Pension Reform Disabled

Old-age pension reform is on the agenda across the OECD, and a key target is to delay retirement. Most of these countries also have a disability insurance (DI) program accounting for a large share of labor force exits. This paper builds a quantitative life-cycle model with endogenous retirement to study how DI and old-age pension (OA-pension) systems interact with health and wages to determine retirement age, with particular focus on the macroeconomic effects of OA-pension reforms. Individuals face uncertain future health status and wages, and if in bad health they are eligible for DI if they choose to retire before reaching the statutory retirement age. I calibrate the model to the Norwegian economy and explore the effects of raising the statutory retirement age and cutting OA-pension on labor supply and public finances. The main contribution of the paper is that I, in contrast to standard macro pension models, include DI as another endogenous margin of retirement. I show that failure to account for this margin might severely bias the analysis of OA-pension reforms.publishedVersio

Pension Reform Disabled

Old-age pension reform is on the agenda across the OECD, and a key target is to delay retirement. Most of these countries also have a disability insurance (DI) program accounting for a large share of labor force exits. This paper builds a quantitative life-cycle model with endogenous retirement to study how DI and old-age pension (OA-pension) systems interact with health and wages to determine retirement age, with particular focus on the macroeconomic effects of OA-pension reforms. Individuals face uncertain future health status and wages, and if in bad health they are eligible for DI if they choose to retire before reaching the statutory retirement age. I calibrate the model to the Norwegian economy and explore the effects of raising the statutory retirement age and cutting OA-pension on labor supply and public finances. The main contribution of the paper is that I, in contrast to standard macro pension models, include DI as another endogenous margin of retirement. I show that failure to account for this margin might severely bias the analysis of OA-pension reforms

R&D Heterogeneity and Its Implications for Growth

This paper quantifies the determinants of heterogeneity in R&D investment and its implications for growth. Using a panel of Norwegian manufacturing firms we document a negative correlation between R&D intensity and firm size, driven mainly by small firms with high R&D intensity. We estimate a Schumpeterian growth model with heterogeneous firms, that differ with respect to innovation efficiency. The estimated model fits the shape of the R&D investment distribution as well as the negative correlation between R&D intensity and firm size. A larger selection effect contribution to aggregate growth is found when we include R&D moments in the estimation. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms.publishedVersio

Cyclical Capital Regulation and Dynamic Bank Behaviour

In this paper we develop a dynamic model of bank behaviour to study cyclical capital regulation. We study the decision problem of a single bank that chooses its dividend policy and holds a portfolio of long-term loans (retail and corporate market), financed by internal (equity) and external (debt) funds. The demand for and return on bank lending is uncertain, determined by the state of the business cycle, which follows an exogenous Markov process. The model is calibrated using balance sheet and income statement data from seven of the largest Norwegian banking groups. To determine the probability and severity of a crisis we rely on cross-country data that covers several financial crises. In our main policy experiment we show that a time-varying capital requirement, which is decreased when loan losses are high, reduces the volatility of lending considerably compared with a fixed capital requirement. The reason for this is that lowering capital requirements when loan losses are high reduces the bank’s need to cut lending, relative to a fixed requirement

R&D Heterogeneity and Its Implications for Growth

This paper quantifies the determinants of heterogeneity in R&D investment and its implications for growth. Using a panel of Norwegian manufacturing firms we document a negative correlation between R&D intensity and firm size, driven mainly by small firms with high R&D intensity. We estimate a Schumpeterian growth model with heterogeneous firms, that differ with respect to innovation efficiency. The estimated model fits the shape of the R&D investment distribution as well as the negative correlation between R&D intensity and firm size. A larger selection effect contribution to aggregate growth is found when we include R&D moments in the estimation. Finally, we study the link between firm heterogeneity and R&D subsidies, and show that the growth effects of subsidies depend crucially on how the policy influences the equilibrium distribution of firms

Targeted Countercyclical Capital Buffers

This paper investigates the effect of broad-based versus sectoral capital requirements using a dynamic model of bank behaviour. We study the problem facing banks when determining their dividend policy and portfolio of long-term loans to the retail and corporate sector. The return on lending is uncertain, and capital requirements may be reduced when loan losses are high, in order to stabilise lending. We find that when shifting capital between sectors is difficult or very costly, targeted regulation, such as a sectoral buffer (SCCyB), can lead to more stable lending during a crisis than a broad-based CCyB, at a lower cost. This depends on the ability of the policymaker to foresee the type of crisis. A targeted requirement is ex-post an inefficient policy if crises occur in sectors where the buffer requirement is inactive, as the targeted policy cannot effectively stabilise credit. However, the consequences of policy "mistakes" depend on the degree of sectoral segmentation in the banking market. Banks that provide credit to both the retail and the corporate sector will endogenously reallocate capital to the constrained sector in a crisis, irrespective of the kind of regulatory buffer that is implemented, thereby dampening the consequences of such inefficient policy

Langvarige konsekvenser i arbeidsmarkedet

Vi studerer langvarig sysselsettingskonsekvenser av dype økonomiske nedgangstider ved å utnytte den geografiske variasjonen i lokale økonomiske forhold i etterkant av oljepriskollapsen i 2014. Vi dokumenterer en negativ sammenheng mellom det å være bosatt i områdermedstor økning i arbeidsledigheten i 2014-2015 og sannsynligheten for å være sysselsatt ved utgangen av 2019. Beregningene våre viser at en økning i lokal ledighet på 1 prosentpoeng er forbundet med en reduksjon i sysselsettingen på omtrent 0.4 prosentpoeng i 2019. Sammenhengen er spesielt sterk blant personer med lav inntekt og svak tilknytning til arbeidsmarkedet i forkant av oljeprisfallet. En stor del av sysselsettingsfallet forklares trolig av personer som forlater arbeidsstyrken etter å ha mistet jobben i et svakt lokalt arbeidsmarked.publishedVersio

Cyclical Capital Regulation and Dynamic Bank Behaviour

In this paper we develop a dynamic model of bank behaviour to study cyclical capital regulation. We study the decision problem of a single bank that chooses its dividend policy and holds a portfolio of long-term loans (retail and corporate market), financed by internal (equity) and external (debt) funds. The demand for and return on bank lending is uncertain, determined by the state of the business cycle, which follows an exogenous Markov process. The model is calibrated using balance sheet and income statement data from seven of the largest Norwegian banking groups. To determine the probability and severity of a crisis we rely on cross-country data that covers several financial crises. In our main policy experiment we show that a time-varying capital requirement, which is decreased when loan losses are high, reduces the volatility of lending considerably compared with a fixed capital requirement. The reason for this is that lowering capital requirements when loan losses are high reduces the bank’s need to cut lending, relative to a fixed requirement