract

The remarkable similarities of the effects of discretionary tax changes between the US and the UK, shown in (Cloyne, J. 2013. “Discretionary Tax Changes and the Macroeconomy: New Narrative Evidence from the United Kingdom. American Economic Review 103: 1507–1528.), raise the obvious concern whether the effects of tax changes at disaggregated levels in the UK still resemble those in the US. This paper investigates the issue along three dimensions – corporate and personal income tax changes, anticipated and unanticipated tax changes, and positive and negative tax changes. An important contribution of this paper is to construct a data set on exogenous changes of corporate and personal income taxes in the UK, identified from narrative sources along the lines of Cloyne (2013).

Erratum

Publicly Available January 6, 2018

Erratum to: Life-cycle consumption, precautionary saving, and risk sharing: an integrated analysis using household panel data

Seung C. Ahn, H. Youn Kim, Tong Hee Kang

Article number: 20165005

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About this journal

Objective
The B.E. Journal of Macroeconomics (BEJM) publishes significant research and scholarship in both theoretical and applied macroeconomics. The journal’s mandate is to assemble papers from the broad research spectrum covered by modern macroeconomics. The range of topics includes business cycle research, economic growth, and monetary economics, as well as topics drawn from the substantial areas of overlap between macroeconomics and international economics, labor economics, finance, development economics, political economy, public economics, and econometric theory.

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Political Economics
Macroeconomics
International economics
Labor economics
Finance
Development economics
Political economy
Public economics
Econometric theory

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