In this study, we examine how local government debt responds to environmental policies in China. We show that when an environmental policy impacts the economy, local governments are likely to increase debt issuance, with this effect becoming stronger when local officials have greater career incentives within the Chinese bureaucratic system. Over-accumulation of local government debt, which leads to social welfare losses, is closely tied to the urgency local officials feel to secure promotions. Our analysis offers valuable insights for better coordination between fiscal and environmental policies.

This paper examines the role of offshoring in the flattening of the ratio of female to male hours worked in the US since the early 1990s. The observed flattening coincides with a decline in the share of occupations with high offshoring potential in women’s hours worked and an increase in service offshoring. I propose a two-gender, two-sector model with a continuum of occupations. Given the higher female intensity in the service sector, the gender hours ratio declines as service offshoring increases. Quantitatively, the service offshoring plays an important role in explaining the plateau in the gender hours ratio since the 1990s.

This paper studies the heterogeneity of households’ present bias in a heterogeneous-agent model. Our model jointly matches the average marginal propensities to consume and the wealth distribution in the USA, even when all wealth is liquid. A fiscal stimulus targeting households in the bottom half of the wealth distribution improves the consumption response. A financial literacy campaign removing present bias gets naive households out of the debt trap but harms sophisticated households’ wealth accumulation due to a lower equilibrium interest rate. Finally, we show that a borrowing cost penalty and illiquidity both discipline excessive borrowing and are therefore potential remedies for present bias and naivete.

Real estate is a major component of China’s national wealth, serving as a key store of value. Property taxes potentially influence households’ belief in the stability of the housing market, resulting in varying effects of such taxes. This paper constructs an equilibrium model of stores of value to examine these effects under diverse beliefs. The results show that property taxes can constrain the growth of housing prices if households maintain their belief in the future stability of housing values. However, damaging this belief would lead to a safety trap with a decline in output. The paper also demonstrates that using tax revenue to finance government bond issuance can be an effective way to lower housing prices and increase output.

We investigate two findings in Gali and Monacelli (2016, American Economic Review): (i) the effectiveness of labor cost adjustments on employment is much smaller in a currency union and (ii) an increase in wage flexibility often reduces welfare, more likely in an economy that is part of a currency union. First, we introduce a distorted steady state into Gali and Monacelli’s small open economy model, in which employment subsidies making the steady state efficient are not available, and replicate their two findings. Second, an endogenous fiscal policy rule similar to that in Bohn (1998, Quarterly Journal of Economics) is introduced with a government budget constraint in the model. The results suggest that while Gali and Monacelli’s first finding is still applicable, their second finding is not necessarily valid. Therefore, an increase in wage flexibility may reduce welfare loss in an economy that is part of a currency union as long as wage rigidity is sufficiently high. Thus, there is scope to discuss how wage flexibility benefits currency unions.

We incorporate the liquidity trap and private behavioral preferences into a New Keynesian dynamic stochastic general equilibrium model to analyze fiscal multipliers. The results indicate that the influence of the liquidity trap on fiscal policy is driven by a combination of the interest rate transmission effect and the precautionary savings effect, showing a notable amplification of multipliers based on estimates from U.S. data. Furthermore, we examine two types of private behavioral preferences: habit formation and investor confidence. Habit formation significantly boosts short-term government spending multipliers while exhibiting diverse impacts on different types of taxation. Compared to superficial habits, deep habits result in flatter multiplier curves. Investor confidence, being highly sensitive to output fluctuations, enhances both spending and tax multipliers over the medium to long term. Additionally, the investor confidence channel slightly amplifies the expansionary effect of the liquidity trap on multipliers, contrasting with the impact of habit formation.

We study a growth model with two types of agents who are heterogeneous in their degree of family altruism. We prove that every equilibrium path of consumption, bequests, and capital converges to a unique steady state and study the effect of altruism on the properties of steady-state equilibrium. We show that aggregate income is positively related to both level of altruism and altruism heterogeneity. When altruism heterogeneity is low or moderate, income inequality follows an inverse U-shaped pattern relative to the level of altruism. These observations are consistent with the cross-country Kuznets curve linking different steady-state levels of income to steady-state levels of inequality. When altruism heterogeneity is high, income inequality decreases with the level of altruism. Our results suggest that heterogeneous altruism is a possible mechanism linking economic growth and income inequality.

This paper revisits the role of skill distribution in shaping regional comparative advantage. Theoretically, we show that it is the relative skill dispersion between exporters and importers, rather than the absolute skill dispersion of exporters, that matters for the pattern of international trade. Using industry-level data on Chinese provincial export flows, we demonstrate that regions with a more dispersed skill distribution relative to their trading partners export more goods produced by sectors with lower skill complementarity. Exploring the potential mechanisms, we further find that the trade-promoting effect from relative skill dispersion probably operates through improving product quality and diversity.

We examine the role of fragmentation of information in explaining the dynamics of sectoral inflation. Using the quarterly survey of firms’ prices and costs in Japan, we first document two empirical facts: the sensitivity of sectoral inflation to changes in sectoral costs monotonically decreases with the dispersion of changes in (i) current costs and (ii) those in the past. A direct application of the dispersed information model can reconcile the fact (i) but fails to reconcile the fact (ii). We then extend the standard imperfect information model to construct a dynamic general equilibrium model that features fragmentation of information, wherein a finite number of groups of firms exist and firms in the same group share common idiosyncratic noises in their signals. Using this model, we find that the degree of fragmentation of information plays a crucial role in explaining these empirical facts.

A balanced growth path that accounts for a decline in hours worked per worker approximates the evolution of today’s industrialized countries since 1870. This stylized fact is explained in an overlapping generations (OLG) model featuring two-period lived individuals equipped with per-period utility functions of the generalized log-log type proposed by Boppart and Krusell (2020) and a neoclassical production sector. Technological progress drives real wages up and expands the amount of consumption goods. The value of leisure increases, and the supply of hours worked declines. Technological progress moves a poor economy out of a regime with low wages and an inelastic supply of hours worked into a regime with high wages and a declining supply of hours worked. The balanced growth path is unique and stable. In the high wage regime, the equilibrium difference equation is available in closed form. A balanced growth path with declining hours worked may also be obtained with endogenous technological progress as in Romer (1986).

This paper studies the dynamic interactions between the money supply and the shape of the yield curve in the context of a regime-switching latent factor model. Estimates show that the money supply has important implications for the level, slope, and curvature of the yield curve. Moreover, the Divisia aggregates can provide more information than simple-sum aggregates based on parameter estimates and impulse response functions in understanding the dynamics of the yield curve. The favored broad Divisia aggregate could especially be associated with changes in the yield curve’s level, slope, and curvature over the business cycle. Therefore, this paper highlights the important role of Divisia aggregates in the linkage between financial markets and monetary policy.

Recently, there has been a surge in interest in exploring how common macroeconomic factors impact different economic results. We propose a semiparametric dynamic panel model to analyze the impact of common regressors on the conditional distribution of the dependent variable (global output growth distribution in our case). Our model allows conditional mean, variance, and skewness to be influenced by common regressors, whose effects can be nonlinear and time-varying driven by contextual variables. By incorporating dynamic structures and individual unobserved heterogeneity, we propose a consistent two-step estimator and showcase its attractive theoretical and numerical properties. We apply our model to investigate the impact of US financial uncertainty on the global output growth distribution. We find that an increase in US financial uncertainty significantly shifts the output growth distribution leftward during periods of market pessimism. In contrast, during periods of market optimism, the increased uncertainty in the US financial markets expands the spread of the output growth distribution without a significant location change, indicating increased future uncertainty.

This paper presents an algorithm for simulating multiple equilibria in otherwise-linear dynamic models with occasionally-binding constraints. Our algorithm extends the guess-and-verify approach of Guerrieri and Iacoviello (2015) to detect and simulate multiple perfect foresight equilibria, and allows arbitrary “news shocks” up to a finite horizon. When there are multiple equilibria, we show how to compute expected paths using a “prior probabilities” approach and we provide an approach for running stochastic simulations with switching between equilibria on the simulated path. A policy application studies a New Keynesian model with a zero lower bound on nominal interest rates and multiple equilibria, including a “bad” solution based on self-fulfilling pessimistic expectations. A price-level targeting rule does not always eliminate the bad solution, but it shrinks the indeterminacy region substantially and improves stabilization and welfare relative to more conventional interest rate rules or forward guidance.

Building upon recent developments in production function identification and decomposition methods, this paper investigates the sources of output and productivity growth among China’s listed manufacturing companies from 2000 to 2022. While previous studies on China’s manufacturing have predominantly focused on the period preceding 2007, our study extends the analysis to a broader timeframe and divide it into four sub-periods to accommodate diverse economic conditions and varying growth rates. We provide new insights into the Chinese economy during a period marked by gradual economic transformation. Specifically, we first decompose industry output growth into factor deepening and firm productivity progress within each sub-period. To account for heterogeneity across firms in terms of production technology and sources of growth, we employ a nonparametric production function and decompose firm output growth at both the mean and different quantiles of the output distribution. We find that increased materials usage and productivity growth are primary growth drivers. However, the contribution of productivity experiences a significant decline, particularly in recent years and among median-sized and large firms. Furthermore, we examine China’s industry aggregate productivity growth and its origins among state-invested, foreign-invested, and domestic private firms. Our findings suggest that reforms among state firms are the largest contributor to industry productivity growth before the 2008 financial crisis, whereas productivity progress of domestic private firms emerges as the sole significant driver in recent years. Additionally, there is no evidence of improvements in output reallocation efficiency within China’s manufacturing sector throughout our sample period.

This study presents a simple frequency-dependent regime-switching vector autoregression (VAR) model, where each regime and its associated parameters in the VAR are characterized by their distinct spectral properties. Empirical applications to several key macroeconomic variables reveal clear frequency-dependent switching dynamics, with each regime exhibiting distinctive features regarding spectral properties, volatility, and impulse responses. We compare this model with a conventional regime-switching model (typically studied in the time domain) and highlight several key differences between the two approaches.

The paper investigates the gender-driven disparities in total factor productivity (TFP) between women-owned enterprises (WOEs) and male-owned enterprises (MOEs) across 30 developing countries. Utilizing firm-level data from the World Bank Enterprise Surveys, the study addresses biases in previous gender literature by employing a semi-parametric technique to more accurately measure TFP. The results reveal a significant TFP gap, with WOEs being 5.5% to 6.7% less productive than MOEs, even after controlling for key firm characteristics like age, innovation, human capital, and ownership status. The study attributes this productivity disparity primarily to financial obstacles faced by WOEs, which hinder their ability to innovate and capitalize on opportunities. The lack of access to credit leads to a misallocation of capital, excluding equally efficient women entrepreneurs from financial resources that could stimulate productivity. Contrary to some assumptions, the study finds no evidence that WOEs underperform in sectors with high financial dependence, suggesting that WOEs are not inherently inefficient in their use of capital. Our findings provide causal evidence as we control for selectivity bias in the TFP-WOEs nexus by identifying exogenously the factors that affect financial constraints and innovation.

This paper investigates the long-run nexus between wealth inequality and aggregate output using a DSGE model in which wealth inequality endogenously affects individual entrepreneurship incentives, thereby influencing aggregate output. Our model passes the indirect inference test against the UK data from 1870 to 2015. We find that shocks to aggregate TFP, entrepreneurial barriers, government grant support and general government spending played significant roles in shaping historical inequality dynamics in the UK. Directly removing entrepreneurial barriers or indirectly providing government grant support to the private sector such as through inclusive loan subsidies are effective means of reducing inequality and stimulating output growth.

In this note, we study the relationship between tax evasion and economic growth in a model where public expenditure allows to improve private capital productivity, and it is financed by both taxes and public debt. Here, we define debt to be sustainable if the debt/GDP ratio resulting from agents optimization converges toward a finite equilibrium that is endogenous to the model. We show that: (i) the level of public expenditure which maximizes growth does not depend on audit parameters, (ii) evasion reduces the range of parameters for which the debt/GDP ratio is sustainable, and (iii) the debt/GDP ratio is sustainable if the total factor productivity is sufficiently high.

This paper introduces a global banking system in a small open economy DSGE model and features global relative price adjustments with incomplete asset market to investigate the role of international financial imperfections. We show that credit policy could be more powerful than monetary policy to alleviate foreign financial shocks since an expansionary monetary policy and alternative policy rules are not a sufficient tool in the global financial crisis. In particular, credit policy based on international credit spread outperforms credit policy based on domestic credit spread since the former attempts to remove distortions from international financial imperfections and reduces real costs of foreign loans. Accordingly, the lower costs of external finance further boost investment and effectively stabilize the economy without substantial asset purchases.

This paper builds on Hsieh and Klenow’s (2009) model to offer a refined analysis of how input misallocations impact aggregate total factor productivity (TFP). We enhance the original model by relaxing the assumption of uniform input prices and adopting an econometric approach to estimate parameters using firm-level data. Estimation of model parameters and allocation efficiency is based on the system of input demand and the production function. We use an indirect inference approach to estimate the system to avoid maximum likelihood estimation, which often faces convergence issues, when there are numerous constraints. We demonstrate our model using the US firm-level manufacturing panel data from 1975 to 2010. Our final sample contains 55,518 observations. We divide the manufacturing industry into seven major categories. Our findings indicate that between 1975 and 2010, the average productivity growth rate was 2.8% but could have reached 3.2% without misallocation, highlighting the substantial gains possible through better resource allocation.