Monetary policy with heterogenous agents and credit constraints

This paper analyzes the long-run effect of monetary policy when credit constraints are taken into account. This analysis is carried on in a heterogeneous agents framework in which infinitely lived agents can partially self-insure against income risks by using both financial assets and real balences. First we show theoretically that financial borrowing constraints give rise to an heterogeneity in money demand, leading to a real effect of inflation. Secondly, we show that inflation has a quantitative positive impact on output and consumption in economies which closely match the wealth distribution of the United States. Thirdly, we find that the average welfare cost of inflation is much smaller compared to a complete market economy, and that inflation induces important redistributive effects across households.monetary policy ; credit constraints ; incomplete markets ; welfare

Incomplete Unemployment Insurance under Aggregate Fluctuations

This paper reconsiders the welfare benefit of unemployment insurance when individuals might self-insure through private savings but face aggregate fluctuations. We conclude that previous studies have under-estimated by half the average welfare gain from unemployment benefit by ignoring aggregate price and employment uncertainty. But paradoxically enough, the poorest are less in favour of unemployment benefit when business cycles are taken into account. This result is due to favorable price effects which dominate the unemployment uncertainty.

Incomplete Unemployment Insurance under Aggregate Fluctuations.

This paper reconsiders the welfare benefit of unemployment insurance when individuals might self−insure through private savings but face aggregate fluctuations. We conclude that previous studies have under−estimated by half the average welfare gain from unemployment benefit by ignoring aggregate price and employment uncertainty. But paradoxically enough, the poorest are less in favour of unemployment benefit when business cycles are taken into account. This result is due to favorable price effects which dominate the unemployment uncertainty.

Monetary Policy with Heterogeneous Agents and Credit Constraints

This paper exhibits and quantifies a new theoretical channel of the non-neutrality of inflation transiting through capital market imperfections. Unconstrained households change their financial position in front of a change in the inflation rate, whereas constrained households can not. Thus credit constraints induce heterogeneity in the response of money demand following a change in the inflation rate. Because of this heterogeneity, the standard result on the neutrality of inflation does not hold. To investigate this channel, we model capital market imperfections in a production economy following the approach of Aiyagari (1994). Heterogeneous agents can accumulate financial assets to partially insure against idiosyncratic income risks, but they face a borrowing constraint. We embed in this framework money in the utility function. Thus agents can self-insure with both money and financial titles, and the substitution between these two instruments depends on their relative returns. Firstly we provide theoretical evidence that inflation affects aggregate real variables in this framework with credit constraints. Secondly, we quantify the long-run effect of inflation on aggregate variables by calibrating the model on the United States. We find that credit constraints give rise to quantitatively important departure from the traditional superneutrality result. In the benchmark general equilibrium economy an increase in inflation from 2 percent to 3 percent leads to a rise of 0.39 percent in aggregate capital. Moreover, the average welfare costs of inflation are much lower in incomplete market economy compared to the traditional complete market set-up à la Lucas (2000). A rise by one point in inflation would induce a 30 percent higher decrease in welfare in the complete market economy compared to our framework with credit constraints. Thirdly, inflation has a key redistributive impact. Wealth-poor households benefit from inflation, contrary to the wealthiest households. This result is mainly driven by a price effect: Most the income of the wealth-poor comes from labor whose return rises as aggregate capital increases.monetary policy, Credit constraints, Welfare

Assimilation and Integration of Immigrants in Europe

This paper documents assimilation of immigrants in European destinations along cultural, civic, and economic dimensions, distinguishing by immigrants' generation, duration of stay, and origin. Based on the European Social Survey, it suggests that assimilation may have multiple facets, and take place at different speed depending on the outcome in question. While assimilation along some economic and cultural outcomes may be correlated, such correlations are not systematic, and imply that progress on some dimensions may compensate the lack of progress on other dimensions; and also that a big discrepancy in one dimension is not necessarily a handicap, or an impediment, for assimilation on other grounds. Correlation of immigrants' outcomes and specific policies aimed at immigrants' integration are rather disparate, raising further questions regarding both their effectiveness and differentiated effect on various aspects of life.assimilation, integration, migration policies, Europe

Public employment and labor market performances

This paper deals with the consequence of public employment on labor market performances in 17 OECD countries over the period 1960-2000. It is argued that public employment had an important crowding out e¤ect on the private sector and increased the unemployment rate over this period. More precisely, empirical evidence suggests that the creation of one public job destroyed about 1.5 private job, sightly decreased participation to the labor market and eventually increased the number of unemployed workers by 0:3: Theoretical considerations and empirical evidence also suggest that the crowding out effect of public jobs on private jobs is more important in countries in which public production ishighly substitutable to private activities and in which the public sector provides high rents.Employment, public employment, unemployment

Can Policy Interact with Culture? Minimum Wage and the Quality of Labor Relations

Can public policy interfere with culture, such as beliefs and norms of cooperation? We investigate his question by evaluating the interactions between the State and the Civil Society, focusing on the labor market. International data shows a negative correlation between union density and the quality of labor relations on one hand, and state regulation of the minimum wage on the other hand. To explain this relation, we develop a model of learning of the quality of labor relations. State regulation crowds out the possibility for workers to experiment negotiation and learn about the true cooperative nature of participants in the labor market. This crowding out effect can give rise to multiple equilibria: a "good" equilibrium characterized by strong beliefs in cooperation, leading to high union density and low state regulation; and a "bad" equilibrium, characterized by distrustful labor relations, low union density and strong state regulation of the minimum wage. We then use surveys on social attitudes and unionization behavior to document the relation between minimum wage legislation and the beliefs about the scope of cooperation in the labor market.social capital, quality of labor relations, trade unions, minimum wage

Efficient and Inefficient Welfare States

This paper shows that cross country differences in the generosity and the quality of the welfare state are associated with differences in the trustworthiness of their citizens. We show that generous, transparent and efficient welfare states in Scandinavian countries are based on the civicness of their citizens. In contrast, the generosity but low transparency of the Continental European welfare states survive thanks to the support of a large share of uncivic individuals who consider that it can be justifiable to misbehave with taxes and social benefits. We also explain why countries with an intermediate degree of trustworthiness of their citizens and of transparency of the government, like Anglo-Saxon countries, have small welfare states. Overall, this paper provides a rationale for the observed persistence of both efficient and inefficient welfare states, as a function of the civicness of the citizens.welfare state, trust, civism, corruption

Incomplete markets and the output-inflation tradeoff

This paper analyses the effects of money shocks on macroeconomic aggregates in a flexible-price, incomplete-markets environment that generates persistent wealth inequalities amongst agents. In this framework, unexpected money shocks redistribute wealth from the cash-rich employed to the cash-poor unemployed, and induce the former to increase their labour supply in order to maintain their desired levels of consumption and precautionary savings. The reduced-form dynamics of the model is a textbook "output-inflation tradeoff" equation whereby inflation shocks raise current output. The attenuating role of mean inflation and money growth persistence on this non-neutrality tradeoff, as well as some of the welfare implications of wealth redistribution, are also examined.incomplete markets ; borrowing constraints ; short-run nonneutrality