Should the NEP-DGE blog also feature other material?

May 28, 2012

So far this blog has only highlighted one paper from each weekly issue of NEP-DGE. It could also feature more material relevant to the field.I am mainly thinking about calls for papers for conferences, but one could also imagine similar items of interest for those working in the field. In order to understand what the regular readers would like, I am conducting the poll features below. Please answer!

NB: A separate poll is conducted for the mailing list, and those on the mailing list have received the relevant link. This poll is for the blog only.


Should the NEP-DGE mailing list feature other material?

May 28, 2012

The NEP-DGE mailing list has been, for the past several years, entirely dedicated to the dissemination of the weekly NEP-DGE reports. It has currently over 900 subscribers who could also be interested in learning about other items relevant to the field. I have in particular calls for papers for conferences in mind, but other items of interest may come up. The poll below should help me establish what subscribers desire. Please answer!

NB: This poll is only for the mailing list, There is a separate poll for the blog.

Financial Constraints, Endogenous Markups, and Self-fulfilling Equilibria

May 25, 2012

By Jess Benhabib and Pengfei Wang

We show that self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan to output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks as well as serial autocorrelation in output growth rates.

Not only is it easy to generate self-fulfilling and multiple equilibria, they are also perfectly in line with important observations. And tghe basis is the financial accelerator model that has been used so much over the last two decades. Well, that was easy to answer all the critics…

Money is an Experience Good: Competition and Trust in the Private Provision of Money

May 20, 2012

By Ramon Marimon, Juan Pablo Nicolini and Pedro Teles

We study the interplay between competition and trust as efficiency-enhancing mechanisms in the private provision of money. With commitment, trust is automatically achieved and competition ensures efficiency. Without commitment, competition plays no role. Trust does play a role but requires a bound on efficiency. Stationary inflation must be non-negative and, therefore, the Friedman rule cannot be achieved. The quality of money can only be observed after its purchasing capacity is realized. In that sense money is an experience good.

Can the private provision of money work out better than the public one? This paper seems to indicate that the answer is no, unless there is full commitment by the issuer to preserve the future value of money or, in the absence of this commitment, that there is a very high level of trust in the issuer. If any of the two is lacking, even competition would not help. This is of special interest as it has often been argued that competition is what would keep private issuers from abusing their position.

Fiscal Multipliers in Recessions

May 11, 2012

By Matthew Canzoneri, Fabrice Collard, Harris Dellas and Behzad Diba

The Great Recession, and the fiscal response to it, has revived interest in the size of fiscal multipliers. Standard business cycle models have difficulties generating multipliers greater than one. And they also fail to produce any significant asymmetry in the size of the multipliers over the business cycle. In this paper we employ a variant of the Curdia-Woodford model of costly financial intermediation to show that fiscal multipliers are strongly countercyclical. In particular, they can take values exceeding two during recessions, declining to values below one during expansions.

State-dependent fiscal multipliers: now we are talking about the potential of substantial welfare gains to proactive fiscal policy, if you believe business cycles bear important welfare costs and fiscal policy can be enacted fast. The crucial aspect here is that financial frictions vary through the business cycle in plausible ways.

Estimating a Search and Matching Model of the Aggregate Labor Market in Japan

May 4, 2012

By Ching-Yang Lin and Hiroaki Miyamoto

This paper studies how well a search and matching model can describe aggregate Japanese labor market dynamics in a full information setting. We develop a discrete-time search and matching model with productivity and separation shocks and use it as a data-generating process for our empirical analysis. Using Bayesian methods, we estimate the model for data on unemployment and vacancy postings in Japan. We find that the model is successful in matching the volatility in unemployment and vacancies while it does not match the volatility of output and wages. We also find that both productivity and separation shocks contribute to movements in unemployment and vacancies, but productivity shocks more so.

It is interesting to study a very different labor market for once, but I am not sure the model makes the data justice. From my limited knowledge of the Japanese economy, I recall that up to the 1990’s, lifetime employment in the same firm was pretty much guaranteed. This changed after the lost decade of the nineties. The model should at least allow for this change in separation rates, or incorporate some sort of insurance contract the firm offers to its employees (and sometimes in it changes).