Fiscal Policy in a Tractable Liquidity-Constrained Economy

In this paper, we analyse the effects of transitory fiscal expansions when public debt is used as liquidity by the private sector. Aggregate shocks are introduced into a tractable flexible-price, incomplete-market economy where heterogenous, infinitely-lived agents face occasionally binding borrowing constraints and store wealth to smooth out idiosyncratic income fluctuations. Debt-financed increases in public spending facilitate self insurance by bond holders and may crowd in private consumption. The implied higher stock of liquidity also loosens the borrowing constraints faced by firms, thereby raising labour demand and possibly the real wage. Whether private consumption and wages actually rise or fall ultimately depends on the relative strengths of the liquidity and wealth effects that arise following the shock. The expansionary effects of tax cuts are also discussed. Classification-JEL: E21; E62.Borrowing constraints; Public Debt; Fiscal Policy Shocks.

Stock Prices and Monetary Policy Shocks: A General Equilibrium Approach

Recent empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on stock prices: a 25-basis point increase in the Fed funds rate is associated with an immediate decrease in broad stock indices that may range from 0.5 to 2.3 percent, followed by a gradual decay as stock prices revert towards their long-run expected value. In this paper, we assess the ability of a general equilibrium New Keynesian asset-pricing model to account for these facts. The model we consider allows for staggered price and wage setting, as well as time-varying risk aversion through habit formation. We find that the model predicts a stock market response to policy shocks that matches empirical estimates, both qualitatively and quantitatively. Our findings are robust to a range of variations and parameterizations of the model.Monetary policy; Asset prices; New Keynesian general equilibrium model.

Produce or speculate? Asset bubbles, occupational choice and efficiency

We study the macroeconomic effects of rational asset bubbles in an overlapping-generations economy where asset trading requires specialized intermediaries and where agents freely choose between working in the production or in the financial sector. Frictions in the market for deposits create rents in the financial sector that affect workers' choice of occupation. When rents are large, the private gains associated with trading asset bubbles may lead too many workers to become speculators, thereby causing rational bubbles to lose their efficiency properties. Moreover, if speculation can be carried out by skilled labor only, then asset bubbles displace skilled workers away from the productive sector and raise income and consumption inequalities. Classification-JEL: E22; E44; G21.Rational bubbles; occupational choice; dynamic efficiency.

Incomplete markets, liquidation risk, and the term structure of interest rates

We analyze the term structure of real interest rates in a general equilibrium model with incomplete markets and borrowing constraints. Agents are subject to both aggregate and idiosyncratic income shocks, which latter may force them into early portfolio liquidation in a bad aggregate state. We derive a closed-form equilibrium with limited agent heterogeneity (despite market incompleteness), which allows us to produce analytical expressions for bond prices and returns at any maturity. The attractiveness of bonds as liquidity makes aggregate bond demand downward-sloping, so that greater bond supply raises both the level and the slope of the yield curve. Moreover, time-variations in liquidation risk are shown to help explain the rejection of the Expectations Hypothesis.Incomplete markets; yield curve; borrowing constraints.

Stock prices and monetary policy shocks: A general equilibrium approach

Empirical literature documents that unexpected changes in the nominal interest rates have a significant effect on real stock prices: a 100-basis point increase in the nominal interest rate is associated with an immediate decrease in broad real stock indices that may range from 2.2 to 9%, followed by a gradual decay as real stock prices revert towards their long-run expected value. We assess the ability of a general equilibrium New Keynesian asset-pricing model to account for these facts. We consider a production economy with elastic labor supply, staggered price and wage setting, as well as time-varying risk aversion through habit formation. We find that the model predicts a stock market response to policy shocks that matches empirical estimates, both qualitatively and quantitatively. Our findings are robust to a range of variations and parametrizations of the model.Edouard Challe acknowledges the support of chaire FDIR. Chryssi Giannitsarou acknowledges support from the Economic and Social Research Council (grant number ES/K002112/1)

Implementation research of a cluster randomized trial evaluating the implementation and effectiveness of intermittent preventive treatment for malaria using dihydroartemisinin-piperaquine on reducing malaria burden in school-aged children in Tanzania: methodology, challenges, and mitigation

BACKGROUND: It has been more than 20 years since the malaria epidemiologic shift to school-aged children was noted. In the meantime, school-aged children (5-15 years) have become increasingly more vulnerable with asymptomatic malaria prevalence reaching up to 70%, making them reservoirs for subsequent transmission of malaria in the endemic communities. Intermittent Preventive Treatment of malaria in schoolchildren (IPTsc) has proven to be an effective tool to shrink this reservoir. As of 3(rd) June 2022, the World Health Organization recommends IPTsc in moderate and high endemic areas. Even so, for decision-makers, the adoption of scientific research recommendations has been stifled by real-world implementation challenges. This study presents methodology, challenges faced, and mitigations used in the evaluation of the implementation of IPTsc using dihydroartemisinin-piperaquine (DP) in three councils (Handeni District Council (DC), Handeni Town Council (TC) and Kilindi DC) of Tanga Region, Tanzania so as to understand the operational feasibility and effectiveness of IPTsc on malaria parasitaemia and clinical malaria incidence. METHODS: The study deployed an effectiveness-implementation hybrid design to assess feasibility and effectiveness of IPTsc using DP, the interventional drug, against standard of care (control). Wards in the three study councils were the randomization unit (clusters). Each ward was randomized to implement IPTsc or not (control). In all wards in the IPTsc arm, DP was given to schoolchildren three times a year in four-month intervals. In each council, 24 randomly selected wards (12 per study arm, one school per ward) were chosen as representatives for intervention impact evaluation. Mixed design methods were used to assess the feasibility and acceptability of implementing IPTsc as part of a more comprehensive health package for schoolchildren. The study reimagined an existing school health programme for Neglected Tropical Diseases (NTD) control include IPTsc implementation. RESULTS: The study shows IPTsc can feasibly be implemented by integrating it into existing school health and education systems, paving the way for sustainable programme adoption in a cost-effective manner. CONCLUSIONS: Through this article other interested countries may realise a feasible plan for IPTsc implementation. Mitigation to any challenge can be customized based on local circumstances without jeopardising the gains expected from an IPTsc programme. Trial registration clinicaltrials.gov, NCT04245033. Registered 28 January 2020, https://clinicaltrials.gov/ct2/show/NCT04245033

Interpreting the Hours-Technology Time-Varying Relationship

We investigate the time variation in the correlation between hours and technology shocks using a structural business cycle model. We propose an RBC model with a Constant Elasticity of Substitution (CES) production function that allows for capital- and labor-augmenting technology shocks. We estimate the model using US data with Bayesian techniques. In the full sample, we find (i) evidence in favor of a less than unitary elasticity of substitution (rejecting Cobb-Douglas) and (ii) a sizable role for capital augmenting shock for business cycles fluctuations. In rolling sub-samples, we document that the impact of technology shocks on hours worked varies over time and switches from negative to positive towards the end of the sample. We argue that this change is due to the increase in the elasticity of factor substitution. That is, labor and capital became less complementary throughout the sample inducing a change in the sign and size of the the response of hours. We conjecture that this change may have been induced by a change in the skill composition of the labor input