Getting Normalization Right: Dealing with 'Dimensional Constants' in Macroeconomics

We contribute to a recent literature on the normalization, calibration and estimation of CES production functions. The problem arises because CES 'share' parameters are not in fact shares, but depend on underlying dimensions - they are 'dimensional constants' in other words. It follows that such parameters cannot be calibrated, nor estimated unless the choice of units is made explicit. We use an RBC model to demonstrate two equivalent solutions. The standard one expresses the production function in deviation form about some reference point, usually the steady state of the model. Our alternative, 're-parametrization', expresses dimensional constants in terms of a new dimensionless (share) parameter and all remaining dimensionless ones. We show that our 're-parametrization' method is equivalent and arguably more straightforward than the standard normalization in deviation form. We then examine a similar problem of dimensional constants for CES utility functions in a two-sector model and in a small open economy model; then re-parametrization is the only solution to the problem, showing that our approach is in fact more general.

A Fiscal Stimulus and Jobless Recovery

We analyse the effects of a government spending expansion in a dynamic stochastic general equilibrium (DSGE) model with Mortensen-Pissarides labour market frictions, deep habits and a constant-elasticity-of-substitution (CES) production function. The combination of deep habits and CES technology is crucial. The presence of deep habits enables the model to deliver output and unemployment multipliers in the high range of recent empirical estimates, while an elasticity of substitution between capital and labour in the range of available estimates allows it to produce a scenario compatible with the observed jobless recovery. An accommodative monetary policy with respect to the output gap alongside sticky prices plays an important role for the stabilisation properties of the fiscal stimulus.Fiscal policy; deep habits; labour market search-match frictions; unemployment; CES production function

A Fiscal Stimulus with Deep Habits and Optimal Monetary Policy

A New-Keynesian model with deep habits and optimal monetary policy delivers a fiscal multiplier above one and the crowding-in effect on private consumption obtainable in a Real Business Cycle model à la Ravn et al. (2006). Optimized Taylor-type or price-level interest rate rules yield results close to optimal policy and dominate a conventional Taylor interest rate rule. Private consumption is crowded out only if the Taylor rule is sub-optimal and then negates the fiscal stimulus by responding strongly to the output gap, or if the ability to commit is absent. At the zero lower bound private consumption is always crowded in across simple rules.Deep habits, Optimal monetary policy, Price-level rule, Zero lower bound

Workers, capitalists, and the government: fiscal policy and income (re)distribution.

We propose a novel two-agent New Keynesian model to study the interaction of fiscal policy and household heterogeneity in a tractable environment. Workers can save in bonds subject to portfolio adjustment costs; firm ownership is concentrated among capitalists who do not supply labor. The model is consistent with micro data on empirical intertemporal marginal propensities to consume, and it avoids implausible profit income effects on labor supply. Relative to the traditional two-agent model, these features imply, respectively, a lower sensitivity of consumption to the composition of public financing; and smaller fiscal multipliers alongside pronounced redistributive effects.Freund acknowledges support from the Gates Cambridge Trust (BMGF OPP1144) and Studienförderwerk Klaus Murmann as well as the hospitality of Deutsche Bundesbank

Impianto valvolare aortico transcatetere (TAVI). Studio monocentrico, prospettico, osservazionale.

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Impianto valvolare aortico transcatetere (TAVI). Studio monocentrico, prospettico, osservazionale.

missin

The dynamics of hours worked and technology

We study the relationship between hours worked and technology during the postwar period in the US. We show that the responses of hours to technological improvements have increased over time, and that the patterns captured by the SVAR are consistent with those obtained from an RBC model with a less than unitary elasticity of substitution between capital and labor. Data supports the hypothesis that the observed changes in the response of hours to a technology shock are attributable to changes in the magnitude of the degree of capital-labor substitution ..En este artículo estudiamos la relación entre horas trabajadas y progreso técnico durante el período de postguerra en los Estados Unidos. Mostramos que la respuesta de las horas a mejoras tecnológicas ha aumentado a lo largo del tiempo y que los patrones capturados por un modelo SVAR son coherentes con los obtenidos por un modelo de ciclos reales con una elasticidad de sustitución entre capital y trabajo menor que 1. Los datos apoyan la hipótesis de que el cambio observado en la respuesta de las horas a mejoras tecnológicas es debido a cambios en la magnitud de la elasticidad de sustitución $\sigma$. Nuestro argumento es que la variación de $\sigma$ puede haber surgido por cambios en la composición estructural de los sectores de actividad económica o, de modo equivalente, la composición de los factores de producción en una función de producción con inputs heterogéneos, o bien por sesgos en la dirección del cambio técnic

Optimal fiscal and monetary policy, debt crisis, and management

The initial government debt-to-gross domestic product (GDP) ratio and the government's commitment play a pivotal role in determining the welfare-optimal speed of fiscal consolidation in the management of a debt crisis. Under commitment, for low or moderate initial government debt-to-GDP ratios, the optimal consolidation is very slow. A faster pace is optimal when the economy starts from a high level of public debt implying high sovereign risk premia, unless these are suppressed via a bailout by official creditors. Under discretion, the cost of not being able to commit is reflected into a quick consolidation of government debt. Simple monetary–fiscal rules with passive fiscal policy, designed for an environment with “normal shocks,” perform reasonably well in mimicking the Ramsey-optimal response to one-off government debt shocks. When the government can issue also long-term bonds—under commitment—the optimal debt consolidation pace is slower than in the case of short-term bonds only, and entails an increase in the ratio between long- and short-term bonds

The Dynamics of Hours Worked and Technology

The response of hours worked to technology shocks in the postwar US economy has increased over time. We offer a structural interpretation of this important time-varying macroeconomic moment. The time varying patterns captured by a structural VAR are consistent with those obtained from a parsimonious RBC model with a less than unitary elasticity of substitution between capital and labour (σ). The observed changes in the response of hours are attributable to increases in the magnitude of the degree of capital-labour substitution. Finally, we conjecture that the observed time-variation in σ is related to changes in the skill composition of the work force and biases in technological change