Unemployment and the smoothness of consumption in business cycle models

The permanent income hypothesis means that dynamic general equilibrium models fail to produce a hump-shaped response for consumption even if they do so for other variables. This article shows that the introduction of non-separable preferences and unemployment can solve this problem

Dynamical quantum phase transitions: a review

Quantum theory provides an extensive framework for the description of the equilibrium properties of quantum matter. Yet experiments in quantum simulators have now opened up a route towards generating quantum states beyond this equilibrium paradigm. While these states promise to show properties not constrained by equilibrium principles such as the equal a priori probability of the microcanonical ensemble, identifying general properties of nonequilibrium quantum dynamics remains a major challenge especially in view of the lack of conventional concepts such as free energies. The theory of dynamical quantum phase transitions attempts to identify such general principles by lifting the concept of phase transitions to coherent quantum real-time evolution. This review provides a pedagogical introduction to this field. Starting from the general setting of nonequilibrium dynamics in closed quantum many-body systems, we give the definition of dynamical quantum phase transitions as phase transitions in time with physical quantities becoming nonanalytic at critical times. We summarize the achieved theoretical advances as well as the first experimental observations, and furthermore provide an outlook onto major open questions as well as future directions of research.Comment: Any comments or suggestions are highly welcome, extended presentatio

Is lumpy investment relevant for the business cycle?

Previous research has suggested that discrete and occasional plant-level capital adjustments have significant aggregate implications. In particular, it has been argued that changes in plants? willingness to invest in response to aggregate shocks can at times generate large movements in total investment demand. In this study, I re-assess these predictions in a general equilibrium environment. Specifically, assuming nonconvex costs of capital adjustment, I derive generalized (S,s) adjustment rules yielding lumpy plant-level investment within an otherwise standard equilibrium business cycle model. In contrast to previous partial equilibrium analyses, model results reveal that the aggregate effects of lumpy investment are negligible. In general equilibrium, households? preference for relatively smooth consumption profiles offsets changes in aggregate investment demand implied by the introduction of lumpy plant-level investment. As a result, adjustments in wages and interest rates yield quantity dynamics that are virtually indistinguishable from the standard model.Business cycles ; Investments

The Tragedy of Annuitization

We construct a tractable discrete-time overlapping generations model of a closed economy and use it to study government redistribution of accidental bequests and private annuities in general equilibrium. Individuals face longevity risk as there is a positive probability of passing away before the retirement period. We find non-pathological cases where it is better for longrun welfare to waste accidental bequests than to give them to the elderly. Next we study the introduction of a perfectly competitive life insurance market offering actuarially fair annuities. There exists a tragedy of annuitization: although full annuitization of assets is privately optimal it is not socially beneficial due to adverse general equilibrium repercussions.Longevity risk, Risk sharing, Overlapping generations, Intergenerational transfers, Annuity markets

Assessment of the impact of the Economic Partnership Agreement between the ECOWAS countries and the European Union

The present study consists of eight sections. After the introduction, we present in the first section, the profile of the ACP-EU cooperation agreements from Lomé to Cotonou. We also show how a certain “grey areas” in the WTO rules on regional agreements can enable African countries to benefit more from the EPAs by taking advantage of greater flexibility. The next section presents some graphical data on Africa’s trade flows in general and on trade flows of ECOWAS in particular. The third section deals with the analytical framework in general equilibrium. It contains a presentation of the Global Trade Analysis Project (GTAP) model used for assessing the impact of different partnership agreement options. In the fourth section, we focus on the characteristics of African economies, which are drawn from the GTAP database and which play a key role in the operative interactions in this kind of liberalization. The fifth section deals with the analytical framework in partial equilibrium which is complementary to the general-equilibrium modelling. The assessments of the economic impacts of the EPAs for Africa, using the general-equilibrium model, are analysed in the sixth section, while those particularly concerning the ECOWAS countries, using the partial-equilibrium framework, are presented in the penultimate section. Finally, the last section comprises concluding remarks.EPA-European Union-Africa-Trade Policy

Asymptotic Methods for Asset Market Equilibrium Analysis

General equilibrium analysis is difficult when asset markets are incomplete. We make the simplifying assumption that uncertainty is small and use bifurcation methods to compute Taylor series approximations for asset demand and asset market equilibrium. A computer must be used to derive these approximations since they involve large amounts of algebraic manipulation. To illustrate this method, we apply it to analyzing the allocative, price, and welfare effects of introducing a new derivative security. We find that the introduction of any derivative will raise the value of the risky asset relative to bonds.