diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA.ipynb b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA.ipynb index 11e1f659..7727ebf4 100644 --- a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA.ipynb +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA.ipynb @@ -19,7 +19,8 @@ "metadata": {}, "source": [ "* Notebook created by Nino Kodua\n", - "* October 20, 2020" + "* October 20, 2020\n", + "* Contributor: Carlos Alba (literature synthesis and revisions)\n" ] }, { @@ -33,7 +34,7 @@ "cell_type": "markdown", "metadata": {}, "source": [ - "There is an evidence that even with the low interest rates, monetary policy shocks affect the level of aggegate acitivity, and the distribution of income and consumption across households. This paper analyzes the distributional effects of wealth across socioeconomic groups. It incorporates:\n", + "There is an evidence that even with the low interest rates, monetary policy shocks affect the level of aggregate acitivity, and the distribution of income and consumption across households. This paper analyzes the distributional effects of wealth across socioeconomic groups. It incorporates:\n", "* New Keynesian sticky price framework (aggregate level)\n", "* Imperfect consumption insurance and household heterogeneity - 3 dimensions:\n", " * current potential productivity if employed\n", @@ -42,7 +43,7 @@ "* Search and matching frictions (labor market)\n", "\n", "\n", - "Main contributions and attibutes of the paper that differentiate it from the existing literature include:\n", + "Main contributions and attributes of the paper that differentiate it from the existing literature include:\n", "* Extention of an existing incomplete market general equilibrium models (introduction of nominal frictions)\n", "* Impact of monetary policy on economic activity even if the redistribution of wealth is absent\n", "* Distributional consequences of the interaction between monetary policy and unemployment\n", @@ -66,6 +67,22 @@ "The goal of the paper is to establish the extent to which monetary policy in the US might have distributional effects through the channels included in the model, as well as the impact of monetary policy on inequality." ] }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Prior Literature" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The paper combines two strands of macroeconomics. The first is **New Keynesian monetary policy**: nominal rigidities and interest-rate rules as the main transmission mechanism. Woodford (1998) showed that inflation can be analyzed in a “cashless” setup where the central bank sets interest rates rather than the money supply, which is the standard basis for modern DSGE policy analysis. Much of that work used a representative agent and ignored distribution.\n", + "\n", + "The second strand is **heterogeneous-agent macroeconomics** with incomplete markets and labor market frictions. Aiyagari (1994) showed that uninsurable idiosyncratic risk and borrowing limits generate precautionary saving and realistic wealth inequality. Later work (e.g. Heathcote, Storesletten, and Violante 2009) clarified how heterogeneity matters for aggregates and welfare. Search and matching were brought into general equilibrium models of unemployment (e.g. Mortensen and Pissarides 1994; Merz 1995), and combined with nominal rigidities (e.g. Walsh 2005; Krause and Lubik 2007; Blanchard and Galí 2010). The distributional effects of inflation and monetary policy were studied in incomplete-markets settings (e.g. Erosa and Ventura 2002; Doepke and Schneider 2006; Meh and Terajima 2011). GKN’s contribution is to integrate heterogeneous households, incomplete markets, and search frictions into a single New Keynesian model, so that the redistributive and welfare effects of monetary policy can be quantified." + ] + }, { "cell_type": "markdown", "metadata": {}, @@ -77,7 +94,7 @@ "cell_type": "markdown", "metadata": {}, "source": [ - "In order to introduce earnings heterogeneity, the model introduces labor market search and matching frictions (Mortensen and Pissaridis, 1994) into the heterogeneous agent circumstances (Nakajima, 2012 and Krusell et al., 2010). Producers are monopolistically competitive and face quadratic adjustment costs (Rotemberg 1982)." + "In order to introduce earnings heterogeneity, the model introduces labor market search and matching frictions (Mortensen and Pissarides, 1994) into the heterogeneous agent circumstances (Nakajima, 2012 and Krusell et al., 2010). Producers are monopolistically competitive and face quadratic adjustment costs (Rotemberg 1982)." ] }, { @@ -129,7 +146,7 @@ "* 2 shocks for cyclical fluctuations in the model:\n", " * Z - the aggregate productivity shock\n", " * D - the monetary policy shock\n", - " * $\\mu=(e, s, a) \\in \\mathcal{M}$ - type distribution fof households" + " * $\\mu=(e, s, a) \\in \\mathcal{M}$ - type distribution of households" ] }, { @@ -145,7 +162,7 @@ "source": [ "Households are heterogeneous in 3 aspects. A household either works full time or does not work, has a skill level and saves for the future in the mutual fund.\n", "* $e \\in\\{0,1\\}$ - Employment status (0: unemployed, 1: employed)\n", - "* $s \\in S$ - Exogeneous household skill level\n", + "* $s \\in S$ - exogenous household skill level\n", "* $a \\in A \\subseteq \\mathbb{R}^{+}$ - Share holdings of a household in the mutual funds." ] }, @@ -162,7 +179,7 @@ "metadata": {}, "source": [ "1. When households start the period the have information about their employment status, skill level and state of economy.\n", - "2. Afterwards, there is a transition - household lose their jobs with exogeneous probability $\\lambda$.\n", + "2. Afterwards, there is a transition - household lose their jobs with exogenous probability $\\lambda$.\n", "3. Newly employed households - unemployed households search for jobs and are matched to firm vacancies. \n", "4. Household consumption and saving decision, and the production process.\n", "5. Aggregate shocks\n", @@ -382,7 +399,7 @@ "* Households hold assets in the shares in mutual funds\n", "* share are traded in a competitive market\n", "* 5 types of assets\n", - " * Equity associated with intermedaite goods procuers, final goods producers, capital service producers, and labor service producers\n", + " * Equity associated with intermediate goods producers, final goods producers, capital service producers, and labor service producers\n", " * Bonds - mutual funds can trade with each other\n", "* The Central Bank controls rate of return\n", "* Equilibrium price of bonds:\n", @@ -417,7 +434,7 @@ "* $\\bar{\\Pi}$: inflation target\n", "* $\\bar{y}$: output target\n", "* D: Persistent monetary policy shocks\n", - " * follows a first-order autogregressive process:\n", + " * follows a first-order autoregressive process:\n", " \\begin{aligned}\n", " \\log \\left(D^{\\prime}\\right)=\\rho_{D} \\log (D)+\\epsilon_{D}, \\text { where } \\epsilon_{D} \\text { is i.i.d. } N\\left(0, \\sigma_{D}^{2}\\right), \\rho_{D} \\in[0,1)\n", " \\end{aligned}" @@ -498,7 +515,7 @@ "cell_type": "markdown", "metadata": {}, "source": [ - "First, the response of the aggregate economy, including output and its compenents, labor market, prices, and assets, to the TFP shocks is reported. (1% TFP shock in period 1)\n", + "First, the response of the aggregate economy, including output and its components, labor market, prices, and assets, to the TFP shocks is reported. (1% TFP shock in period 1)\n", "\n", "Figures present responses in the New Keynesian (NK) model and in the economy without nominal rigidities (RBC). \n", "\n", @@ -548,7 +565,7 @@ "* Labor income increases by a different degree for different segments of wealth\n", "* The lowest percentiles of the wealth distribution show stronger response in terms of all income compared to higher percentiles\n", "* Consumption response is also heterogeneous\n", - "* The responces of the Gini indexes is mild\n", + "* The responses of the Gini indexes is mild\n", " * 1 % TFP shocks results into a fall of the earnings Gini by 0.16 %" ] }, @@ -596,7 +613,7 @@ "* Monetary policy tightening reduces demand for labor services\n", "* Hiring, vacancy posting and job finding rates fall \n", "* Unemployment rate increases by 1.5 %\n", - "* Since households are borrowing-constraines, unemployment decreases aggregate demand even further\n", + "* Since households are borrowing-constrained, unemployment decreases aggregate demand even further\n", "\n", "\n", "\n", @@ -635,7 +652,7 @@ "* Income of high-wealth household rises strongly because of an increase in dividends\n", "* Income of lower-wealth households declines\n", "* Difference in the responce of income betwee the top 5% and the bottom 5% is very significant, 7% (income heterogeneity)\n", - "* Consumption declines for the lower-wealth households and is stable for the wealthies\n", + "* Consumption declines for the lower-wealth households and is stable for the wealthiest\n", "\n", "\n", "\n", @@ -665,6 +682,20 @@ "" ] }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Subsequent Literature" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Later work has extended the analysis of **monetary policy in heterogeneous-agent New Keynesian (HANK) models**. One line of research focuses on transmission mechanisms: how marginal propensities to consume, wealth distributions, and labor income risk change aggregate and distributional responses to monetary shocks (e.g. Herkenhoff 2015; Chen 2018; Alves 2019). Another line deepens the role of **labor market frictions** in HANK models—unemployment risk, job-finding rates, and wage rigidity—and shows that they amplify distributional effects and matter for optimal policy (e.g. Hagedorn 2018; Bertsch 2017; Jones 2017). The frontier combines rich household heterogeneity with empirically grounded labor market dynamics and policy rules; open questions include identification of redistribution channels in the data and the interaction of monetary and fiscal policy in HANK environments." + ] + }, { "cell_type": "markdown", "metadata": {}, @@ -676,11 +707,11 @@ "cell_type": "markdown", "metadata": {}, "source": [ - "The monetary policy shocks have significantly different implications in terms of the welfare of different segments of households. While households in the top 5% of wealth distribution see benefits from a contractionary monetary policy, the bottom 5% of wealth distribution faces loses. Therefore, monetary policy affects different households differently and increases earnings, income, wealth and consumption heterogeneity.\n", + "The monetary policy shocks have significantly different implications in terms of the welfare of different segments of households. While households in the top 5% of wealth distribution see benefits from a contractionary monetary policy, the bottom 5% of wealth distribution faces losses. Therefore, monetary policy affects different households differently and increases earnings, income, wealth and consumption heterogeneity.\n", "\n", "* The effects are significant even after the impact of monetary policy on aggregate economy has died out\n", "* TFP shocks affect the population more uniformly\n", - "* Contractionary monetary policy only benefits the wealthies" + "* Contractionary monetary policy only benefits the wealthiest" ] } ], diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_intro.ipynb b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_intro.ipynb new file mode 100644 index 00000000..23225aff --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_intro.ipynb @@ -0,0 +1,42 @@ +{ + "cells": [ + { + "cell_type": "markdown", + "id": "d4767a85", + "metadata": {}, + "source": [ + "# Monetary Policy with Heterogeneous Agents\n", + "\n", + "Görnemann, Lukas; Kuester, Keith; Nakajima, Makoto (2012). \n", + "Federal Reserve Bank of Philadelphia Working Paper No. 12-14.\n" + ] + }, + { + "cell_type": "markdown", + "id": "d14d83f6", + "metadata": {}, + "source": [ + "## Original Ballpark Contributor\n", + "\n", + "Notebook created by: Nino Kodua — October 20, 2020\n" + ] + }, + { + "cell_type": "markdown", + "id": "1c20544a", + "metadata": {}, + "source": [ + "## Updated by\n", + "\n", + "Carlos Alba — February 17, 2026\n" + ] + } + ], + "metadata": { + "language_info": { + "name": "python" + } + }, + "nbformat": 4, + "nbformat_minor": 5 +} diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_prior-literature.ipynb b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_prior-literature.ipynb new file mode 100644 index 00000000..5ba1bf52 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_prior-literature.ipynb @@ -0,0 +1,47 @@ +{ + "cells": [ + { + "cell_type": "markdown", + "id": "8dd62b7a", + "metadata": {}, + "source": [ + "# Prior Literature" + ] + }, + { + "cell_type": "markdown", + "id": "7e085f0b", + "metadata": {}, + "source": [ + "## Overview of the Prior Literature\n", + "\n", + "The paper builds on two central strands of macroeconomic research. The first is the New Keynesian literature on monetary policy with nominal rigidities, in which interest-rate rules govern inflation and output dynamics {cite:t}woodford1998}. This framework established how central banks can stabilize inflation and output in models with sticky prices.\n", + "\n", + "The second strand is heterogeneous-agent macroeconomics with incomplete markets. The canonical incomplete-markets model of precautionary saving under idiosyncratic risk is due to {cite:t}aiyagari1994}, which shows how borrowing constraints and uninsurable income shocks generate wealth inequality. Subsequent work, including {cite:t}heathcote2009}, emphasized the quantitative importance of heterogeneity for aggregate outcomes and welfare.\n" + ] + }, + { + "cell_type": "markdown", + "id": "e91d0806", + "metadata": {}, + "source": [ + "## Key Foundational Papers and Their Contributions\n", + "\n", + "- {cite:t}Clarida1998-sk} — Established the empirical and theoretical foundation for monetary policy rules in New Keynesian models.\n", + "\n", + "- {cite:t}Clarida2000-pd} — Provided a systematic treatment of monetary policy under rational expectations and nominal rigidities.\n", + "\n", + "- {cite:t}Andolfatto1996-gw} — Introduced search-and-matching frictions into real business cycle models, forming the basis for incorporating unemployment dynamics into DSGE frameworks.\n", + "\n", + "- {cite:t}Doepke2006-sm} — Analyzed the redistributional consequences of inflation across heterogeneous households, directly connecting monetary policy to inequality." + ] + } + ], + "metadata": { + "language_info": { + "name": "python" + } + }, + "nbformat": 4, + "nbformat_minor": 5 +} diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_subsequent-literature.ipynb b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_subsequent-literature.ipynb new file mode 100644 index 00000000..9d819e5e --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_subsequent-literature.ipynb @@ -0,0 +1,49 @@ +{ + "cells": [ + { + "cell_type": "markdown", + "id": "100e0de1", + "metadata": {}, + "source": [ + "# Subsequent Literature" + ] + }, + { + "cell_type": "markdown", + "id": "0129cb23", + "metadata": {}, + "source": [ + "## Overview of How the Paper Has Been Built Upon\n", + "\n", + "Following {cite:t}monetary_gornemann_2012}, a growing literature has developed heterogeneous-agent New Keynesian (HANK) models to study the distributional and aggregate consequences of monetary policy. These models extend the framework of {cite:t}monetary_gornemann_2012} by incorporating richer household heterogeneity, empirical marginal propensities to consume, and more detailed labor market dynamics.\n", + "\n", + "Subsequent research emphasizes how credit constraints, labor market risk, and unemployment interact with monetary transmission. For example, {cite:t}credit_herkenhoff_2015} and {cite:t}monetary_bertsch_2017} examine the role of borrowing constraints and balance sheets in shaping policy effects." + ] + }, + { + "cell_type": "markdown", + "id": "21be8cd0", + "metadata": {}, + "source": [ + "## Key Subsequent Papers and Their Contributions\n", + "\n", + "- {cite:t}prices_hagedorn_2018} — Integrates unemployment risk and wage rigidity into heterogeneous-agent monetary models.\n", + "\n", + "- {cite:t}computational_chen_2018} — Develops computational techniques for solving large-scale heterogeneous-agent DSGE models.\n", + "\n", + "- {cite:t}eitc_jones_2017} — Explores redistribution and policy design in heterogeneous-agent environments.\n", + "\n", + "- {cite:t}look_alves_2019} — Investigates monetary policy transmission in models with wealth heterogeneity and imperfect insurance.\n", + "\n", + "- {cite:t}monetary_rakviashvili_2020} — Studies extensions of HANK models and their quantitative implications." + ] + } + ], + "metadata": { + "language_info": { + "name": "python" + } + }, + "nbformat": 4, + "nbformat_minor": 5 +} diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_summary.ipynb b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_summary.ipynb new file mode 100644 index 00000000..7727ebf4 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/GKNMonetaryPolicyHA_summary.ipynb @@ -0,0 +1,739 @@ +{ + "cells": [ + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Gornemann, Kuester, Nakajima (2012) " + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# [\"Monetary Policy with Heterogeneous Agents\"](https://www.philadelphiafed.org/-/media/research-and-data/publications/working-papers/2012/wp12-21.pdf?la=en)" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* Notebook created by Nino Kodua\n", + "* October 20, 2020\n", + "* Contributor: Carlos Alba (literature synthesis and revisions)\n" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Summary" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "There is an evidence that even with the low interest rates, monetary policy shocks affect the level of aggregate acitivity, and the distribution of income and consumption across households. This paper analyzes the distributional effects of wealth across socioeconomic groups. It incorporates:\n", + "* New Keynesian sticky price framework (aggregate level)\n", + "* Imperfect consumption insurance and household heterogeneity - 3 dimensions:\n", + " * current potential productivity if employed\n", + " * current wealth\n", + " * current employment\n", + "* Search and matching frictions (labor market)\n", + "\n", + "\n", + "Main contributions and attributes of the paper that differentiate it from the existing literature include:\n", + "* Extention of an existing incomplete market general equilibrium models (introduction of nominal frictions)\n", + "* Impact of monetary policy on economic activity even if the redistribution of wealth is absent\n", + "* Distributional consequences of the interaction between monetary policy and unemployment\n", + "* Incomplete asset markets\n", + "* Heterogeneity in income and consumption even under perfect price stability\n", + "* While there is an extensive amount of literature on the redistribution consequences of fiscal policies, the literature on the wealth redistribution consequences of monetary policy is limited\n", + " " + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Overview" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The goal of the paper is to establish the extent to which monetary policy in the US might have distributional effects through the channels included in the model, as well as the impact of monetary policy on inequality." + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Prior Literature" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The paper combines two strands of macroeconomics. The first is **New Keynesian monetary policy**: nominal rigidities and interest-rate rules as the main transmission mechanism. Woodford (1998) showed that inflation can be analyzed in a “cashless” setup where the central bank sets interest rates rather than the money supply, which is the standard basis for modern DSGE policy analysis. Much of that work used a representative agent and ignored distribution.\n", + "\n", + "The second strand is **heterogeneous-agent macroeconomics** with incomplete markets and labor market frictions. Aiyagari (1994) showed that uninsurable idiosyncratic risk and borrowing limits generate precautionary saving and realistic wealth inequality. Later work (e.g. Heathcote, Storesletten, and Violante 2009) clarified how heterogeneity matters for aggregates and welfare. Search and matching were brought into general equilibrium models of unemployment (e.g. Mortensen and Pissarides 1994; Merz 1995), and combined with nominal rigidities (e.g. Walsh 2005; Krause and Lubik 2007; Blanchard and Galí 2010). The distributional effects of inflation and monetary policy were studied in incomplete-markets settings (e.g. Erosa and Ventura 2002; Doepke and Schneider 2006; Meh and Terajima 2011). GKN’s contribution is to integrate heterogeneous households, incomplete markets, and search frictions into a single New Keynesian model, so that the redistributive and welfare effects of monetary policy can be quantified." + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Incomplete Markets and heterogeneity" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "In order to introduce earnings heterogeneity, the model introduces labor market search and matching frictions (Mortensen and Pissarides, 1994) into the heterogeneous agent circumstances (Nakajima, 2012 and Krusell et al., 2010). Producers are monopolistically competitive and face quadratic adjustment costs (Rotemberg 1982)." + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Cashless limit economy and Government" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Government balances budget on a period-by-period basis. Furthermore, assumption is that we have a cashless-limit economy. These two imply that government does not finance its budget through seigniorage. " + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Mutual Fund and 4 types of firms" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "A representative mutual fund manages all assets. The model has 4 types of firms:\n", + "* Capital producers (invest in physical capital - competitive market)\n", + "* Labor agencies (hire households - homogeneous labor service)\n", + "* Intermediate-good producers (produce a differentiated good - adjustment costs)\n", + "* Final good producers (representative competitive firms)" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Aggregate State Variables" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Vector of aggregate state variables - X = (K, N, Z, D, $\\mu$)\n", + "* K - aggregate capital stock\n", + "* N - total employment\n", + "* 2 shocks for cyclical fluctuations in the model:\n", + " * Z - the aggregate productivity shock\n", + " * D - the monetary policy shock\n", + " * $\\mu=(e, s, a) \\in \\mathcal{M}$ - type distribution of households" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Heterogeneous Households (e, s, a)" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Households are heterogeneous in 3 aspects. A household either works full time or does not work, has a skill level and saves for the future in the mutual fund.\n", + "* $e \\in\\{0,1\\}$ - Employment status (0: unemployed, 1: employed)\n", + "* $s \\in S$ - exogenous household skill level\n", + "* $a \\in A \\subseteq \\mathbb{R}^{+}$ - Share holdings of a household in the mutual funds." + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Timing assumptions" + ] + }, + { + "attachments": {}, + "cell_type": "markdown", + "metadata": {}, + "source": [ + "1. When households start the period the have information about their employment status, skill level and state of economy.\n", + "2. Afterwards, there is a transition - household lose their jobs with exogenous probability $\\lambda$.\n", + "3. Newly employed households - unemployed households search for jobs and are matched to firm vacancies. \n", + "4. Household consumption and saving decision, and the production process.\n", + "5. Aggregate shocks\n", + "\n", + "There are laws of motion outlined in the paper as well.\n", + "\n", + "" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# The Model" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The paper analyzes the New Keynesian model with search and matching frictions and heterogeneity in a nonlinear framework. \n", + "\n", + "* DSGE model incorporating an incomplete asset markets, a frictional labor market and nominal frictions" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Households" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* time separable utility\n", + "* Currently employed household keeps its job in the next period with the probability 1-$\\lambda$\n", + "* Households without a job always search for employment\n", + "* The job finding rate depends on the state of the economy \n", + "\n", + "We have 2 types of problems: employed and unemployed household.\n", + "\n", + "1. The problem of a household employed at the 4th stage (production, consumption, saving): e = 1\n", + "\n", + "\\begin{aligned}\n", + "&\\begin{array}{l}\n", + " W(X, 1, s, a)= max _{c, a^{\\prime} \\geq 0}\\left\\{u(c)+\\beta \\mathbb{E}\\left[\\left(1-\\lambda+\\lambda f\\left(\\widetilde{X}^{\\prime}\\right)\\right) W\\left(X^{\\prime}, 1, s^{\\prime}, a^{\\prime}\\right)+\\lambda\\left(1-f\\left(\\tilde{X}^{\\prime}\\right)\\right) W\\left(X^{\\prime}, 0, s^{\\prime}, a^{\\prime}\\right)\\right]\\right\\}\n", + "\\end{array}\\\\\n", + "&\\text { s.t. } \\quad c+p_{a}(X) a^{\\prime}=\\left(p_{a}(X)+d_{a}(X)\\right) a+w(X) s(1-\\tau(X))\n", + "\\end{aligned}\n", + "\n", + "* c: consumption\n", + "* $a^{\\prime}$: number of share holdings\n", + "* $f\\left(\\widetilde{X}^{\\prime}\\right)$: the job finding rate\n", + "* $p_{a}(X)$: the price of share\n", + "* $d_{a}(X)$: dividends\n", + "* $w(X)$: wage\n", + "* $\\tau(X)$: the payroll tax rate. " + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "2. The problem of a household unemployed at the 4th stage (production, consumption, saving): e = 0 (same skill & wealth level)\n", + "\n", + "\\begin{array}{l}\n", + "W(X, 0, s, a)=\\max _{c, a^{\\prime} \\geq 0}\\left\\{u(c)+\\beta \\mathbb{E}\\left[f\\left(\\tilde{X}^{\\prime}\\right) W\\left(X^{\\prime}, 1, s^{\\prime}, a^{\\prime}\\right)+\\left(1-f\\left(\\tilde{X}^{\\prime}\\right)\\right) W\\left(X^{\\prime}, 0, s^{\\prime}, a^{\\prime}\\right)\\right]\\right\\} \\\\\n", + "\\text { s.t. } \\quad c+p_{a}(X) a^{\\prime}=\\left(p_{a}(X)+d_{a}(X)\\right) a+b s\n", + "\\end{array}\n", + "\n", + "* b: unemployment insurance benefit per efficiency unity of labor" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Final Good Producer" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* Representative competitive final goods sector\n", + "* Final goods - used for consumption, investment and vacancy creation\n", + "* Constant elasticity of substitution production technology\n", + "* differentiated products as inputs\n", + "* each input price of intermediate good taken as given\n", + "* Dixit-Stiglitz demand functions for each intermediate good\n", + "\n", + "Representative final good producer's problem: \n", + "\n", + "\\begin{array}{l}\n", + "\\max _{y, y_{j \\in[0,1]}} &P(X) y-\\int_{0}^{1} P_{j} y_{j} d j \\\\\n", + "\\text { s.t. } \\quad &y=\\left(\\int_{0}^{1} y_{j}^{\\frac{\\epsilon-1}{\\epsilon}} d j\\right)^{\\frac{\\epsilon}{\\epsilon-1}}\n", + "\\end{array}\n", + "\n", + "where $P(X)=\\left(\\int_{0}^{1} P_{j}^{1-\\epsilon} d j\\right)^{\\frac{1}{1-\\epsilon}}$ is the price of the final good .\n", + "\n", + "* $j \\in[0,1]$: type of intermediate goods\n", + "* $y_{j}$: the quantity of intermediate good j" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Intermediate Good Producer" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* buys labor and capital services\n", + "* sells output to final good firms\n", + "* Monopolistic competition\n", + "* Cobb-Douglas Production technology\n", + "* Nominal price is subject to Rotemberg (1982) adjustment costs (Nominal rigidities)\n", + "\n", + "Intermediate good producer's problem:\n", + "\n", + "\\begin{array}{c}\n", + "J_{I}\\left(X, P_{j,-1}\\right)=\\max _{P_{j}, \\ell_{j}, k_{j}} y_{j}\\left(X, P_{j}\\right)\\left(\\frac{P_{j}}{P(X)}-\\frac{\\phi_{\\Pi}}{2}\\left(\\frac{P_{j}}{P_{j,-1}}-\\bar{\\Pi}\\right)^{2}\\right)-r(X) k_{j}-h(X) \\ell_{j}+\\mathbb{E}\\left[Q\\left(X, X^{\\prime}\\right) J_{I}\\left(X^{\\prime}, P_{j}\\right)\\right] \\\\\n", + "\\text { s.t. } \\quad y_{j}\\left(X, P_{j}\\right)=Z k_{j}^{\\theta} \\ell_{j}^{1-\\theta}\n", + "\\end{array}\n", + "\n", + "* h(X): labor services\n", + "* r(X): capital services\n", + "* $P_{j}$: nominal price of intermediate good j\n", + "* $P_{j,-1}$: price of good j in the previous period\n", + "* $y_{j}\\left(X, P_{j}\\right)$: firm's Dixit-Stiglitz demand function\n", + "* $\\bar{\\Pi}$: steady state inflation rate\n", + "* $\\phi_{\\Pi}>0$: size of the quadratic price adjustment\n", + "* Z: total factor productivity (TFP)\n", + " * follows a first-order autoregressive process:\n", + " \\begin{array}\n", + " \\log \\left(Z^{\\prime}\\right)=\\left(1-\\rho_{Z}\\right) \\log (\\bar{Z})+\\rho_{Z} \\log (Z)+\\epsilon_{Z}, \\text { where } \\epsilon_{Z} \\text { is i.i.d. } N\\left(0, \\sigma_{Z}^{2}\\right), \\rho_{Z} \\in[0,1)\n", + " \\end{array}" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Capital-Producing Sector" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* produces homogeneous good, capital services\n", + "* sells capital services to the intermediate goods sector\n", + "\n", + "The problem of a representative capital-producing firm: \n", + "\n", + "\\begin{array}{l}\n", + "J_{K}(X, K)=\\max _{v, i, K^{\\prime}}\\left\\{r(X) K v-i+\\mathbb{E}\\left[Q\\left(X, X^{\\prime}\\right) J_{K}\\left(X^{\\prime}, K^{\\prime}\\right)\\right]\\right\\} \\\\\n", + "\\text { s.t. } \\quad K^{\\prime}=(1-\\delta(v)) K+\\zeta\\left(\\frac{i}{K}\\right) K\n", + "\\end{array}\n", + "\n", + "* i: capital investment\n", + "* v: capacity utilization\n", + "* $\\delta(v)$: depreciation of capital stock" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Labor Market" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* produces homogeneous good, labor services\n", + "* sells labor services to the intermediate goods sector\n", + "* labor agencies can only be matched with one household\n", + "* Probability 1-$\\lambda$: match between a labor agency and its household\n", + "* Search and matching frictions\n", + "* Cobb-Douglas Matching function: \n", + "\\begin{array}\n", + "M(\\widetilde{X}, V)=\\gamma(U(\\tilde{X})+\\lambda N(\\tilde{X}))^{\\alpha} V^{1-\\alpha}\n", + "\\end{array}\n", + "* A vacancy cost $\\kappa$: \n", + "\\begin{array}\n", + "\\kappa=\\frac{M(\\tilde{X}, V)}{V} \\int_{\\mathcal{M}} J_{L}(\\hat{G}(\\tilde{X}), s) d \\mu\n", + "\\end{array}\n", + "\n", + "Value of a labor agency employing s skill level household:\n", + "\n", + "\\begin{array}{J}\n", + "J_{L}(X, s)=(h(X)-w(X)) s+\\mathbb{E}\\left[Q\\left(X, X^{\\prime}\\right)(1-\\lambda) J_{L}\\left(X^{\\prime}, s^{\\prime}\\right)\\right]\n", + "\\end{array}\n", + "\n", + "* w(X): wage per efficiency unit\n", + "* $Q\\left(X, X^{\\prime}\\right)$: stochastic discount factor" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Mutual Fund" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* Households hold assets in the shares in mutual funds\n", + "* share are traded in a competitive market\n", + "* 5 types of assets\n", + " * Equity associated with intermediate goods producers, final goods producers, capital service producers, and labor service producers\n", + " * Bonds - mutual funds can trade with each other\n", + "* The Central Bank controls rate of return\n", + "* Equilibrium price of bonds:\n", + "\\begin{array}{p}\n", + "p_{b}(X)=\\mathbb{E}\\left[Q\\left(X, X^{\\prime}\\right) \\frac{1}{\\Pi\\left(X^{\\prime}\\right)}\\right]\n", + "\\end{array}\n", + "* Bond investment decision:\n", + "\\begin{array}{1}\n", + "1=\\mathbb{E}\\left[Q\\left(X, X^{\\prime}\\right) \\frac{R(X)}{\\Pi\\left(X^{\\prime}\\right)}\\right]\n", + "\\end{array}\n", + "* Dividends per share: \n", + "\\begin{aligned}\n", + "d_{a}(X)=& \\int_{0}^{1}\\left[y_{j}(X) \\frac{P_{j}(X)}{P(X)}-r(X) k_{j}(X)-h(X) \\ell_{j}(X)\\right] d j + r(X) K(X) v(X)-i(X) +\\int_{\\mathcal{M}}(h(X)-w(X)) s d \\mu-\\kappa V(\\tilde{X})\n", + "\\end{aligned}" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### The Central Bank" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "* Monetary policy - Taylor(1993)-type rule:\n", + "\\begin{aligned}\n", + "\\log \\left(\\frac{R(X)}{\\bar{R}}\\right)=\\rho_{\\Pi} \\log \\left(\\frac{\\Pi(X)}{\\bar{\\Pi}}\\right)+\\rho_{y} \\log \\left(\\frac{y}{\\bar{y}}\\right)+D\n", + "\\end{aligned}\n", + "* $\\bar{\\Pi}$: inflation target\n", + "* $\\bar{y}$: output target\n", + "* D: Persistent monetary policy shocks\n", + " * follows a first-order autoregressive process:\n", + " \\begin{aligned}\n", + " \\log \\left(D^{\\prime}\\right)=\\rho_{D} \\log (D)+\\epsilon_{D}, \\text { where } \\epsilon_{D} \\text { is i.i.d. } N\\left(0, \\sigma_{D}^{2}\\right), \\rho_{D} \\in[0,1)\n", + " \\end{aligned}" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "### Market Equilibrium" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The model consists of 6 markets: \n", + "* final goods\n", + "* intermediate goods\n", + "* labor services\n", + "* capital services\n", + "* share of mutual funds\n", + "* bonds\n", + "\n", + "The paper describes multiple market clearing conditions and defines a recursive equilibrium. " + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Computation" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The model is calibrated for the sample of the time period: 1984Q1 - 2008Q3. One period refers to a quarter. \n", + "\n", + "The following table shows the calibration parameter values. Once calibrated, the model is solved numerically. \n", + "* Computation involves a solution method of an equilibrium with aggregate uncertainty (described in Appendix B)\n", + "\n", + "" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "In order to calibrate the model, we also need information about the transition probabilities between different skill levels. Table below describes assigned probabilities.\n", + "\n", + "" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Results" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Transmission of a Technology Shock (TFP)" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "#### Response of the aggregate economy" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "First, the response of the aggregate economy, including output and its components, labor market, prices, and assets, to the TFP shocks is reported. (1% TFP shock in period 1)\n", + "\n", + "Figures present responses in the New Keynesian (NK) model and in the economy without nominal rigidities (RBC). \n", + "\n", + "Output and Components(Consumption, Investment, Capacity Utilization):\n", + "\n", + "* Responses are larger in the NK economy compared to RBC\n", + "* Output, aggregate consumption and investment rise in response to the shock\n", + "* Capacity utilization rises more in the NK model due to the stronger demand effect\n", + "\n", + "Labor Market:\n", + "\n", + "* Demand and price for labor services increases\n", + "* More vacancies are posted\n", + "* The job finding rate rises by 3 %\n", + "* Employment increases due to the TFP shock and unemployment decreases by 0.4 %\n", + "\n", + "Productivity and Prices:\n", + "\n", + "* Despite the increase in productivity, inflation rises\n", + "* The aggregate wage rises less than output\n", + "* The value of household-firm matches increases\n", + "\n", + "Assets:\n", + "\n", + "* The value of firms increases\n", + "* The share prices of the mutual fund increases by 0.6 %\n", + "* During first 10 periods, mutual fund decreases dividend payments\n", + "* Real return on the bond falls initially" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "#### Effect on Inequality" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Second, the impact of a productivity shock on inequality is reported. \n", + "\n", + "* TFP shock increases the standard of living for all households\n", + "* Labor-related income rises for all segments of population\n", + "* Labor earnings of all households are affected proportionally\n", + "* Labor income increases by a different degree for different segments of wealth\n", + "* The lowest percentiles of the wealth distribution show stronger response in terms of all income compared to higher percentiles\n", + "* Consumption response is also heterogeneous\n", + "* The responses of the Gini indexes is mild\n", + " * 1 % TFP shocks results into a fall of the earnings Gini by 0.16 %" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Note: Here I will not be be displaying figures related to a TFP shock" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Transmission of a Monetary Policy Shock" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "#### Response of the aggregate economy" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The main part of the paper is reported here. More specifically, monetary policy shock allows for a discussion of the impact of monetary policy on inequality. \n", + "Again, first, the responces of the aggregate economy to a contractionary policy shock is reported. \n", + "\n", + "* Monetary shock is chosen in a way that it increases nominal interest rate by 1 %, annual in period 1\n", + "\n", + "Output and Components(Consumption, Investment and Capacity Utilization):\n", + "\n", + "* Expected long real rate of interest rises (by design)\n", + "* Households save more and cut consumption by 0.3 %\n", + "* Markups of intermediate goods firms increases and aggregate demand falls\n", + "* Investment and capacity utilization falls\n", + "\n", + "\n", + "\n", + "Labor Market: \n", + "\n", + "* Monetary policy tightening reduces demand for labor services\n", + "* Hiring, vacancy posting and job finding rates fall \n", + "* Unemployment rate increases by 1.5 %\n", + "* Since households are borrowing-constrained, unemployment decreases aggregate demand even further\n", + "\n", + "\n", + "\n", + "Productivity and Price:\n", + "\n", + "* The rental rates for labor and capital services fall\n", + "* Inflation decreases by 2 %\n", + "* Increase in the long term real rate of interest decreases inflation\n", + "* long term real rate of interest higher than usual\n", + "\n", + "\n", + "\n", + "Assets:\n", + "\n", + "* Share price declines\n", + "* Investment becomes less profitable\n", + "\n", + "\n" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "#### Effect on Inequality" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Now, the paper reports the impact of a contractionary monetary policy on different segments of households. \n", + "\n", + "* The initial drop in labor income is the biggest for higher wealth percentiles\n", + "* Monetary policy significantly impacts composition of income\n", + "* Income of high-wealth household rises strongly because of an increase in dividends\n", + "* Income of lower-wealth households declines\n", + "* Difference in the responce of income betwee the top 5% and the bottom 5% is very significant, 7% (income heterogeneity)\n", + "* Consumption declines for the lower-wealth households and is stable for the wealthiest\n", + "\n", + "\n", + "\n", + "* As a result of monetary tightening, earnings Gini rises by 0.6 % (persistent)\n", + "* Both the income and consumption Gini rise \n", + "* Conclusion: even short-lived monetary policy intervention has a persistent impact on wealth and consumption inequality\n", + "\n", + "\n", + "\n" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Welfare effects of Productivity and Monetary Policy Shocks" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The paper reports the same information from a different perspective. In particular, in this section authors analyze welfare gainst and costs measured as consumption. \n", + "\n", + "* Monetary policy shock: 5% richest households gain 0.02% consumption-equivalend from the monetary tightening policy. The rest of the households have welfare losses (monotonic in wealth).\n", + "\n", + "" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "## Subsequent Literature" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "Later work has extended the analysis of **monetary policy in heterogeneous-agent New Keynesian (HANK) models**. One line of research focuses on transmission mechanisms: how marginal propensities to consume, wealth distributions, and labor income risk change aggregate and distributional responses to monetary shocks (e.g. Herkenhoff 2015; Chen 2018; Alves 2019). Another line deepens the role of **labor market frictions** in HANK models—unemployment risk, job-finding rates, and wage rigidity—and shows that they amplify distributional effects and matter for optimal policy (e.g. Hagedorn 2018; Bertsch 2017; Jones 2017). The frontier combines rich household heterogeneity with empirically grounded labor market dynamics and policy rules; open questions include identification of redistribution channels in the data and the interaction of monetary and fiscal policy in HANK environments." + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "# Conclusion" + ] + }, + { + "cell_type": "markdown", + "metadata": {}, + "source": [ + "The monetary policy shocks have significantly different implications in terms of the welfare of different segments of households. While households in the top 5% of wealth distribution see benefits from a contractionary monetary policy, the bottom 5% of wealth distribution faces losses. Therefore, monetary policy affects different households differently and increases earnings, income, wealth and consumption heterogeneity.\n", + "\n", + "* The effects are significant even after the impact of monetary policy on aggregate economy has died out\n", + "* TFP shocks affect the population more uniformly\n", + "* Contractionary monetary policy only benefits the wealthiest" + ] + } + ], + "metadata": { + "kernelspec": { + "display_name": "Python 3", + "language": "python", + "name": "python3" + }, + "language_info": { + "codemirror_mode": { + "name": "ipython", + "version": 3 + }, + "file_extension": ".py", + "mimetype": "text/x-python", + "name": "python", + "nbconvert_exporter": "python", + "pygments_lexer": "ipython3", + "version": "3.7.3" + } + }, + "nbformat": 4, + "nbformat_minor": 2 +} diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/index.md b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/index.md new file mode 100644 index 00000000..8a2bfd4d --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/index.md @@ -0,0 +1,15 @@ +--- +title: "Monetary Policy with Heterogeneous Agents — Ballpark Entry" +--- + +```{include} GKNMonetaryPolicyHA_intro.ipynb +``` + +```{include} GKNMonetaryPolicyHA_prior-literature.ipynb +``` + +```{include} GKNMonetaryPolicyHA_summary.ipynb +``` + +```{include} GKNMonetaryPolicyHA_subsequent-literature.ipynb +``` \ No newline at end of file diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/myst.yml b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/myst.yml new file mode 100644 index 00000000..df39e685 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/myst.yml @@ -0,0 +1,13 @@ +version: 1 + +project: + title: "Monetary Policy with Heterogeneous Agents — Ballpark Entry" + bibliography: + - self.bib + - references.bib + - subsequent-literature.bib + toc: + - file: index.md + +site: + title: "Monetary Policy with Heterogeneous Agents — Ballpark Entry" \ No newline at end of file diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/prior-literature.md b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/prior-literature.md new file mode 100644 index 00000000..408fc3b7 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/prior-literature.md @@ -0,0 +1,15 @@ +# Prior Literature Summary: Monetary Policy with Heterogeneous Agents + +## The papers my ballpark paper cites + +The paper builds on two major strands of macroeconomic research. The first is the New Keynesian literature on monetary policy, which emphasizes nominal rigidities and interest-rate rules as the core transmission mechanisms of monetary policy. Foundational work such as Woodford (1998) established that monetary policy can be analyzed in “cashless” New Keynesian models where inflation dynamics are governed by interest rate rules rather than money supply, providing the standard framework used in modern DSGE analysis. Within this framework, much of the earlier literature relied on representative-agent assumptions, abstracting from distributional consequences of monetary policy. + +The second strand concerns heterogeneous-agent macroeconomics with incomplete markets and labor market frictions. Starting with Aiyagari (1994), the literature showed that uninsurable idiosyncratic risk and borrowing constraints generate precautionary saving and realistic wealth distributions. Subsequent work, summarized by Heathcote, Storesletten, and Violante (2009), emphasized how heterogeneity matters for aggregate dynamics and welfare. Parallel research incorporated search and matching frictions into general equilibrium models of unemployment (e.g., Costain and Reiter, 2005; Jung and Kuester, 2011), highlighting the welfare costs of labor market risk over the business cycle. However, much of this work studied fiscal policy or business cycles rather than monetary policy. The contribution of the ballpark paper is to integrate heterogeneous households, incomplete markets, and search frictions into a New Keynesian framework, allowing for a quantitative assessment of the redistributive and welfare effects of monetary policy. + +## Key foundational papers + +- **Woodford (1998), _Doing without Money_**: Established the modern New Keynesian framework in which monetary policy is conducted through interest rate rules rather than money aggregates. +- **Aiyagari (1994), _Uninsured Idiosyncratic Risk and Aggregate Saving_**: Provided the canonical incomplete-markets model generating precautionary saving and realistic wealth inequality. +- **Heathcote, Storesletten, and Violante (2009), _Quantitative Macroeconomics with Heterogeneous Households_**: Synthesized the heterogeneous-agent literature and clarified why distributional considerations matter for macroeconomic outcomes. +- **Costain and Reiter (2005), _Stabilization versus Insurance_**: Introduced unemployment risk and precautionary saving into general equilibrium models, highlighting welfare trade-offs under incomplete markets. +- **Jung and Kuester (2011), _(Un)importance of Unemployment Fluctuations_**: Quantified welfare costs of business cycles in models with search frictions, motivating the importance of labor market risk for policy analysis. diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/proposed-revisions.md b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/proposed-revisions.md new file mode 100644 index 00000000..cfb111fc --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/proposed-revisions.md @@ -0,0 +1,66 @@ +# Proposed Revisions: Monetary Policy with Heterogeneous Agents (Görnemann, Kuester, Nakajima, 2012) + +## 1. Where to insert each section + +- **Prior Literature** + **Insert after the "Overview" block** (after the cell that says *"The goal of the paper is to establish the extent to which monetary policy in the US might have distributional effects..."*). + In the current notebook that is **after cell index 6**. Add two new markdown cells: one with the heading `## Prior Literature`, the next with the draft text below. + +- **Subsequent Literature** + **Insert after the "Results" section and before "Conclusion"** — i.e. after the welfare subsection (after the cell that contains the Table7 image and the sentence about the top 5% gaining 0.02% consumption-equivalent). + In the current notebook that is **after cell index 54**. Add two new markdown cells: one with the heading `## Subsequent Literature`, the next with the draft text below. + +--- + +## 2. Prior Literature — draft text (ballpark-style) + +**Heading (new cell):** `## Prior Literature` + +**Body (new cell):** + +The paper combines two strands of macroeconomics. The first is **New Keynesian monetary policy**: nominal rigidities and interest-rate rules as the main transmission mechanism. Woodford (1998) showed that inflation can be analyzed in a “cashless” setup where the central bank sets interest rates rather than the money supply, which is the standard basis for modern DSGE policy analysis. Much of that work used a representative agent and ignored distribution. + +The second strand is **heterogeneous-agent macroeconomics** with incomplete markets and labor market frictions. Aiyagari (1994) showed that uninsurable idiosyncratic risk and borrowing limits generate precautionary saving and realistic wealth inequality. Later work (e.g. Heathcote, Storesletten, and Violante 2009) clarified how heterogeneity matters for aggregates and welfare. Search and matching were brought into general equilibrium models of unemployment (e.g. Mortensen and Pissarides 1994; Merz 1995), and combined with nominal rigidities (e.g. Walsh 2005; Krause and Lubik 2007; Blanchard and Galí 2010). The distributional effects of inflation and monetary policy were studied in incomplete-markets settings (e.g. Erosa and Ventura 2002; Doepke and Schneider 2006; Meh and Terajima 2011). GKN’s contribution is to integrate heterogeneous households, incomplete markets, and search frictions into a single New Keynesian model, so that the redistributive and welfare effects of monetary policy can be quantified. + +--- + +## 3. Subsequent Literature — draft text (ballpark-style) + +**Heading (new cell):** `## Subsequent Literature` + +**Body (new cell):** + +Later work has extended the analysis of **monetary policy in heterogeneous-agent New Keynesian (HANK) models**. One line of research focuses on transmission mechanisms: how marginal propensities to consume, wealth distributions, and labor income risk change aggregate and distributional responses to monetary shocks (e.g. Herkenhoff 2015; Chen 2018; Alves 2019). Another line deepens the role of **labor market frictions** in HANK models—unemployment risk, job-finding rates, and wage rigidity—and shows that they amplify distributional effects and matter for optimal policy (e.g. Hagedorn 2018; Bertsch 2017; Jones 2017). The frontier combines rich household heterogeneity with empirically grounded labor market dynamics and policy rules; open questions include identification of redistribution channels in the data and the interaction of monetary and fiscal policy in HANK environments. + +--- + +## 4. Other small improvements + +- **Typos and wording (search-and-replace):** + - "aggegate" → "aggregate" + - "attibutes" → "attributes" + - "responces" → "responses" (all instances) + - "exogeneous" → "exogenous" + - "intermedaite" → "intermediate" + - "procuers" → "producers" + - "autogregressive" → "autoregressive" + - "compenents" → "components" + - "constraines" → "constrained" + - "gaint" → "gains" (welfare gains) + - "wealthies" → "wealthiest" + - "loses" → "losses" + - "fof" → "of" (in "type distribution fof households") + +- **Citation:** + - "Mortensen and Pissaridis" → **Mortensen and Pissarides** (correct spelling) in the "Incomplete Markets and heterogeneity" cell. + - "Krusell et al., 2010" in the same cell is ambiguous; consider replacing with a specific reference (e.g. **Krusell and Smith (1998)** for heterogeneity, or the actual 2010 paper if different). + +- **Structure:** + - The link to the working paper is already in the title; no change needed. + - Optionally add a one-sentence “Key result” under the title (e.g. *Contractionary monetary policy raises welfare for the wealthiest 5% and lowers it for the rest.*) to help scanners. + +- **Consistency:** + - Use **GKN** or **Görnemann, Kuester, and Nakajima (2012)** consistently in the new Prior/Subsequent sections and in the Conclusion. + +- **Citations:** + - If the notebook supports citations (e.g. jupyterlab-citation-manager), add keys for the Prior and Subsequent literature so they appear in the bibliography; otherwise keep the inline “Author (year)” form as in the draft text above. diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/references.bib b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/references.bib new file mode 100644 index 00000000..b3680db5 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/references.bib @@ -0,0 +1,1521 @@ +@ARTICLE{Akyol2004-my, + title = "Optimal Monetary Policy in an Economy with Incomplete Markets and + Id- iosyncratic Risk", + author = "Akyol, Ahmet", + journal = "J. Monet. Econ.", + volume = 51, + number = 6, + pages = "1245--1269", + month = sep, + year = 2004 +} + +@ARTICLE{Albanesi2007-nt, + title = "Inflation and inequality", + author = "Albanesi, Stefania", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 54, + number = 4, + pages = "1088--1114", + abstract = "Cross-country evidence on inflation and income inequality + suggests that they are positively related. This article explores + the hypothesis that this correlation is the outcome of a + distributional conflict underlying the determination of + government policies. A political economy model is presented in + which equilibrium inflation is positively related to the degree + of inequality in income due to the relative vulnerability to + inflation of low income households.", + month = may, + year = 2007, + language = "en" +} + +@ARTICLE{Altig2011-ic, + title = "Firm- Specific Capital, Nominal Rigidities and the Business Cycle", + author = "Altig, David and Christiano, Lawrence and Eichenbaum, Martin and + Linde, Jesper", + journal = "Rev. Econ. Dyn.", + volume = 14, + number = 2, + pages = "225--247", + month = apr, + year = 2011 +} + +@ARTICLE{Andolfatto1996-gw, + title = "Business cycles and labor-market search", + author = "Andolfatto, D", + journal = "The American Economic Review", + volume = 86, + number = 1, + pages = "112--132", + month = mar, + year = 1996 +} + +@ARTICLE{Barnichon2010-jj, + title = "Building a composite help-wanted index", + author = "Barnichon, Regis", + journal = "Econ. Lett.", + publisher = "Elsevier BV", + volume = 109, + number = 3, + pages = "175--178", + abstract = "This paper builds a measure of vacancy posting over 1951–2009 + that captures the behavior of total—print and online— help-wanted + advertising, and can be used for time series analysis of the US + labor market.", + month = dec, + year = 2010, + language = "en" +} + +@ARTICLE{Chang2011-qr, + title = "Labor-Market Heterogeneity, Aggregation, and the + Policy-(In)variance of {DSGE} Model Parameters", + author = "Chang, Yongsung and Kim, Sun-Bin and Schorfheide, Frank", + journal = "RCER Working Papers", + volume = 566, + month = sep, + year = 2011 +} + +@ARTICLE{Cheron2000-nf, + title = "The Phillips and Beveridge curves revisited", + author = "Chéron, Arnaud and Langot, François", + journal = "Econ. Lett.", + publisher = "Elsevier BV", + volume = 69, + number = 3, + pages = "371--376", + abstract = "This paper extends the labor market search model to account for + monopolist intermediate good firms who face price adjustment + costs. We show quantitatively that embedding monetary shocks in + this framework allows to mimic the Phillips and Beveridge curves.", + month = dec, + year = 2000, + language = "en" +} + +@ARTICLE{Christiano2005-ku, + title = "Nominal Rigidi- ties and the Dynamic Effects of a Shock to Monetary + Policy", + author = "Christiano, Lawrence J and Eichenbaum, Martin and Evans, Charles L", + journal = "J. Polit. Econ.", + volume = 113, + number = 1, + pages = "1--45", + month = feb, + year = 2005 +} + +@ARTICLE{Christoffel2008-tj, + title = "The New Area-Wide Model of the Euro Area - A Micro-Founded + Open-Economy Model for Forecasting and Policy Analysis", + author = "Christoffel, Kai and unter Coenen, Anders", + journal = "Work. Pap. Ser.", + volume = 944, + month = sep, + year = 2008 +} + +@BOOK{Chung2010-sz, + title = "Documentation of the Estimated, Dynamic, Optimization-based ({EDO}) + Model of the {U}.{S}. Economy: 2010 Version,” Finance and Economics + Discussion Series 2010-29, Board of Governors of the Federal + Reserve System", + author = "Chung, Hess T and Michael, T and Kiley, Jean-Philippe", + address = "U.S.", + year = 2010 +} + +@ARTICLE{Clarida1998-sk, + title = "Monetary Policy Rules in Practice: Some International Evidence", + author = "Clarida, Richard and Gal, Jordi and Gertler, Mark", + journal = "Eur. Econ. Rev.", + volume = 42, + number = 6, + pages = "1033--1067", + month = jun, + year = 1998 +} + +@ARTICLE{Clarida2000-pd, + title = "Monetary policy rules and macroeconomic stability: Evidence and + some theory", + author = "Clarida, Richard and Gali, Jordi and Gertler, Mark", + journal = "Q. J. Econ.", + publisher = "Oxford University Press (OUP)", + volume = 115, + number = 1, + pages = "147--180", + abstract = "We estimate a forward-looking monetary policy reaction function + for the postwar United States economy, before and after Volcker’s + appointment as Fed Chairman in 1979. Our results point to + substantial differences in the estimated rule across periods. In + particular, interest rate policy in the Volcker-Greenspan period + appears to have been much more sensitive to changes in expected + ineation than in the pre-Volcker period. We then compare some of + the implications of the estimated rules for the equilibrium + properties of ineation and output, using a simple macroeconomic + model, and show that the Volcker-Greenspan rule is stabilizing.", + month = feb, + year = 2000, + language = "en" +} + +@ARTICLE{Cogley2010-ek, + title = "Coibion, Olivier and Yuriy Gorodnichenko, “Monetary Policy, Trend + Inflation, and the Great Moderation: An Alternative Interpretation", + author = "Cogley, Timothy and Primiceri, Giorgio E and Sargent, Thomas J", + journal = "Am. Econ. J. Macroecon.", + volume = 2, + number = 1, + pages = "341--370", + month = jan, + year = 2010 +} + +@ARTICLE{Kueng2012-it, + title = "Innocent Bystanders? Monetary Policy and In- equality in the + {U}.{S},” {NBER} Working Papers 18170", + author = "Kueng, Lorenz and Silvia, John", + journal = "National Bureau of Economic Research", + month = jun, + year = 2012 +} + +@ARTICLE{Blanchard2010-tz, + title = "Labor markets and monetary policy: A new Keynesian model with + unemployment", + author = "Blanchard, Olivier and Galí, Jordi", + journal = "Am. Econ. J. Macroecon.", + publisher = "American Economic Association", + volume = 2, + number = 2, + pages = "1--30", + month = apr, + year = 2010 +} + +@ARTICLE{Curdia2010-mq, + title = "Credit spreads and monetary policy", + author = "Cúrdia, Vasco and Woodford, Michael", + journal = "J. Money Credit Bank.", + publisher = "Wiley", + volume = 42, + number = "s1", + pages = "3--35", + abstract = "We consider the desirability of modifying a standard Taylor rule + for interest rate policy to incorporate adjustments for measures + of financial conditions. We consider the consequences of such + adjustments for the way policy would respond to a variety of + disturbances, using the dynamic stochastic general equilibrium + model with credit frictions developed in Cúrdia and Woodford + (2009a). According to our model, an adjustment for variations in + credit spreads can improve upon the standard Taylor rule, but the + optimal size of adjustment depends on the source of the variation + in credit spreads. A response to the quantity of credit is less + likely to be helpful.", + month = sep, + year = 2010, + language = "en" +} + +@ARTICLE{Dedola2007-ox, + title = "What does a technology shock do? A {VAR} analysis with + model-based sign restrictions", + author = "Dedola, Luca and Neri, Stefano", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 54, + number = 2, + pages = "512--549", + abstract = "This paper estimates the effects of technology shocks in VAR + models of the U.S., identified by imposing restrictions on the + sign of impulse responses. These restrictions are consistent with + the implications of a popular class of DSGE models, with both + real and nominal frictions, and with sufficiently wide ranges for + their parameters. This identification strategy thus substitutes + theoretically motivated restrictions for the atheoretical + assumptions on the time-series properties of the data that are + key to long-run restrictions. Stochastic technology improvements + persistently increase real wages, consumption, investment and + output in the data; hours worked are very likely to increase, + displaying a hump-shaped pattern. Contrary to most of the related + VAR evidence, results are not sensitive to a number of + specification assumptions, including those on the stationarity + properties of variables.", + month = mar, + year = 2007, + language = "en" +} + +@ARTICLE{Wouter2000-qx, + title = "Job Destruction and Propagation of Shocks", + author = "Wouter, J and Ramey, Garey and Watson, Joel", + journal = "Am. Econ. Rev.", + volume = 90, + number = 3, + pages = "482--498", + month = jun, + year = 2000 +} + +@ARTICLE{Unknown2008-vo, + title = "Business cycles, unemployment insurance, and the calibration of + matching mod- els", + journal = "J. Econ. Dyn. Control", + volume = 32, + number = 4, + pages = "1120--1155", + year = 2008 +} + +@ARTICLE{Doepke2006-sm, + title = "Aggregate Implications of Wealth Redistribu- tion: The Case of + Inflation", + author = "Doepke, Matthias and Schneider, Martin", + journal = "J. Eur. Econ. Assoc.", + year = 2006 +} + +@ARTICLE{Meh2011-tz, + title = "Inflation, nominal portfolios, and wealth redistribution in + Canada: Inflation, nominal portfolios, and wealth redistribution", + author = "Meh, Césaire A and Terajima, Yaz", + journal = "Can. J. Econ.", + publisher = "Wiley", + volume = 44, + number = 4, + pages = "1369--1402", + abstract = "Abstract This paper quantifies the redistributional effects of + inflation in Canada that arise through the revaluation of nominal + assets and liabilities. We find that the effects are non‐trivial + even for low inflation episodes. The main winners are young, + middle‐class households with mortgage debt. The government + receives a windfall gain from its long‐term debt. The old, the + rich or the middle‐aged, middle‐class lose, largely owing to + their holdings of bonds and non‐indexed defined benefit pension + assets. Finally, our Canada‐U.S. comparison reveals that the + extent of redistributions can be quite different even between + countries of similar economic and legal environments.", + month = nov, + year = 2011, + language = "en" +} + +@ARTICLE{Clarida1998-gc, + title = "Monetary Policy Rules in Practice: Some International Evidence", + author = "Clarida, Richard and Gal, Jordi and Gertler, Mark", + journal = "Eur. Econ. Rev.", + volume = 42, + number = 6, + pages = "1033--1067", + month = jun, + year = 1998 +} + +@ARTICLE{Clarida2000-lh, + title = "Monetary policy rules and macroeconomic stability: Evidence and + some theory", + author = "Clarida, Richard and Gali, Jordi and Gertler, Mark", + journal = "Q. J. Econ.", + publisher = "Oxford University Press (OUP)", + volume = 115, + number = 1, + pages = "147--180", + abstract = "We estimate a forward-looking monetary policy reaction function + for the postwar United States economy, before and after Volcker’s + appointment as Fed Chairman in 1979. Our results point to + substantial differences in the estimated rule across periods. In + particular, interest rate policy in the Volcker-Greenspan period + appears to have been much more sensitive to changes in expected + ineation than in the pre-Volcker period. We then compare some of + the implications of the estimated rules for the equilibrium + properties of ineation and output, using a simple macroeconomic + model, and show that the Volcker-Greenspan rule is stabilizing.", + month = feb, + year = 2000, + language = "en" +} + +@ARTICLE{Cogley2010-zi, + title = "Coibion, Olivier and Yuriy Gorodnichenko, “Monetary Policy, Trend + Inflation, and the Great Moderation: An Alternative Interpretation", + author = "Cogley, Timothy and Primiceri, Giorgio E and Sargent, Thomas J", + journal = "Am. Econ. J. Macroecon.", + volume = 2, + number = 1, + pages = "341--370", + month = jan, + year = 2010 +} + +@ARTICLE{Kueng2012-su, + title = "Innocent Bystanders? Monetary Policy and In- equality in the + {U}.{S},” {NBER} Working Papers 18170", + author = "Kueng, Lorenz and Silvia, John", + journal = "National Bureau of Economic Research", + month = jun, + year = 2012 +} + +@ARTICLE{Curdia2010-xr, + title = "Credit spreads and monetary policy", + author = "Cúrdia, Vasco and Woodford, Michael", + journal = "J. Money Credit Bank.", + publisher = "Wiley", + volume = 42, + number = "s1", + pages = "3--35", + abstract = "We consider the desirability of modifying a standard Taylor rule + for interest rate policy to incorporate adjustments for measures + of financial conditions. We consider the consequences of such + adjustments for the way policy would respond to a variety of + disturbances, using the dynamic stochastic general equilibrium + model with credit frictions developed in Cúrdia and Woodford + (2009a). According to our model, an adjustment for variations in + credit spreads can improve upon the standard Taylor rule, but the + optimal size of adjustment depends on the source of the variation + in credit spreads. A response to the quantity of credit is less + likely to be helpful.", + month = sep, + year = 2010, + language = "en" +} + +@ARTICLE{Wouter2000-pu, + title = "Job Destruction and Propagation of Shocks", + author = "Wouter, J and Ramey, Garey and Watson, Joel", + journal = "Am. Econ. Rev.", + volume = 90, + number = 3, + pages = "482--498", + month = jun, + year = 2000 +} + +@ARTICLE{Doepke2006-gn, + title = "Aggregate Implications of Wealth Redistribu- tion: The Case of + Inflation", + author = "Doepke, Matthias and Schneider, Martin", + journal = "J. Eur. Econ. Assoc.", + year = 2006 +} + +@ARTICLE{Meh2011-ik, + title = "Inflation, nominal portfolios, and wealth redistribution in + Canada: Inflation, nominal portfolios, and wealth redistribution", + author = "Meh, Césaire A and Terajima, Yaz", + journal = "Can. J. Econ.", + publisher = "Wiley", + volume = 44, + number = 4, + pages = "1369--1402", + abstract = "Abstract This paper quantifies the redistributional effects of + inflation in Canada that arise through the revaluation of nominal + assets and liabilities. We find that the effects are non‐trivial + even for low inflation episodes. The main winners are young, + middle‐class households with mortgage debt. The government + receives a windfall gain from its long‐term debt. The old, the + rich or the middle‐aged, middle‐class lose, largely owing to + their holdings of bonds and non‐indexed defined benefit pension + assets. Finally, our Canada‐U.S. comparison reveals that the + extent of redistributions can be quite different even between + countries of similar economic and legal environments.", + month = nov, + year = 2011, + language = "en" +} + +@ARTICLE{D-iaz-Gim-enez2011-he, + title = "Facts on the Distri- butions of Earnings, Income, and Wealth in the + United States: 2007 Update", + author = "D ́ıaz-Gim ́enez, Javier and Glover, Andrew and ́e-V ́ctor R + ́ıos-Rull, Jos", + journal = "Q. Rev. - Fed. Reserve Bank Minneap.", + volume = 34, + number = 1, + pages = "2--31", + year = 2011 +} + +@ARTICLE{Erosa2002-pr, + title = "On inflation as a regressive consumption tax", + author = "Erosa, Andrés and Ventura, Gustavo", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 49, + number = 4, + pages = "761--795", + abstract = "Evidence on the portfolio holdings and transaction patterns of + households suggests that the burden of inflation is not evenly + distributed. We build a monetary growth model consistent with key + features of cross-sectional household data and use this framework + to study the distributional impact of inflation. At the aggregate + level, our model economy behaves similar to standard monetary + growth models within the representative agent abstraction. + Inflation has, however, important distributional effects since it + is effectively a regressive consumption tax. Thus, neglecting the + distributional consequences of inflation may prove misleading in + assessing the effects of inflation in our economy.", + month = may, + year = 2002, + language = "en" +} + +@ARTICLE{Gal-i1999-ir, + title = "Technology, Employment, and the Business Cycle: Do Technology + Shocks Explain Aggregate Fluctuations?", + author = "Gal ́ı, Jordi", + journal = "Am. Econ. Rev.", + volume = 89, + number = 1, + pages = "249--271", + month = mar, + year = 1999 +} + +@BOOK{Unknown2008-cm, + title = "{M} onetary Policy, Inflation, and the Business Cycle", + publisher = "Princeton University Press", + address = "Princeton, NJ", + year = 2008 +} + +@BOOK{Friedman2014-ua, + title = "Handbook of monetary economics, volume {3b}", + editor = "Friedman, Benjamin M and Woodford, Michael", + publisher = "North-Holland", + series = "Handbook of Monetary Economics", + month = may, + year = 2014 +} + +@ARTICLE{Gali1999-ql, + title = "Inflation dynamics: A structural econometric analysis", + author = "Galı́, Jordi and Gertler, Mark", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 44, + number = 2, + pages = "195--222", + abstract = "We develop and estimate a structural model of inflation that + allows for a fraction of firms that use a backward-looking rule + to set prices. The model nests the purely forward-looking New + Keynesian Phillips curve as a particular case. We use measures of + marginal cost as the relevant determinant of inflation, as the + theory suggests, instead of an ad hoc output gap. Real marginal + costs are a significant and quantitatively important determinant + of inflation. Backward-looking price setting, while statistically + significant, is not quantitatively important. Thus, we conclude + that the New Keynesian Phillips curve provides a good first + approximation to the dynamics of inflation.", + month = oct, + year = 1999, + language = "en" +} + +@ARTICLE{David-L-opez-Salido2007-no, + title = "Understanding the Effects of Government Spending on Consumption", + author = "David L ́opez-Salido, Javier", + journal = "J. Eur. Econ. Assoc.", + volume = 5, + number = 1, + pages = "227--270", + year = 2007 +} + +@BOOK{Glover2011-gr, + title = "In- tergenerational Redistribution in the Great Recession", + author = "Glover, Andrew and Heathcote, Jonathan and Krueger, Dirk and + ́e-Victor R ́ıos-Rull, Jos", + address = "Federal Reserve Bank of Minneapolis", + volume = 684, + year = 2011 +} + +@INCOLLECTION{Gruber1998-sq, + title = "Unemployment Insurance, Consumption Smoothing, and Private Insur- + ance: Evidence from the {PSID} and {CEX}", + author = "Gruber, Jonathan", + editor = "Bassi, Laurie J and Woodbury, Stephen A", + booktitle = "Reform of the Unemployment Insurance System", + publisher = "Emerald Group Publishing Limited", + address = "Bingley, UK", + volume = 1, + pages = "3--32", + year = 1998 +} + +@ARTICLE{Hagedorn2008-ng, + title = "The Cyclical Behavior of Equilibrium Unem- ployment and Vacancies + Revisited", + author = "Hagedorn, Marcus and Manovskii, Iourii", + journal = "American Economic Review", + volume = 98, + number = 4, + pages = "1692--1706", + month = sep, + year = 2008 +} + +@ARTICLE{Hall2011-rj, + title = "Interest rate risk and other determinants of post-{WWII} {US} + government debt/{GDP} dynamics", + author = "Hall, George J and Sargent, Thomas J", + journal = "Am. Econ. J. Macroecon.", + publisher = "American Economic Association", + volume = 3, + number = 3, + pages = "192--214", + abstract = "This paper uses a sequence of government budget constraints to + motivate estimates of returns on the US Federal government debt. + Our estimates differ conceptually and quantitatively from the + interest payments reported by the US government. We use our + estimates to account for contributions to the evolution of the + debt-GDP ratio made by inflation, growth, and nominal returns + paid on debts of different maturities. (JEL E23, E31, E43, G12, + H63)", + month = jul, + year = 2011, + language = "en" +} + +@ARTICLE{Hall2005-gl, + title = "Employment fluctuations with equilibrium wage stickiness", + author = "Hall, Robert E", + journal = "Am. Econ. Rev.", + publisher = "American Economic Association", + volume = 95, + number = 1, + pages = "50--65", + abstract = "Following a recession, the aggregate labor market is + slack-employment remains below normal and recruiting efforts of + employers, as measured by help-wanted advertising and vacancies, + are low. A model of matching friction explains the qualitative + responses of the labor market to adverse shocks, but requires + implausibly large shocks to account for the magnitude of observed + fluctuations. The incorporation of wage stickiness vastly + increases the sensitivity of the model to driving forces. I + develop a new model of the way that wage stickiness affects + unemployment. The stickiness arises in an economic equilibrium + and satisfies the condition that no worker-employer pair has an + unexploited opportunity for mutual improvement. Sticky wages + neither interfere with the efficient formation of employment + matches nor cause inefficient job loss. Thus the model provides + an answer to the fundamental criticism previously directed at + sticky-wage models of fluctuations.", + month = feb, + year = 2005 +} + +@ARTICLE{D-iaz-Gim-enez2011-ws, + title = "Facts on the Distri- butions of Earnings, Income, and Wealth in the + United States: 2007 Update", + author = "D ́ıaz-Gim ́enez, Javier and Glover, Andrew and ́e-V ́ctor R + ́ıos-Rull, Jos", + journal = "Q. Rev. - Fed. Reserve Bank Minneap.", + volume = 34, + number = 1, + pages = "2--31", + year = 2011 +} + +@BOOK{Hornstein2005-wh, + title = "Unemployment and Va- cancy Fluctuations in the Matching Model: + Inspecting the Mechanism,” Economic Quarterly", + author = "Hornstein, Andreas and Krusell, Per and Violante, Giovanni L", + address = "Summer", + volume = 91, + pages = "19--50", + year = 2005 +} + +@ARTICLE{Huggett1996-ig, + title = "Wealth distribution in life-cycle economies", + author = "Huggett, Mark", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 38, + number = 3, + pages = "469--494", + abstract = "This paper compares the age-wealth distribution produced in + life-cycle economies to the corresponding distribution in the US + economy. The idea is to calibrate the model economies to match + features of the US earnings distribution and then examine the + wealth distribution implications of the model economies. The + findings are that the calibrated model economies with earnings + and lifetime uncertainty can replicate measures of both aggregate + wealth and transfer wealth in the US. Furthermore, the model + economies produce the US wealth Gini and a significant fraction + of the wealth inequality within age groups. However, the model + economies produce less than half the fraction of wealth held by + the top 1 percent of US households.", + month = dec, + year = 1996, + language = "en" +} + +@ARTICLE{Iacoviello2005-nd, + title = "House Prices, Borrowing Constraints, and Monetary Policy in the + Busi- ness Cycle", + author = "Iacoviello, Matteo", + journal = "Am. Econ. Rev.", + volume = 95, + number = 3, + pages = "739--764", + month = jun, + year = 2005 +} + +@ARTICLE{Rudebusch2006-id, + title = "Monetary policy inertia: Fact or fiction?", + author = "Rudebusch, Glenn D and {Federal Reserve Bank of San Francisco}", + journal = "Federal Reserve Bank of San Francisco, Working Paper Series", + publisher = "Federal Reserve Bank of San Francisco", + pages = "1.000--52.000", + month = aug, + year = 2006 +} + +@ARTICLE{Krause2007-dg, + title = "The (ir)relevance of real wage rigidity in the New Keynesian + model with search frictions", + author = "Krause, Michael U and Lubik, Thomas A", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 54, + number = 3, + pages = "706--727", + abstract = "We develop a New Keynesian model with search and matching + frictions in the labor market. We show that the model generates + counterfactual labor market dynamics. In particular, it fails to + generate the negative correlation between vacancies and + unemployment in the data, i.e., the Beveridge curve. Introducing + real wage rigidity leads to a negative correlation, and increases + the magnitude of labor market flows to more realistic values. + However, inflation dynamics are only weakly affected by real wage + rigidity. The reason is that labor market frictions give rise to + long-run employment relationships. The measure of real marginal + costs that is relevant for inflation in the Phillips curve + contains a present value component that varies independently of + the real wage.", + month = apr, + year = 2007, + language = "en" +} + +@ARTICLE{Per1997-nr, + title = "Income and Wealth Heterogeneity, Portfolio Choice, and Equilibrium + Asset Returns", + author = "Per, Anthony A", + journal = "Macroecon. Dyn.", + volume = 1, + number = 02, + pages = "387--422", + month = jun, + year = 1997 +} + +@ARTICLE{Krusell1998-rt, + title = "Income and wealth heterogeneity in the macroeconomy", + author = "Krusell, Per and Smith, Jr, Anthony A", + journal = "J. Polit. Econ.", + publisher = "University of Chicago Press", + volume = 106, + number = 5, + pages = "867--896", + abstract = "How do movements in the distribution of income and wealth affect + the macroeconomy? We analyze this question theoretically, using + numerical methods, in the context of a calibrated version of the + stochastic growth model with partially uninsurable idiosyncratic + risk and movements in aggregate productivity.", + month = oct, + year = 1998 +} + +@ARTICLE{ul-Sahin2010-sl, + title = "Labour-Market Matching with Precaution- ary Savings and Aggregate + Fluctuations", + author = "ul Sahin, Ayseg and Mukoyama, Toshihiko", + journal = "Rev. Econ. Stud.", + volume = 77, + number = 4, + pages = "1477--1507", + year = 2010 +} + +@ARTICLE{Kuester2010-ix, + title = "Real price and wage rigidities with matching frictions", + author = "Kuester, Keith", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 57, + number = 4, + pages = "466--477", + abstract = "Frictional unemployment means that workers, for some time, are a + firm-specific factor of production. This paper models the + resulting interaction of wage bargaining and price setting at the + firm level in a New Keynesian model with labor market matching + frictions. Real rigidities arise and the labor share ceases to be + a good proxy for marginal costs. The model replicates the impulse + responses of an SVAR for U.S. data better than alternatives in + which the real rigidities arising at the firm level are absent. + In addition, it implies reasonably low degrees of nominal + rigidity whereas the alternatives do not. The interaction of wage + and price setting at the firm level is important for the + macroeconomic dynamics.", + month = may, + year = 2010, + language = "en" +} + +@BOOK{Ledoit2011-qa, + title = "The Redistributive Effects of Monetary Policy,” {ECON} - Working + Papers {econwp044}", + author = "Ledoit, Olivier", + month = oct, + year = 2011 +} + +@BOOK{Mckay2012-st, + title = "The Role of Automatic Stabilizers in the {U}.{S}. Business Cycle,” + mimeo", + author = "Mckay, Alisdair and Reis, Ricardo", + address = "Boston University", + year = 2012 +} + +@ARTICLE{Meh2010-qs, + title = "Aggregate and welfare effects of redistribution of wealth under + inflation and price-level targeting", + author = "Meh, Césaire A and Ríos-Rull, José-Víctor and Terajima, Yaz", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 57, + number = 6, + pages = "637--652", + abstract = "An unanticipated rise in the price level redistributes wealth + from lenders to borrowers. Its size depends on the monetary + policy regime, as inflation targeting (IT) and price-level + targeting (PT) have different implications for the price-level + path following price-level movements. The effects of an + unexpected 1\% price-level increase are measured and assessed + under both regimes. Overall, the redistribution of wealth and the + implied aggregate and welfare effects are larger under IT than + they are under PT. The youngest, the poorest, and the government + gain at the expense of the rest of the population and, when the + government gain is given to households as lump-sum transfers, the + effects on GDP are negative and long-lasting.", + month = sep, + year = 2010, + language = "en" +} + +@ARTICLE{Merz1995-ji, + title = "Search in the labor market and the real business cycle", + author = "Merz, Monika", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 36, + number = 2, + pages = "269--300", + abstract = "Existing models of the business cycle have been incapable of + explaining many of the stylized facts that characterize the US + labor market. The standard real business cycle model is modified + by introducing two-sided search in the labor market as an + economic mechanism that propagates technology shocks. This new + analytical environment can explain many phenomena of the business + cycle that the standard model either has resolved in an + unsatisfactory manner or has not been able to address at all.", + month = nov, + year = 1995, + language = "en" +} + +@ARTICLE{Mortensen1994-fm, + title = "Job creation and job destruction in the theory of unemployment", + author = "Mortensen, D T and Pissarides, C A", + journal = "Rev. Econ. Stud.", + publisher = "Oxford University Press (OUP)", + volume = 61, + number = 3, + pages = "397--415", + abstract = "In this paper we model a job-specific shock process in the + matching model of unemployment with non-cooperative wage + behaviour. We obtain endogenous job creation and job destruction + processes and study their properties. We show that an aggregate + shock induces negative correlation between job creation and job + destruction whereas a dispersion shock induces positive + correlations. The job destruction process is shown to have more + volatile dynamics than the job creation process. In simulations + we show that an aggregate shock process proxies reasonably well + the cyclical behaviour of job creation and job destruction in the + United States.", + month = jul, + year = 1994 +} + +@ARTICLE{Nakajima2012-ys, + title = "Business cycles in the equilibrium model of labor market search + and self‐insurance: business cycles in the equilibrium model of + labor market search", + author = "Nakajima, Makoto", + journal = "Int. Econ. Rev. (Philadelphia)", + publisher = "Wiley", + volume = 53, + number = 2, + pages = "399--432", + abstract = "I introduce risk‐aversion, labor‐leisure choice, capital, + individual productivity shocks, and market incompleteness to the + standard model of labor search and matching and investigate the + model’s cyclical properties. I find that the model can generate + the observed large volatility of unemployment and vacancies with + a reasonable replacement rate of unemployment insurance benefits + of 64\%. Labor‐leisure choice plays a crucial role through + additional utility from leisure when unemployed and further + amplification from adjustments of hours worked. On the other + hand, the borrowing constraint or individual productivity shocks + do not significantly affect the cyclical properties of + unemployment and vacancies.", + month = may, + year = 2012, + language = "en" +} + +@ARTICLE{Petrongolo2001-tk, + title = "Looking into the black box: A survey of the matching function", + author = "Petrongolo, Barbara and Pissarides, Christopher A", + journal = "J. Econ. Lit.", + publisher = "American Economic Association", + volume = 39, + number = 2, + pages = "390--431", + abstract = "This paper surveys the microfoundations, empirical evidence, and + estimation issues underlying the aggregate matching function. + There is no consensus yet on microfoundations but one is emerging + on estimation. An aggregate, constant returns, Cobb-Douglas + matching function with hires as a function of vacancies and + unemployment has been successfully estimated for several + countries. Recent work has utilized disaggregated data to go + beyond aggregate estimates, with many refinements and suggestions + for future research. The paper discusses spatial aggregation + issues, and implications of on-the-job search and of the timing + of stocks and flows for estimated matching functions.", + month = jun, + year = 2001, + language = "en" +} + +@INCOLLECTION{Petrosky-Nadeau2011-rp, + title = "Revisiting the Assumption of a Small La- bor Surplus", + author = "Petrosky-Nadeau, Nicolas and Kuehn, Lars", + booktitle = "GSIA Working Papers 2011-E7", + publisher = "Tepper School of Business", + year = 2011 +} + +@BOOK{Pigou2022-hq, + title = "The economy and finance of the war: Being a discussion of the + real costs of the war and the way in which they should be met + (classic reprint) the economy and finance of the war: Being a + discussion of the real costs of the war and the way in which they + should be met (classic reprint)", + author = "Pigou, A C", + publisher = "Forgotten Books", + address = "London, England", + month = nov, + year = 2022 +} + +@ARTICLE{Ravn2007-tt, + title = "Labor market dynamics and the business cycle: Structural evidence + for the United States", + author = "Ravn, Morten O and Simonelli, Saverio", + journal = "Scand. J. Econ.", + publisher = "Wiley", + volume = 109, + number = 4, + pages = "743--777", + abstract = "AbstractWe use a 12‐dimensional VAR to examine the aggregate + effects of two structural technology shocks and two policy + shocks. For each shock, we examine the dynamic effects on the + labor market, the importance of the shock for labor market + volatility, and the comovement between labor market variables and + other key aggregate variables in response to the shock. We + document that labor market indicators display “hump‐shaped” + responses to the identified shocks. Technology shocks and + monetary policy shocks are important for labor market volatility + but the ranking of their importance is sensitive to the VAR + specification. The conditional correlations at business cycle + frequencies are similar in response to the four shocks, apart + from the correlations between hours worked, labor productivity + and real wages. To account for the unconditional correlations + between these variables, a mixture of shocks is required.", + month = dec, + year = 2007, + language = "en" +} + +@ARTICLE{R-ios-Rull1996-un, + title = "Life-Cycle Economies and Aggregate Fluctuations", + author = "R ́ıos-Rull, Jos", + journal = "Review of Eco- nomic Studies", + volume = 63, + pages = "465--489", + month = jul, + year = 1996 +} + +@BOOK{Rotemberg2022-cp, + title = "Sticky prices in the United States (classic reprint)", + author = "Rotemberg, Julio J", + publisher = "Forgotten Books", + address = "London, England", + month = nov, + year = 2022 +} + +@ARTICLE{Shimer2004-yy, + title = "The consequences of rigid wages in search models", + author = "Shimer, Robert", + journal = "J. Eur. Econ. Assoc.", + publisher = "Oxford University Press (OUP)", + volume = 2, + number = "2-3", + pages = "469--479", + month = may, + year = 2004, + language = "en" +} + +@ARTICLE{Amaral2016-qr, + title = "The cyclical behavior of equilibrium unemployment and vacancies + across {OECD} countries", + author = "Amaral, Pedro S and Tasci, Murat", + journal = "Eur. Econ. Rev.", + publisher = "Elsevier BV", + volume = 84, + pages = "184--201", + abstract = "We show that the inability of a standardly calibrated labor + search-and-matching model to account for observed levels of labor + market volatility extends beyond the U.S. to a set of OECD + countries. That is, the volatility puzzle is ubiquitous. We argue + that cross-country data is helpful in scrutinizing between + potential solutions to this puzzle. To illustrate this, we show + that the solution proposed in Hagedorn and Manovskii (2008) is + rather fragile and fails for some countries in our sample. It + delivers counterfactually low volatility for economies where the + elasticity of wages with respect to productivity is sufficiently + high and where productivity persistence and/or vacancy-filling + rates are sufficiently low.", + month = may, + year = 2016, + language = "en" +} + +@ARTICLE{Shimer2012-mq, + title = "Reassessing the ins and outs of unemployment", + author = "Shimer, Robert", + journal = "Rev. Econ. Dyn.", + publisher = "Elsevier BV", + volume = 15, + number = 2, + pages = "127--148", + abstract = "This paper uses readily accessible aggregate time series to + measure the probability that an employed worker becomes + unemployed and the probability that an unemployed worker finds a + job, the ins and outs of unemployment. Since 1948, the job + finding probability has accounted for three-quarters of the + fluctuations in the unemployment rate in the United States and + the employment exit probability for one-quarter. Fluctuations in + the employment exit probability are quantitatively irrelevant + during the last two decades. Using the underlying microeconomic + data, the paper shows that these results are not due to + compositional changes in the pool of searching workers, nor are + they due to movements of workers in and out of the labor force. + These results contradict the conventional wisdom that has guided + the development of macroeconomic models of the labor market since + 1990.", + month = apr, + year = 2012, + language = "en" +} + +@ARTICLE{Smets2007-wb, + title = "Shocks and frictions in {US} business cycles: A Bayesian {DSGE} + approach", + author = "Smets, Frank and Wouters, Rafael", + journal = "Am. Econ. Rev.", + publisher = "American Economic Association", + volume = 97, + number = 3, + pages = "586--606", + abstract = "Using a Bayesian likelihood approach, we estimate a dynamic + stochastic general equilibrium model for the US economy using + seven macroeconomic time series. The model incorporates many + types of real and nominal frictions and seven types of structural + shocks. We show that this model is able to compete with Bayesian + Vector Autoregression models in out-of-sample prediction. We + investigate the relative empirical importance of the various + frictions. Finally, using the estimated model, we address a + number of key issues in business cycle analysis: What are the + sources of business cycle fluctuations? Can the model explain the + cross correlation between output and inflation? What are the + effects of productivity on hours worked? What are the sources of + the “Great Moderation”? (JEL D58, E23, E31, E32)", + month = may, + year = 2007, + language = "en" +} + +@ARTICLE{Taylor1993-zu, + title = "Discretion versus policy rules in practice", + author = "Taylor, John B", + journal = "Carnegie-Rochester Conf. Ser. Public Policy", + publisher = "Elsevier BV", + volume = 39, + pages = "195--214", + abstract = "This paper examines how recent econometric policy evaluation + research on monetary policy rules can be applied in a practical + policymaking environment. According to this research, good policy + rules typically call for changes in the federal funds rate in + response to changes in the price level or changes in real income. + An objective of the paper is to preserve the concept of such a + policy rule in a policy environment where it is practically + impossible to follow mechanically any particular algebraic + formula that describes the policy rule. The discussion centers + around a hypothetical but representative policy rule much like + that advocated in recent research. This rule closely approximates + Federal Reserve policy during the past several years. Two case + studies—German unification and the 1990 oil-price shock—that had + a bearing on the operation of monetary policy in recent years are + used to illustrate how such a policy rule might work in practice.", + month = dec, + year = 1993, + language = "en" +} + +@ARTICLE{Trigari2009-ba, + title = "Equilibrium unemployment, job flows, and inflation dynamics", + author = "Trigari, Antonella", + journal = "J. Money Credit Bank.", + publisher = "Wiley", + volume = 41, + number = 1, + pages = "1--33", + abstract = "In order to explain the joint fluctuations of output, inflation + and the labor market, this paper develops and estimates a general + equilibrium model that integrates a theory of equilibrium + unemployment into a monetary model with nominal price rigidities. + The estimated model accounts for the responses of employment, + hours per worker, job creation, and job destruction to a monetary + policy shock. Moreover, search frictions in the labor market + generate a lower elasticity of marginal costs with respect to + output. This helps to explain the sluggishness of inflation and + the persistence of output that are observed in the data.", + month = feb, + year = 2009, + language = "en" +} + +@ARTICLE{Walsh2005-aq, + title = "Labor market search, sticky prices, and interest rate policies", + author = "Walsh, Carl E", + journal = "Rev. Econ. Dyn.", + publisher = "Elsevier BV", + volume = 8, + number = 4, + pages = "829--849", + abstract = "What accounts for the significant real effects of monetary policy + shocks? And what accounts for the persistent and hump shaped + responses of output and inflation in response to such shocks? + These questions are investigated in a model that incorporates + labor market search, habit persistence, sticky prices, and policy + inertia. While habit persistence and price stickiness are + important for the hump shaped output response and the long, drawn + out inflation response, respectively, labor market frictions + increase the output response and reduce the inflation response + relative to an otherwise similar model based on a Walrasian labor + market. Significantly, policy inertia itself is found to be the + most important factor in accounting for the magnitude of the + output effects of policy shocks in the model.", + month = oct, + year = 2005, + language = "en" +} + +@ARTICLE{Williamson2008-kp, + title = "Monetary policy and distribution", + author = "Williamson, Stephen D", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 55, + number = 6, + pages = "1038--1053", + abstract = "A segmented markets model of monetary policy is constructed, in + which a novel feature is goods market segmentation, and its + relationship to conventional asset market segmentation. The + implications of the model for the response of prices, interest + rates, consumption, labor supply, and output to monetary policy + are determined. As well, optimal monetary policy is studied, as + are the costs of inflation. The model features persistent + nonneutralities of money, relative price effects of increases in + the money supply, persistent liquidity effects, and a negative + Fisher effect from a money supply increase. A Friedman rule is in + general suboptimal.", + month = sep, + year = 2008, + language = "en" +} + +@ARTICLE{Woodford1998-gs, + title = "Doing without money: Controlling inflation in a post-monetary + world", + author = "Woodford, Michael", + journal = "Rev. Econ. Dyn.", + publisher = "Elsevier BV", + volume = 1, + number = 1, + pages = "173--219", + abstract = "Central banks now generally agree that conventional monetary + aggregates are of little use as targets or even indicators for + monetary policy, owing to the instability of money demand + relations in economies with well-developed financial markets. But + monetary theory has provided little guidance for the analysis of + policies that are not formulated in terms of a path for the money + supply, and a stable money demand relation is generally assumed + as a central element of a theoretical analysis. This paper, + instead, shows that it is possible to analyze equilibrium + inflation determination without any reference to either money + supply or demand, as long as one specifies policy in terms of a + 'Wicksellian' interest-rate feedback rule. The paper's central + result is an approximation theorem, showing the existence, for a + simple monetary model, of a well-behaved 'cashless limit' in + which the money balances held to facilitate transactions become + negligible. The relations that determine equilibrium inflation in + the cashless limit also provide a useful approximate account in + the case of an economy in which monetary frictions are present, + but small. The approximation remains valid in the case of time + variation in the monetary frictions, including variation of a + kind that may result in substantial instability of money demand + in percentage terms. Inflation in the cashless limit is shown to + be a function of the gap between the 'natural rate' of interest, + determined by the supply of goods and opportunities for + intertemporal substitution, and a time-varying parameter of the + interest-rate rule indicating the tightness of monetary policy. + Inflation can be completely stabilized, in principle, by + adjusting the policy parameter so as to track variation in the + natural rate. Under such a regime, instability of money demand + has little effect upon equilibrium inflation, and need not be + monitored by the central bank.", + month = jan, + year = 1998, + language = "en" +} + +@ARTICLE{Tauchen1986-wv, + title = "Finite state markov-chain approximations to univariate and vector + autoregressions", + author = "Tauchen, George", + journal = "Econ. Lett.", + publisher = "Elsevier BV", + volume = 20, + number = 2, + pages = "177--181", + abstract = "The paper develops a procedure for finding a discrete-valued + Markov chain whose sample paths approximate well those of a + vector autoregression. The procedure has applications in those + areas of economics, finance, and econometrics where approximate + solutions to integral equations are required.", + month = jan, + year = 1986, + language = "en" +} + +@ARTICLE{Heathcote2009-ad, + title = "Quantitative macroeconomics with heterogeneous households", + author = "Heathcote, Jonathan and Storesletten, Kjetil and Violante, + Giovanni L", + journal = "Annu. Rev. Econom.", + publisher = "Annual Reviews", + volume = 1, + number = 1, + pages = "319--354", + abstract = "Macroeconomics is evolving from the study of aggregate dynamics + to the study of the dynamics of the entire equilibrium + distribution of allocations across individual economic actors. + This article reviews the quantitative macroeconomic literature + that focuses on household heterogeneity, with a special emphasis + on the “standard” incomplete markets model. We organize the vast + literature according to three themes that are central to + understanding how inequality matters for macroeconomics. First, + what are the most important sources of individual risk and + cross-sectional heterogeneity? Second, what are individuals' key + channels of insurance? Third, how does idiosyncratic risk + interact with aggregate risk?", + month = sep, + year = 2009, + language = "en" +} + +@ARTICLE{Costain2005-lm, + title = "Stabilization versus insurance: Welfare effects of procyclical + taxation under incomplete markets", + author = "Costain, James S and Reiter, Michael", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + abstract = "We construct and calibrate a general equilibrium business cycle + model with unemployment and precautionary saving. We compute the + cost of business cycles and locate the optimum in a set of simple + cyclical fiscal policies. Our economy exhibits productivity + shocks, giving firms an incentive to hire more when productivity + is high. However, business cycles make workers' income riskier, + both by increasing the unconditional probability of unusually + long unemployment spells, and by making wages more variable, and + therefore they decrease social welfare by around one-fourth or + one-third of 1\% of consumption. Optimal fiscal policy offsets + the cycle, holding unemployment benefits constant but varying the + tax rate procyclically to smooth hiring. By running a deficit of + 4\% to 5\% of output in recessions, the government eliminates + half the variation in the unemployment rate, most of the + variation in workers' aggregate consumption, and most of the + welfare cost of business cycles.", + year = 2005, + language = "en" +} + +@ARTICLE{Elsby2011-pm, + title = "The labor market in the great recession—an update to September + 2011", + author = "Elsby, Michael W L and Hobijn, Bart and Şahin, Ayşegül and + Valletta, Robert G", + journal = "Brookings Pap. Econ. Act.", + publisher = "Johns Hopkins University Press", + volume = 2011, + number = 2, + pages = "353--384", + abstract = "Since the end of the Great Recession in mid-2009, the + unemployment rate has recovered slowly, falling by only 1 + percentage point from its peak by September 2011. We find that + the lackluster labor market recovery can be traced in large part + to weakness in aggregate demand; only a small part seems + attributable to increases in labor market frictions. This + continued labor market weakness has led to the highest level of + long-term unemployment in the postwar period and a blurring of + the distinction between unemployment and nonparticipation in the + labor force. We show that flows from nonparticipation to + unemployment are important for understanding recent changes in + the duration distribution of unemployment. Simulations that + account for these flows suggest that the labor market is unlikely + to be subject to high levels of structural long-term unemployment + after aggregate demand recovers.", + year = 2011 +} + +@ARTICLE{Carceles-Poveda2009-un, + title = "Shareholders' unanimity with incomplete markets", + author = "Carceles-Poveda, Eva and Coen-Pirani, Daniele", + journal = "Int. Econ. Rev. (Philadelphia)", + publisher = "Wiley", + volume = 50, + number = 2, + pages = "577--606", + abstract = "When markets are incomplete, shareholders typically disagree on + the firm's optimal investment plan. This article studies the + shareholders' preferences with respect to the firm's investment + in a model with aggregate risk, incomplete markets and + heterogeneous households who trade in firms' shares instead of + directly accumulating physical capital. If the production + function exhibits constant returns to scale and borrowing limits + are not binding, a firm's shareholders unanimously agree on its + optimal level of investment. In contrast, with binding borrowing + constraints, constrained shareholders prefer a higher level of + investment than unconstrained ones.", + month = may, + year = 2009, + language = "en" +} + +@ARTICLE{Aiyagari1994-xz, + title = "Uninsured idiosyncratic risk and aggregate saving", + author = "Aiyagari, S R", + journal = "Q. J. Econ.", + publisher = "Oxford University Press (OUP)", + volume = 109, + number = 3, + pages = "659--684", + abstract = "We present a qualitative and quantitative analysis of the + standard growth model modified to include precautionary saving + motives and liquidity constraints. We address the impact on the + aggregate saving rate, the importance of asset trading to + individuals, and the relative inequality of wealth and income + distributions.", + month = aug, + year = 1994, + language = "en" +} + +@BOOK{Lee2010-bv, + title = "Monetary Policy with Heterogeneous Households and Financial + Frictions,” Departmental Working Papers", + author = "Lee, Jae", + year = 2010 +} + +@ARTICLE{Unknown2008-mp, + title = "Business cycles, unemployment insurance, and the calibration of + matching mod- els", + journal = "J. Econ. Dyn. Control", + volume = 32, + number = 4, + pages = "1120--1155", + year = 2008 +} + +@ARTICLE{Heathcote2005-ht, + title = "Fiscal policy with heterogeneous agents and incomplete markets", + author = "Heathcote, Jonathan", + journal = "Rev. Econ. Stud.", + publisher = "Oxford University Press (OUP)", + volume = 72, + number = 1, + pages = "161--188", + abstract = "I undertake a quantitative investigation into the short run + effects of changes in the timing of taxes for a model economy in + which heterogeneous households trade only one asset and face a + borrowing constraint. This asset market structure implies that + the consumption of low wealth households is sensitive to tax + changes. The main finding of the paper is that when the wealth + distribution in the model resembles that in the United States, + market incompleteness accounts for large immediate aggregate + consumption increases following tax cuts, and large consumption + falls following tax increases. When taxes are lump-sum, for + example, a dollar change in tax revenue is associated with a 15 + cent change in aggregate consumption, compared to a response of + roughly one third this size when markets are complete but + households are finitely-lived. I find the response to tax changes + to be larger if the interest rate is constant rather than + determined endogenously, and smaller if taxes are proportional + rather than lump-sum.", + month = jan, + year = 2005, + language = "en" +} + +@ARTICLE{Elsby2011-yo, + title = "The labor market in the great recession—an update to September + 2011", + author = "Elsby, Michael W L and Hobijn, Bart and Şahin, Ayşegül and + Valletta, Robert G", + journal = "Brookings Pap. Econ. Act.", + publisher = "Johns Hopkins University Press", + volume = 2011, + number = 2, + pages = "353--384", + abstract = "Since the end of the Great Recession in mid-2009, the + unemployment rate has recovered slowly, falling by only 1 + percentage point from its peak by September 2011. We find that + the lackluster labor market recovery can be traced in large part + to weakness in aggregate demand; only a small part seems + attributable to increases in labor market frictions. This + continued labor market weakness has led to the highest level of + long-term unemployment in the postwar period and a blurring of + the distinction between unemployment and nonparticipation in the + labor force. We show that flows from nonparticipation to + unemployment are important for understanding recent changes in + the duration distribution of unemployment. Simulations that + account for these flows suggest that the labor market is unlikely + to be subject to high levels of structural long-term unemployment + after aggregate demand recovers.", + year = 2011 +} + +@ARTICLE{Jung2011-na, + title = "The (un)importance of unemployment fluctuations for the welfare + cost of business cycles", + author = "Jung, Philip and Kuester, Keith", + journal = "J. Econ. Dyn. Control", + publisher = "Elsevier BV", + volume = 35, + number = 10, + pages = "1744--1768", + abstract = "This paper studies the cost of business cycles within a real + business cycle model with search and matching frictions in the + labor market. We endogenously link both the cyclical fluctuations + and the mean level of unemployment to the aggregate business + cycle risk. The key result of the paper is that business cycles + are costly: fluctuations over the cycle induce a higher average + unemployment rate since employment is nonlinear in the + job-finding rate and the past unemployment rate. We show this + analytically for a special case of the model. We then calibrate + the model to U.S. data. For the calibrated model, too, business + cycles cause higher average unemployment; the welfare cost of + business cycles can easily be an order of magnitude larger than + Lucas's (1987) estimate. The cost of business cycles is the + higher the lower the value of nonemployment is, or, equivalently, + the lower is the disutility of work. The ensuing cost of business + cycles rises further when workers' skills depreciate during + unemployment.", + month = oct, + year = 2011, + language = "en" +} + +@ARTICLE{Costain2005-nx, + title = "Stabilization versus insurance: Welfare effects of procyclical + taxation under incomplete markets", + author = "Costain, James S and Reiter, Michael", + journal = "SSRN Electron. J.", + publisher = "Elsevier BV", + abstract = "We construct and calibrate a general equilibrium business cycle + model with unemployment and precautionary saving. We compute the + cost of business cycles and locate the optimum in a set of simple + cyclical fiscal policies. Our economy exhibits productivity + shocks, giving firms an incentive to hire more when productivity + is high. However, business cycles make workers' income riskier, + both by increasing the unconditional probability of unusually + long unemployment spells, and by making wages more variable, and + therefore they decrease social welfare by around one-fourth or + one-third of 1\% of consumption. Optimal fiscal policy offsets + the cycle, holding unemployment benefits constant but varying the + tax rate procyclically to smooth hiring. By running a deficit of + 4\% to 5\% of output in recessions, the government eliminates + half the variation in the unemployment rate, most of the + variation in workers' aggregate consumption, and most of the + welfare cost of business cycles.", + year = 2005, + language = "en" +} + +@ARTICLE{Dedola2007-ok, + title = "What does a technology shock do? A {VAR} analysis with + model-based sign restrictions", + author = "Dedola, Luca and Neri, Stefano", + journal = "J. Monet. Econ.", + publisher = "Elsevier BV", + volume = 54, + number = 2, + pages = "512--549", + abstract = "This paper estimates the effects of technology shocks in VAR + models of the U.S., identified by imposing restrictions on the + sign of impulse responses. These restrictions are consistent with + the implications of a popular class of DSGE models, with both + real and nominal frictions, and with sufficiently wide ranges for + their parameters. This identification strategy thus substitutes + theoretically motivated restrictions for the atheoretical + assumptions on the time-series properties of the data that are + key to long-run restrictions. Stochastic technology improvements + persistently increase real wages, consumption, investment and + output in the data; hours worked are very likely to increase, + displaying a hump-shaped pattern. Contrary to most of the related + VAR evidence, results are not sensitive to a number of + specification assumptions, including those on the stationarity + properties of variables.", + month = mar, + year = 2007, + language = "en" +} diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/self.bib b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/self.bib new file mode 100644 index 00000000..5b0c65c5 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/self.bib @@ -0,0 +1,7 @@ +@techreport{gornemann2012monetary, + author = {G{\"o}rnemann, Lukas and Kuester, Keith and Nakajima, Makoto}, + title = {Monetary Policy with Heterogeneous Agents}, + year = {2012}, + institution = {Federal Reserve Bank of Philadelphia}, + number = {Working Paper No. 12-14} +} \ No newline at end of file diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature-analysis.md b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature-analysis.md new file mode 100644 index 00000000..95cced20 --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature-analysis.md @@ -0,0 +1,22 @@ +# Subsequent Literature Analysis: Monetary Policy with Heterogeneous Agents +(Görnemann, Kuester, Nakajima, 2012) + +## Papers that cite my ballpark paper + +I found 32 papers in LitMaps that cite my ballpark paper. + +## What the subsequent literature tells us + +The subsequent literature expands the analysis of monetary policy in heterogeneous-agent New Keynesian (HANK) models along several key dimensions. A first major research direction focuses on the transmission mechanisms of monetary policy in economies with household heterogeneity, especially through marginal propensities to consume (MPCs), wealth distributions, and labor income risk. Papers such as Herkenhoff (2015), Alves (2019), and Chen (2018) study how incomplete markets and heterogeneity reshape aggregate responses to monetary shocks relative to representative-agent New Keynesian models, highlighting the importance of redistribution and household balance sheets. + +A second strand integrates labor market frictions more deeply into HANK frameworks. Building on the search-and-matching structure emphasized by Görnemann et al. (2012), subsequent work examines unemployment risk, job finding probabilities, and wage rigidity as key channels through which monetary policy affects welfare and inequality. Contributions by Hagedorn (2018), Bertsch (2017), and Jones (2017) show that labor market heterogeneity amplifies distributional effects and can substantially alter optimal policy prescriptions. More recent papers also explore international and empirical dimensions, connecting HANK models to observed cross-country differences and micro data on consumption and income dynamics. + +Overall, the cutting edge of the literature lies in combining rich household heterogeneity with empirically grounded labor market dynamics and policy rules. Open questions remain regarding identification of redistribution channels in the data, the role of firm heterogeneity, and the interaction between monetary and fiscal policy in HANK environments. A researcher aiming to contribute to this field would need strong computational skills, familiarity with heterogeneous-agent DSGE methods, and a clear empirical or policy motivation. + +## Most important subsequent papers + +1. **Herkenhoff (2015)**: Extends heterogeneous-agent models with unemployment risk, clarifying how labor market frictions affect monetary policy transmission. +2. **Chen (2018)**: Provides computational evidence on the distributive effects of monetary policy in incomplete-markets models. +3. **Alves (2019)**: Analyzes the propagation of monetary shocks in HANK models and refines the understanding of key transmission channels. +4. **Hagedorn (2018)**: Emphasizes the interaction between wage rigidity, unemployment, and policy shocks in heterogeneous-agent settings. +5. **Bertsch (2017)**: Studies welfare and stabilization trade-offs in models combining heterogeneity and nominal rigidities. diff --git a/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature.bib b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature.bib new file mode 100644 index 00000000..b3c4f14d --- /dev/null +++ b/models/We-Would-Like-In-Econ-ARK/GKNMonetaryPolicyHA/subsequent-literature.bib @@ -0,0 +1,196 @@ +% Exported from Litmaps (https://www.litmaps.com) + +@article{look_alves_2019, + title = {A Further Look at the Propagation Mechanism of Monetary Policy Shocks in HANK}, + author = {Alves, F. and Kaplan, Greg and Moll, Benjamin and Violante, G.}, + year = {2019}, + litmapsId = {230193600} +} + + +@article{bsp_cabote_2020, + title = {BSP Distributional Impact of Monetary Policy: Evidence from The Philippines}, + author = {Cabote, Nickson J. and Fernandez, Justin Ray Angelo J.}, + year = {2020}, + litmapsId = {238565918} +} + + +@article{credit_phillips_2016, + title = {How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output∗ by Kyle Herkenhoff University of Minnesota}, + author = {Phillips, Gordon and Cohen-Cole, Ethan and Brown, David and Aguiar, Mark and Aizawa, Naoki and Bauducco, Sofia and Drozd, Lukasz and Guvenen, Fatih and Hagedorn, Marcus and Heathcote, Jonathan and Hyatt, Henry and Madeira, Carlos and Manovskii, I. and Mcgrattan, Ellen and Mitman, K. and Ohanian, Lee E and Pena, Fausto and Perri, Fabrizio and Ŕıos-Rull, Victor and Robin, Jean-Marc and Sargent, Thomas and Schulhofer-Wohl, Sam and Shimer, Rob and Spletzer, Jim and Wright, Randy and Xu, Ming}, + year = {2016}, + litmapsId = {266727367} +} + + +@article{estimating_aguiarconraria_2018, + title = {Estimating the Taylor rule in the time-frequency domain}, + doi = {10.1016/j.jmacro.2018.05.008}, + author = {Aguiar‐Conraria, Luís and Martins, M. M. and Soares, M.}, + journal = {Journal of macroeconomics}, + year = {2018}, + litmapsId = {198700426} +} + + +@article{monetary_gornemann_2012, + title = {Monetary Policy with Heterogeneous Agents}, + doi = {10.2139/ssrn.2147841}, + author = {Gornemann, N. and Kuester, Keith and Nakajima, M.}, + year = {2012}, + litmapsId = {275974449} +} + + +@article{monetary_gornemann_2012, + title = {Monetary Policy with Heterogeneous Agents}, + doi = {10.2139/ssrn.2147841}, + author = {Gornemann, N. and Kuester, Keith and Nakajima, M.}, + year = {2012}, + litmapsId = {275974449} +} + + +@article{prices_hagedorn_2018, + title = {Prices and Inflation When Government Bonds are Net Wealth}, + author = {Hagedorn, Marcus}, + year = {2018}, + litmapsId = {281827943} +} + + +@article{monetary_rakviashvili_2020, + title = {Monetary Policy and Inequality}, + doi = {10.17835/2076-6297.2020.12.4.006-017}, + author = {Rakviashvili, Alexander A.}, + journal = {Journal of Institutional Studies}, + year = {2020}, + litmapsId = {83797794} +} + + +@article{labor_mumtaz_2015, + title = {Labor Market Dynamics: A Time-Varying Analysis}, + doi = {10.1111/obes.12096}, + author = {Mumtaz, H. and Zanetti, Francesco}, + year = {2015}, + litmapsId = {114462813} +} + + +@article{unemploymentinflation_richard_2022, + title = {THE UNEMPLOYMENT-INFLATION TRADE-OFF REVISITED: THE PHILLIPS CURVE IN COVID TIMES}, + author = {Richard, and Crump, and Eusepi, Stefano and Giannoni, M.}, + year = {2022}, + litmapsId = {270428830} +} + + +@article{eitc_jones_2017, + title = {THE EITC OVER THE GREAT RECESSION}, + doi = {10.17310/ntj.2017.4.01}, + author = {Jones, Maggie R.}, + journal = {National Tax Journal}, + year = {2017}, + litmapsId = {154121135} +} + + +@article{computational_chen_2018, + title = {Computational evidence on the distributive properties of monetary policy}, + doi = {10.5018/economics-ejournal.ja.2018-62}, + author = {Chen, Siyan and Desiderio, Saul}, + journal = {Economics}, + year = {2018}, + litmapsId = {280396716} +} + + +@article{para_bayrakdar_2025, + title = {Para Politikası ve Gelir Eşitsizliği İlişkisi: Kırılgan Beşli Ülkelerinde Nedensellik Analizi}, + doi = {10.21076/vizyoner.1649187}, + author = {Bayrakdar, Seda}, + journal = {Süleyman Demirel Üniversitesi Vizyoner Dergisi}, + year = {2025}, + litmapsId = {294156372} +} + + +@article{credit_herkenhoff_2015, + title = {How Credit Constraints Impact Job Finding Rates, Sorting & Aggregate Output∗}, + author = {Herkenhoff, Kyle F.}, + year = {2015}, + litmapsId = {266619957} +} + + +@article{monetary_bertsch_2017, + title = {Monetary Normalizations and Consumer Credit: Evidence from Fed Liftoff and Online Lending}, + doi = {10.2139/ssrn.2780418}, + author = {Bertsch, Christoph and Hull, Isaiah and Zhang, Xin}, + year = {2017}, + litmapsId = {232013355} +} + + +@article{optimal_nuo_2016, + title = {Optimal Monetary Policy in a Heterogeneous Monetary Union ∗ Galo}, + author = {Nuño, Galo and España, Banco de and Thomas, Carlos}, + year = {2016}, + litmapsId = {236044600} +} + + +@article{doves_gornemann_2016, + title = {Doves for the Rich, Hawks for the Poor? Distributional Consequences of Monetary Policy}, + doi = {10.17016/ifdp.2016.1167}, + author = {Gornemann, Nils and Kuester, Keith and Nakajima, Makoto}, + journal = {Social Science Research Network}, + year = {2016}, + litmapsId = {35118833} +} + + +@article{born_roantree_2021, + title = {Born under a bad sign: the impact of finishing school when labour markets are weak}, + doi = {10.1920/wp.ifs.2021.2821}, + author = {Roantree, B. and Regan, M.}, + year = {2021}, + litmapsId = {221436092} +} + + +@article{monetary_tchatoka_2016, + title = {Monetary Policy and Indeterminacy after the 2001 Slump}, + doi = {10.2139/ssrn.2714657}, + author = {Tchatoka, F. Doko and Groshenny, Nicolas and Haque, Qazi and Weder, M.}, + year = {2016}, + litmapsId = {276770730} +} + + +@article{credit__2011, + title = {credit, including © notice, is given to the source. Labor Market Flows in the Cross Section and Over Time}, + author = {, }, + year = {2011}, + litmapsId = {268329673} +} + + +@article{income_hardy_2017, + title = {Income Instability and the Response of the Safety Net}, + doi = {10.1111/coep.12187}, + author = {Hardy, B.}, + year = {2017}, + litmapsId = {62235511} +} + + +@article{8_lochner_2016, + title = {CHAPTER 8 Student Loans and Repayment : Theory , Evidence , and Policy}, + author = {Lochner, L. and Monge-Naranjo, A.}, + year = {2016}, + litmapsId = {239001749} +} + diff --git a/pyproject.toml b/pyproject.toml index b9de4945..31fec465 100644 --- a/pyproject.toml +++ b/pyproject.toml @@ -9,6 +9,7 @@ dependencies = [ "jupyter", "jupyterlab", "jupyterlab-citation-manager", + "mystmd>=1.8.1", ] [project.optional-dependencies] diff --git a/uv.lock b/uv.lock index 3b543ee2..5cb5c9ae 100644 --- a/uv.lock +++ b/uv.lock @@ -155,6 +155,7 @@ dependencies = [ { name = "jupyter" }, { name = "jupyterlab" }, { name = "jupyterlab-citation-manager" }, + { name = "mystmd" }, ] [package.metadata] @@ -163,6 +164,7 @@ requires-dist = [ { name = "jupyter" }, { name = "jupyterlab" }, { name = "jupyterlab-citation-manager" }, + { name = "mystmd", specifier = ">=1.8.1" }, ] provides-extras = ["dev"] @@ -759,7 +761,6 @@ wheels = [ { url = "https://files.pythonhosted.org/packages/fe/65/5b235b40581ad75ab97dcd8b4218022ae8e3ab77c13c919f1a1dfe9171fd/greenlet-3.3.1-cp310-cp310-macosx_11_0_universal2.whl", hash = "sha256:04bee4775f40ecefcdaa9d115ab44736cd4b9c5fba733575bfe9379419582e13", size = 273723, upload-time = "2026-01-23T15:30:37.521Z" }, { url = "https://files.pythonhosted.org/packages/ce/ad/eb4729b85cba2d29499e0a04ca6fbdd8f540afd7be142fd571eea43d712f/greenlet-3.3.1-cp310-cp310-manylinux_2_24_aarch64.manylinux_2_28_aarch64.whl", hash = "sha256:50e1457f4fed12a50e427988a07f0f9df53cf0ee8da23fab16e6732c2ec909d4", size = 574874, upload-time = "2026-01-23T16:00:54.551Z" }, { url = "https://files.pythonhosted.org/packages/87/32/57cad7fe4c8b82fdaa098c89498ef85ad92dfbb09d5eb713adedfc2ae1f5/greenlet-3.3.1-cp310-cp310-manylinux_2_24_ppc64le.manylinux_2_28_ppc64le.whl", hash = "sha256:070472cd156f0656f86f92e954591644e158fd65aa415ffbe2d44ca77656a8f5", size = 586309, upload-time = "2026-01-23T16:05:25.18Z" }, - 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