On a Unique Nondegenerate Distribution of Agents in the Huggett Model

A theoretical curiosity remains in the Huggett [1993] model as to the possible existence of a unique and degenerate stationary distribution of agent types. This coincides with the possibility that an equilibrium individual state space may turn out to be trivial in the sense that every agent never escapes the binding common borrowing constraint. In this note, we extend and reinforce the proof of Lemma 3 in Huggett [1993]. By invoking a simple comparative-static argument, we establish that Huggett's result of a unique stationary equilibrium distribution of agents must be one that is nontrivial or nondegenerate.Compactness, Individual state space, Stationary distribution

Perspectives on Unemployment from a General Equilibrium Search Model

Australia has experienced a varied track record on unemployment. For the third quarter of the 20th century unemployment averaged 2.0 per cent. This is bracketed by average unemployment rates of 8.6 and 7.4 per cent in the second and fourth quarter centuries. Explanations of this phenomenon vary. In this paper we explore supply side explanations using a model developed by Ljungqvist and Sargent (LS). We adapt the LS model to the Australian tax and welfare system and calibrate it to the Australian economy. Two simulation experiments are considered. In the first we study the effect of varying the unemployment benefit on the level and composition of unemployment. In the second simulation we examine the effects of increasing the degree of turbulence experienced by the economy. In the former simulation we find that: raising benefits causes a rise in the duration of unemployment; unemployment rates rise; across voluntary and involuntary unemployment classes; the rise is relatively larger in the range of low skill workers whose job-search intensity falls the greatest. Job-search intensity of voluntarily unemployed workers does not change with benefits; and reservation wages of individuals with high skill levels are unaffected by unemployment benefits but the reservation wage low skilled workers increases with the unemployment benefit. In the second simulation increasing turbulence in the economic environment causes an increase in total unemployment and in involuntary unemployment. However, voluntary unemployment falls, because people alter their reservation wages and search intensities in response to increased turbulence; overall the average duration of unemployment rises. Finally, we replicate the LS finding that the adverse consequences of increased turbulence are larger in economies with more generous welfare systems. We interpret the findings reported above as suggesting that the LS model is a useful tool of analysis and in the final version of the paper we propose to calibrate the model to the changes in the level of unemployment benefits and the progressivity of the income tax schedule that occurred towards the end of the third quarter of the 20th century. Our objectives will be to quantify how much of the change in unemployment can be attributed to these factors and to quantify the extent to which higher unemployment is attributable to increased turbulence.Search model; turbulence; unemployment; skill accumulation; tax and welfare system

RAMSEY FISCAL AND MONETARY POLICY UNDER STICKY PRICES AND LIQUID BONDS

We construct a monetary model where government bonds also provide liquidity service. Liquid government bonds create an endogenous interest-rate spread; affect equilibrium allocations and inflation by altering the Ramsey planner’s sequence of implementability and sticky-price constraints. The trade-off confronting a planner in a sticky-price world, shown in recent literature, between using inflation surprise and labor-income tax is modified by the existence of the liquid bond. We find that the more sticky prices become, the more the planner stabilizes prices and also creates less distortionary and less volatile income taxes by taxing the liquidity service of bonds in order to replicate ex post real state-contingent debt.

Public Capital Spillovers and Growth: A Foray Downunder

We extend the deterministic growth model of Glomm and Ravikumar (1994) to a stochastic endogenous growth model which nests both exogenous and endogenous growth factors. By introducing simple shocks to production technology, private capital and public capital investment, we can derive testable time series properties of the analytical model. The hypothesis of strict endogenous growth due to public capital spillovers cannot be statistically rejected for our Australian data set. We find further short-run evidence of public capital contributing to permanent increases in the levels of per capita income and private capital.

UNCOVERING THE HIT-LIST FOR SMALL INFLATION TARGETERS: A BAYESIAN STRUCTURAL ANALYSIS

We estimate underlying macroeconomic policy objectives of three of the earliest explicit inflation targeters - Australia, Canada and New Zealand - within the context of a small open economy DSGE model. We assume central banks set policy optimally, such that we can reverse engineer policy objectives from observed time series data. We find that none of the central banks show a concern for stabilizing the real exchange rate. All three central banks share a concern for minimizing the volatility in the change in the nominal interest rate. The Reserve Bank of Australia places the most weight on minimizing the deviation of output from trend. Joint tests of the posterior distributions of these policy preference parameters suggest that the central banks are very similar in their overall objective.

Search-Theoretic Money, Capital and International Exchange Rate Fluctuations

In this paper we develop a two-country global monetary economy where a monetary equilibrium exists because of fundamentaldecentralized trade frictions ? a Lagos-Wright search and matching friction. In the decentralized markets (DM), the terms of trade can be determined either by bargaining or by competitive price taking (baseline model). We show that the baseline model is capable of generating quite realistic real and nominal exchange rate volatility observed in the data, without relying on more ad-hoc sticky price assumptions commonly used in the international macroeconomics literature. The key mechanism lies in the role of search and matching frictions and a primitive technological assumption ? that capital is also a complementary input to production in the DM. This creates an internal propagation mechanism by modifying asset-pricing relations and relative price dynamics in the model.Search-theoretic Money, Open Economy, Real Exchange Rate Puzzle

Anatomizing incomplete-markets small open economies: policy trade-offs and equilibrium determinacy

We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-markets equilibrium. Market incompleteness exacerbates the domestic-inflation and output-gap monetary-policy trade-off in two ways: its steepness and its resulting endogenous cost-push to the trade-off. The latter depends on an equilibrium combination of structural shocks and on agents' beliefs of future events. Thus, in comparison to its complete-markets and closed-economy limits, standard Taylor-type rules are less capable of inducing determinate rational expectations equilibrium in our environment. Despite the larger policy trade-off under incomplete markets, simple policies that also respond to exchange-rate growth are able to manage expectations that drive the endogenous cost-push term. However, policies that respond directly to expectations may turn out to exacerbate the cost-push trade-off further, and thus, to be more likely to fuel self-fulfilling multiple or unstable equilibria

Uncovering the Hit List for Small Inflation Targeters: A Bayesian Structural Analysis

We estimate underlying structural macroeconomic policy objectives of three of the earliest explicit inflation targeters within the context of a small open economy dynamic stochastic general equilibrium model. We assume central banks set policy optimally

Correct-by-construction microarchitectural pipelining

This paper presents a method for correct-by-construction microarchitectural pipelining that handles cyclic systems with dependencies between iterations. Our method combines previously known bypass and retiming transformations with a few transformations valid only for elastic systems with early evaluation (namely, empty FIFO insertion, FIFO capacity sizing, insertion of anti-tokens, and introducing early evaluation multiplexors). By converting the design to a synchronous elastic form and then applying this extended set of transformations, one can pipeline a functional specification with an automatically generated distributed controller that implements stalling logic resolving data hazards off the critical path of the design. We have developed an interactive toolkit for exploring elastic microarchitectural transformations. The method is illustrated by pipelining a few simple examples of instruction set architecture ISA specifications.Peer ReviewedPostprint (published version

Perspectives on Unemployment from a General Equilibrium Search Model

Australia has experienced a varied track record on unemployment. For the third quarter of the 20th century unemployment averaged 2.0 per cent. This is bracketed by average unemployment rates of 8.6 and 7.4 per cent in the second and fourth quarter centuries. Explanations of this phenomenon vary. In this paper we explore supply side explanations using a model developed by Ljungqvist and Sargent (LS). We adapt the LS model to the Australian tax and welfare system and calibrate it to the Australian economy. Two simulation experiments are considered. In the first we study the effect of varying the unemployment benefit on the level and composition of unemployment. In the second simulation we examine the effects of increasing the degree of turbulence experienced by the economy. In the former simulation we find that: raising benefits causes a rise in the duration of unemployment; unemployment rates rise; across voluntary and involuntary unemployment classes; the rise is relatively larger in the range of low skill workers whose job-search intensity falls the greatest. Job-search intensity of voluntarily unemployed workers does not change with benefits; and reservation wages of individuals with high skill levels are unaffected by unemployment benefits but the reservation wage low skilled workers increases with the unemployment benefit. In the second simulation increasing turbulence in the economic environment causes an increase in total unemployment and in involuntary unemployment. However, voluntary unemployment falls, because people alter their reservation wages and search intensities in response to increased turbulence; overall the average duration of unemployment rises. Finally, we replicate the LS finding that the adverse consequences of increased turbulence are larger in economies with more generous welfare systems. We interpret the findings reported above as suggesting that the LS model is a useful tool of analysis and in the final version of the paper we propose to calibrate the model to the changes in the level of unemployment benefits and the progressivity of the income tax schedule that occurred towards the end of the third quarter of the 20th century. Our objectives will be to quantify how much of the change in unemployment can be attributed to these factors and to quantify the extent to which higher unemployment is attributable to increased turbulence