Labor Substitutability among Schooling Groups†Bils, Mark; Kaymak, Bariş; Wu, Kai-Jie
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220288
AbstractGiven worldwide trends in education, wage premium for schooling, and real GDP, we derive a lower bound for the long-run elasticity of labor substitution across schooling groups of around 4, which is far higher than values commonly used in the literature. We exploit our bound to reexamine the importance of human capital in cross-country income differences, including the roles of school quality versus the skill bias of technology in the greater efficiency gains from schooling in richer countries. (JEL E23, E24, I26, J24, J31, O15)
Fiscal and Monetary Policy Interactions in a Model with Low Interest Rates†Miao, Jianjun; Su, Dongling
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220232
AbstractWe provide a new Keynesian model where entrepreneurs face uninsurable idiosyncratic investment risk and credit constraints. Government bonds provide liquidity services. Multiple steady states with positive values of public debt can be supported for a given permanent deficit-to-output ratio. The steady-state interest rates are lower than the economic growth rate, and public debt contains a bubble component. We analyze the determinacy regions of policy parameter space and find that a large set of monetary and fiscal policy parameters can achieve debt and inflation stability given persistent fiscal deficits both away from and at the zero interest rate lower bound. (JEL E12, E23, E31, E43, E52, E62, H63)
Is There a Stable Relationship between Unemployment and Future Inflation?†Fitzgerald, Terry; Jones, Callum; Kulish, Mariano; Nicolini, Juan Pablo
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220273
AbstractEvaluating the stability of the Phillips curve using aggregate data is challenging due to the bias that endogenous monetary policy imparts on estimated Phillips curve coefficients. We argue that regional data can be used to identify the structural relationship between unemployment and inflation. Our analysis, using city- and state-level data from 1977 to 2017, is consistent with the notion that both the reduced-form and the structural parameters of the Phillips curve are, to a substantial degree, quite stable. (JEL E12, E24, E31, E52, E58)
A Simple Explanation of Countercyclical Uncertainty†Bernstein, Joshua; Plante, Michael; Richter, Alexander W.; Throckmorton, Nathaniel A.
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220134
AbstractThis paper documents that labor search and matching frictions generate countercyclical uncertainty because the inherent nonlinearity in the flow of new matches makes employment uncertainty increasing in the number of people searching for work. Quantitatively, this mechanism is strong enough to explain uncertainty and real activity dynamics, including their correlation. Through this lens, uncertainty fluctuations are endogenous responses to changes in real activity that neither affect the severity of business cycles nor warrant policy intervention, in contrast with leading theories of the interaction between uncertainty and real activity dynamics. (JEL D81, E23, E24, E32, J41, J63, J64)
The Optimal Quantity of CBDC in a Bank-Based Economy†Burlon, Lorenzo; Muñoz, Manuel A.; Smets, Frank
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220152
AbstractWe show that the estimated effect of digital euro news on bank stock valuations and lending depends on the bank’s deposit reliance and the central bank digital currency (CBDC) design features. Using a quantitative DSGE model calibrated to the euro area economy that replicates such evidence, we find that CBDC issuance yields nontrivial welfare trade-offs between, on one side, the positive expansion of liquidity services and the improved stabilization of deposit funding and lending and, on the other side, a negative bank disintermediation effect. The optimal amount of CBDC lies between 15 and 45 percent of quarterly GDP. (JEL E23, E42, E58, F33, G14, G21)
Population, Productivity, and Sustainable Consumption†Pindyck, Robert S.
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220278
AbstractHow does sustainable consumption depend on productivity growth, the size and growth rate of the population, and uncertainty over these growth rates? I address these questions using a model in which productivity and population growth are stochastic and human lives can have (positive or negative) intrinsic social value. I show how sustainable consumption depends on expected rates of productivity and population growth, the volatility of those rates, and the dependence of welfare on population. For plausible parameter values, sustainable consumption is well below the optimal welfare-maximizing level. This raises a question: given its cost, should sustainability be a social objective? (JEL E21, E22, E23, J11, Q01)
Entrepôt: Hubs, Scale, and Trade Costs†Ganapati, Sharat; Wong, Woan Foong; Ziv, Oren
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220250
AbstractWe study the global trade network and quantify its trade and welfare impact. We document that the trade network is a hub-and-spoke system where 80 percent of trade is shipped indirectly and largely via entrepôts—major hubs that facilitate trade between many origins and destinations. We estimate indirect-shipping-consistent trade costs using a model where shipments can be sent indirectly through an endogenous transport network and develop a geography-based instrument to estimate scale economies in shipping. Network and scale effects propagate local trade cost changes globally. Counterfactual infrastructure improvements at entrepôts generate ten times the global welfare impact relative to nonentrepôts. (JEL F12, F14, L92)
Idiosyncratic Income Risk and Aggregate Fluctuations†Debortoli, Davide; Galí, Jordi
2024 American Economic Journal: Macroeconomics
doi: 10.1257/mac.20220382
AbstractWe study how the presence of idiosyncratic income risk affects aggregate fluctuations in the absence of binding borrowing constraints and/or cyclical income risk. Its impact is shown to be captured by the response of a consumption-weighted average of individual consumption risk to aggregate shocks. We analyze two example economies—an endowment economy and a New Keynesian economy—and show that, under plausible calibrations, the impact of idiosyncratic income risk on aggregate fluctuations is quantitatively small since most of the changes in consumption risk are concentrated among poorer (low-consumption) households. (JEL E12, E21, E24, E32)