Government intervention and labor market dynamics

This thesis contributes to the general equilibrium modelling of monetary economies from both the theoretical and empirical perspectives. Research outcomes are summarized in three original research papers. The first introduces a non zero sovereign and private default probability in a large scale monetary, open economy, search and matching model. The main research objective is testing whether the emergence of a financial wedge modelled in the form of a sovereign risk channel can reduce the size or even reverse the sign of the Keynesian fiscal multiplier, conditional to alternative fiscal consolidation measures. The subset of the model parameter space that satisfies the empirical identification requirements issubset of the model parameter space that satisfies the empirical identification requirements is estimated with Bayesian techniques using a large set of data of EZ peripheral countries (Greece, Ireland, Italy, Portugal and Spain). From stochastic simulation analyses conducted at the posterior mean estimates posterior simulations it is shown that the unconditional relation between sovereign risk and macroeconomic fundamentals is weak, and that fiscal contractions are self-defeating, such that the sovereign risk channel, contrary to the theoretical predictions of a recent literature, amplifies the Keynesian effects of the fiscal contraction. The consideration of a liquidity trap environment does not reverse, but reinforces, these results. The second paper introduces a distinction between the wage negotiated by newly hired workers and incumbents in a monetary, open economy, search and matching model. The main research objective is to evaluate the efficacy of two labor market targeted fiscal policies, a hiring subsidy and a wage subsidy for new hires of labor, and to compare them with that implied by standard fiscal instruments. Even in this case, the subset of the model parameter space that satisfies the empirical identification requirements is estimated with Bayesian techniques using data for high unemployment countries of the EZ periphery (Greece, Ireland, Italy, Portugal and Spain). From posterior simulations it is shown that, except Greece, the labor market policies are not superior to standard fiscal expansions in stimulating economic activity, and their employment-enhanching effects are clearly dominant only in the long term and at the Greece and Ireland's model parameter estimates. The consideration of a liquidity trap environment reinforces these results, showing that expansionary policy actions triggering a deflation can be procyclical when the interest rate zero lower bound binds. The third paper addresses the issue of the consideration of heteogeneous consumers in general equilibrium models. Heterogeneity in consumption behavior is generally recognized as a useful and powerful modelling assumption from both the theoretical and empirical perspectives. This paper shows that most of the analyses considering such an assumption are characterized by somehow strong assumptions which make the apparent heterogeneity illusory in many respects. By relaxing some of the contextual hypotheses in the labor market dimension that seem to be crucial in the previous literature, and considering type-specific workers at the very root of the microfoundations, the paper proves that substantial differences emerge in both the static solutions and in model dynamics. By means of a calibration experiment differences are shown to be relevant not only for the labor market variables but also for that of real and monetary variables

Public debt sustainability. An empirical study on OECD countries

For a panel of 21 OECD heterogeneous countries from 1991 to 2015, we study governments’ reactions to the accumulation of debt and look at whether governments voluntary take corrective measures when the debt-GDP ratio starts rising or they rather let the debt grow. We distinguish between discretionary and automatic response of primary balance of government actions, as captured by the structural component of public primary balance and by cyclical component of public primary balance. We show the existence of a systematic long-term relationship between debt and structural primary balance supporting the view that the long-term governments’ discretionary response to increases in the debt-GDP ratio is negative, that is, governments are not currently taking long-term actions that counteract the increases in debts and do not satisfy the intertemporal budget constraint. In the short term, an asymmetric fiscal policy response exploiting the output gap, by part of the political class of the countries considered, seems to emerge: it intervenes with a new deficit and debt when the output gap is positive, but it does not adopt a symmetrical correction when the situation is reversed

Resilience, crisis contagion, and vulnerability in Central Europe and the Baltics

The recent financial crisis had serious worldwide impacts. Initial resilience and good past performances led to the illusion that the Central and Eastern European (CEE) region was able to decouple from developments in advanced economies. This initial illusion was however immediately denied since the crisis spread to that region just with a lag. The CEE region was, in fact, suddenly placed at the epicenter of the emerging market crisis. Further, the consequences of the crisis were not uniform among countries of the CEE region. Strong cross-country disparities in the resistance and recovery capacities have been observed. Focusing on a CEE sub-region, the Central Europe and the Baltics (CEB), our research project aims to analyze and disentangle the resilience performance to the 2008 financial crisis within countries of this region according to their shock isolation and absorptive capacities. We develop a new methodology to investigate two important dimensions of resilience, namely recovery and resistance. The latter can be defined as the relative vulnerability or sensitivity of economies within CEB region to disturbances and disruptions, whereas the former is the speed and extent of recovery from such a disruption or recession. Our methodology is based on Bayesian estimation techniques for general equilibrium models. We build and estimate a DSGE model for a small-open economy, which features nominal wage and price rigidities, as well as financial frictions in the form of liquidity-constrained households and limited access to deposits for the bank system. Then we group our parameter estimates in two sets: structural parameters and stochastic structure. The former individuates the deep parameters affecting the economic recovery capacities after stochastic disturbances (innovations) occur; the latter governs the innovation distributions and their intrinsic persistence. Accordingly, we study the relative differences across CEB economies using Principal Component Analysis (PCA), obtaining synthetic orthogonal indexes of these differences in a parsimonious way. Finally, we use the two sets to compare the relative recovery (resistance) country performances of a single country to those of a hypothetical economy characterized by a CEB average structural (stochastic) set of estimated parameters. Precisely, considering estimated parameters as variables of a cross-sectional dataset organized by country, we first look at national differences considering as reference a hypothetical country, where there are no distortions and/or unaffected by disturbances; second we use, as reference, a hypothetical average country, built on the estimated parameter means.JRC.B.3-Territorial Developmen

Structural Change and the Wage Share: a Two-Sector Kaleckian Model

In this paper, we look at structural change, and in particular at the shrinking size of manufacturing in favor of the service sector, as one additional source of decline in the wage share. To the purpose, we build on Dutt (1988) to develop a two-sector Kaleckian model of growth and distribution, where the economy consists of the service and manufacturing sectors. The service good is only used for consumption while the manufacturing good is used both for consumption and accumulation of the capital stock. We assume that structural change is exogenous as it arises from a shift in consumers' preferences. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the pr

Structural Change and the Wage Share: a Two-Sector Kaleckian Model

In this paper, we look at structural change, and in particular at the shrinking size of manufacturing in favor of the service sector, as one additional source of decline in the wage share. To the purpose, we build on Dutt (1988) to develop a two-sector Kaleckian model of growth and distribution, where the economy consists of the service and manufacturing sectors. The service good is only used for consumption while the manufacturing good is used both for consumption and accumulation of the capital stock. We assume that structural change is exogenous as it arises from a shift in consumers' preferences. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the pr

Sectoral Composition of Output and the Wage Share: a Two-Sector Kaleckian Model

In this paper, we look at structural change, and in particular at the shrinking size of manufacturing in favor of the service sector, as one additional source of decline in the wage share. To the purpose, we build on Dutt (1988) to develop a two-sector Kaleckian model of growth and distribution, where the economy consists of the service and manufacturing sectors. The service good is only used for consumption while the manufacturing good is used both for consumption and accumulation of the capital stock. We assume that structural change is exogenous as it arises from a shift in consumers' preferences. We show that, when mark-ups are relatively higher in the service sector, a shift in the sectoral composition of demand in favor of the service sector good generates a rise in the pr

A stochastic estimated version of the Italian dynamic General Equilibrium Model (IGEM)

We estimate with Bayesian techniques the Italian dynamic General Equilibrium Model (IGEM), which has been developed at the Italian Treasury Department, Ministry of Economy and Finance, to assess the effects of alter-native policy interventions. We analyze and discuss the estimated effects of various shocks on the Italian economy. Compared to the calibrated version used for policy analysis, we find a lower wage rigidity and higher adjustment costs. The degree of prices and wages indexation to past inflation is much smaller than the indexation level assumed in the calibrated model. No substantial difference is found in the estimated monetary parameters. Estimated fiscal multipliers are slightly smaller than those obtained from the calibrated version of the model

Le previsioni pensionistiche e gli effetti macroeconomici del contenimento della spesa previdenziale

Dopo aver fornito una descrizione riassuntiva delle ipotesi e dei risultati di una proiezione a lungo termine della spesa previdenziale, in questo contributo si propone una valutazione econometrica degli effetti macroeconomici e occupazionali connessi alle modificazioni dei requisiti di accesso al pensionamento introdotti dalla L 214/2011 (cosiddetta Riforma Fornero). La proiezione della spesa a lungo termine, come nelle precedenti occasioni del Rapporto, è prodotta attraverso un modello di macrosimulazione deterministica. La previsione, aggiornata ai dati del 2015, costituisce la base di una valutazione controfattuale della modifica normativa, per la quale si assume - in uno scenario alternativo, che la modifica del 2011 non sia stata introdotta. In sostanza, l'analisi qui condotta, mettendo in relazione un tipico modello di macrosimulazione della spesa pensionistica con un modello macroeconometrico strutturale di ultima generazione, ha evidenziato la rilevanza non esclusivamente finanziaria del set-up istituzionale previdenziale. L'analisi ha mostrato che una manovra di contenimento della spesa previdenziale, al pari di altre manovre fiscali, ha degli effetti macroeconomici e occupazionali non trascurabili che, quando considerati, possono alterare in modo significativo la preferibilità, la calibrazione e l'implementazione delle politiche

L'impatto macroeconomico dell'introduzione di quota 100 nel sistema pensionistico

Il Decreto Legge 28 gennaio n.4 contiene una serie di misure in materia pensionistica. Le misura principale, denominata Quota 100, prevede un accesso anticipato al sistema pensionistico al raggiungimento di 62 anni di età anagrafica e 38 anni di contributi. Nello stesso decreto vengono bloccati fino al 2026 gli adeguamenti alla speranza di vita relativi ai requisiti di accesso al pensionamento anticipato e alla pensione anticipata dei lavoratori precoci. Il D.L. n. 4/2019 prevede, inoltre, la proroga delle cosiddette Opzione Donna e Ape sociale introdotte dal precedente governo. In questo contributo focalizziamo la nostra attenzione su Quota 100, analizzando gli effetti macroeconomici dell’anticipo pensionistico mediante l’utilizzo del modello macroeconomico di equilibrio generale BeTa

Il consolidamento fiscale può stimolare la crescita riducendo il rischio di default e i tassi di interesse? Il caso della periferia dell'Eurozona

Molte economie sviluppate, a seguito della crisi globale, hanno sperimentato aumenti del debito sovrano che, per entità, non hanno precedenti in tempi di pace. Una tale evoluzione, che per la grande maggioranza di questi paesi è ancora in corso, è stata particolarmente forte e preoccupante per la periferia dell’euro-zona. Per paesi di questa area, le fasi iniziali della crisi dei debiti sovrani sono state caratterizzate da forte incertezza sulla loro stessa sostenibilità di breve e medio periodo, inducendo forti aumenti dei tassi di interesse sui titoli pubblici e sul credito a famiglie e imprese