Will China Escape the Middle-income Trap?
|
|
- Kelley Lynch
- 6 years ago
- Views:
Transcription
1 Will China Escape the Middle-income Trap? A Politico-economic Theory of Growth and State Capitalism Yikai Wang University of Zurich February 5, 2014
2 China s Growth Rapid growth in China in the last 3 decades Without democracy Question: is the rapid growth sustainable? Optimistic: success with state control over the economy (Musacchio 2012) Pessimistic: state distortions and extraction (Acemoglu and Robinson 2012)
3 China s Political Transition If Acemoglu and Robinson are right the growth will soon slow down Question: will it trigger political changes? Democratization: citizens do not support the current regime Persistent inefficient institutions: political support from the beneficiary
4 This Paper: Research Questions A theory of politico-economic transition 1. Answer the above questions Will China s growth continue? Will democratization occur? 2. Understand China s recent development Low wage that contributes to rapid growth Middle-class support of the existing regime and more...
5 Large State-Private Wage Gap State workers get 30% higher wages, ceteris paribus 0.5 State Sector Wage Premium Log Wage Differential Year Source: Ge and Yang 2012.
6 Political Support Support for Democracy coefficient Employment in State Sector -1.23** Middle-class Membership -0.54** Party Membership Source: Chen and Lu State workers are less supportive for democracy So do the middle-class, including private entrepreneurs Support for multiparty competition: 24.9% v.s. 38.7% (middle- v.s. lower-class)
7 Partial Privatization State employment share declined rapidly but now stays at 20% (40% in the manufacturing sector) 1 Employment Share of the State Sector in the Urban Area Manufacturing All Year Source: China Statistical Yearbook
8 Increasing Capital Market Friction Large and increasing capital market wedge between state and private sectors Capital Wedges between the State and Private Sectors 6.5 Difference of Costs for Capital Year
9 Preview of the Theory A political elite Controls state firms and extracts profits from them Controls the government and taxes private firms Political constraint Political support from sufficiently many citizens Policy tools State sector wages Bank loans to state firms Bank loans to private firms
10 Preview of the Theory Dual labor market High wages of state workers: turn them into supporters Low wages of private workers Capital market policies Encourages private sector growth when it is small Protect state employment when the private sector is large Over-investment in the state sector Restricted loans to private firms
11 Preview of the Theory A three-stage politico-economic transition Rapid Growth State Capitalism S u s t a ine d G row t h Middle Income Trap
12 Preview of Results A two-sector dynamic general equilibrium model Calibrated to China s economy! "# $% &'"($! )$ ' *+&& '$,' - $% -"../ 0)/!! 1'$"/ &'"($"2$" # 3#)'!"# )&"$/ -'4 $,'")$" # Rapid Growth State Capitalism S u s ta i ne d G r o wth Middle Incom e Trap 5. - )'$"2$" # 5!+!$"#. ' $%
13 Literature: Growth China s growth Brandt and Zhu 2000, 2010 Li, Liu and Wang 2013 Song, Storesletten and Zilibotti 2011 Middle-income trap Eichengreen, Park and Shin 2011 Fatas and Mihov 2009
14 Literature: Political Economy Institutions and Development Acemoglu, Johnson and Robinson 2001 Acemoglu and Robinson 2012 Inefficient political systems Acemoglu 2008 Acemoglu, Robinson and Verdier 2004 Robinson and Verdier 2013 Brollo, Nannicini, Perotti and Tabellini 2013
15 Model Environment: Agents Two sectors, state sector (S) and private sector (P) Three groups of agents Workers (w): supply labor to both sectors, size N w = 1 Elites (e): provide capital to sector S, size N e = 0 Private entrepreneurs (p): provide capital to sector P, size N p = 0 Two types of firms State firms (S): compete for capital and labor in sector S Private firms (P): compete for capital and labor in sector P S firms are less efficient Z S Z < 1 P
16 Environment: Political Systems Two political systems: democracy (D) and oligarchy (O) Democracy Median voter - the representative worker - controls the government Tax capital owners: elites and entrepreneurs Competitive equilibrium
17 Environment: Oligarchy Elites control the government to maximize their lifetime income Extract state profits Tax private sector Political constraint: enough supporters Policy tools
18 Breakdown of the Dynamic Equilibrium Infinite periods Within each period 1. Capital allocation in S and P sectors 2. Equilibrium given capitals Choices of Agents Political and economic outcome 3. Consumption and saving to next period
19 Democracy Wage and Labor in Democracy S Sector P Sector Marginal Return of Labor D y w D w D L S Labor in S Sector
20 Oligarchy: Key Assumptions Key assumptions Use high state sector wages to buy political support State firms decide employments to maximize profits Why not alternative non-distortive settings? Lump-sum transfer Commitment problem: Acemoglu 2003, Robinson and Torvik 2004 High cost: Reinikka and Svensson 2004 Employment subsidy and direct employment control Soft-budget constraint: Maskin and Xu 2008
21 Oligarchy: Labor and Wage Wages and Labor in Oligarchy S Sector P Sector Marginal Return of Labor w S = y D w D w w P L L D L S Labor in S Sector
22 Oligarchy: Political Constraints To sustain oligarchy, elites face two political constraints High state-wage constraint w S y D w Minimal support constraint L S L
23 Tradeoff 1: State Wage and State Employment Benefit: high wage buys political support of state workers Cost: reduces supporter base- state employment
24 Relative Size of State Capital Matters Private sector capital grows large, relatively small state sector capital Labor and Wages in Oligarchy S Sector P Sector Marginal Return of Labor w S = y D w D w L L Labor in S Sector
25 Large Enough State Capital Sustaining oligarchy requires large enough state capital K S relative to the private Enough state capital: [ L, L ] /0, oligarchy can be sustained Not enough state capital, [ L, L ] = /0, high enough wage leads to not enough supporters Economic power determines political outcome
26 Implications I State wage premium v.s. repressed private sector wage w S > w D > w P High capital labor ratio in the state sector (Song, Storesletten and Zilibotti 2012) Low capital return in the state sector
27 Low Capital Return in State Sector 0.8 Return to Capital Private State Year Source: Brandt and Zhu 2010
28 Implications II The middle-class benefit from the distortive policies 1. Elites: tax extraction 2. Entrepreneurs: cheap and abundant labor in the private sector 3. State workers: high state wage 4. Private workers: suffer from low wage Political support from the middle-class: state workers and entrepreneurs (Potentially) fast capital accumulation and growth - in the dynamic model
29 Breakdown of the Dynamic Equilibrium Infinite periods Within each period 1. Capital allocation in S and P sectors 2. Equilibrium given capitals Choices of Agents Political and economic outcome 3. Consumption and saving to next period
30 Model Setting S and P Sector Capital State sector capital K S Set by the government (by controlling the bank loans to state firms) Borrow at interest rate R from the international market Private sector capital K P Financed by entrepreneur assets and bank loans Credit constraint: K P ηa p Leverage of private firms η Set by the government η [ η, η ] Encourage or repress the private sector
31 Model Setting Infinitely-lived Agents Elites and entrepreneurs live for infinite periods with discount β Hand-to-mouth workers: consume the current period income and care only about current period income Log-utility, an entrepreneur saves the constant fraction of her lifetime income: β
32 The Representative Elite s Problem First she decides to stay in oligarchy or to democratize, { } W (a e,a p )=max W O (a e,a p ),W D (a e,a p ). In oligarchy, she decides government policies, consumption and saving W O (a e,a p )= max logc e + βw ( a e ),a p η,k S,w S,τ p,c e,a e s.t. w S y D w (η,k S,a p ), L S L, a e = Ra e + y e (η,k S,w S,τ p,a p ) c e, a p = βy p (η,k S,w S,τ p,a p ).
33 The Representative Elite s Problem The return to a e is always R. Its only role is to smooth consumption. So the problem in oligarchy can be separated into two parts Government policies to maximize the lifetime income V O (a p )= max ŷ e (η,k S,w S,τ p,a p )+ 1 η,k S,w S,τ p R V ( a p ) s.t. w S y D w (η,k S,a p ), L S L, a p = βy p(η,k S,w S,τ p,a p ). Consumption smooth using a e. Similarly, { } V (a p )=max V O (a p ),V D (a p ).
34 Steps to Explain the Results Choices of K P (η),k S,w S,τ P in 3 steps 1. w S,τ p K P,K S 2. K S K P 3. K P (η) a p
35 w S,τ p K P,K S w S = y D w (η,k S,a p ) L S = L, least distortion τ p = τ
36 K S K P Variables Depending on State Sector Capital, Given Private Capital State Sector Labor Dummy for Oligarchy Elite Current Period Income 0.05 Marginal Return of S Capital to Elites State Sector Capital
37 K S K P Variables Depending on Private Sector Capital State Sector Capital State Sector Labor Elite Income from State and Private Sectors Private State Elite Income Private Sector Capital
38 Tradeoff 2: Private Sector Capital Benefit: tax income Cost: state sector investment to maintain enough state workers Elites prefer a median level of private capital
39 K P (η) a p 2 Variables Depending on Entrepreneur Asset Private Firm Leverage State and Private Capital Private State State Sector Labor Entrepreneur Asset Elite Lifetime Income
40 Dynamics: Three Stage Transition Given the solution above Simulate the dynamics starting from a small a p Red line: oligarchy Blue line: democracy
41 Dynamics: Three Stage Transition D O Dynamics in Democracy(D) and Oligarchy(O) Private Capital State Capital Private Firm Leverage State Labor Time
42 Dynamics: Stage 1 2 Aggregate Output in Democracy and Oligarchy Oligarchy 1.4 Democracy Time
43 Stage 1: Rapid Growth Encourage private sector growth: η = η Low wage helps the growth of the private sector Rapid growth as the result of resource reallocation Benefit the middle-class Entrepreneurs benefit from low wage State workers get high wage
44 Dynamics: Stage D O Dynamics in Democracy(D) and Oligarchy(O) Private Capital State Capital Private Firm Leverage State Labor Time
45 Dynamics: Stage 2 2 Aggregate Output in Democracy and Oligarchy Oligarchy 1.4 Democracy Time
46 Stage 2: State Capitalism State employment stops declining State investment increases Financial repression on private sector: η < η State investment drives growth Financial repression harms growth
47 Dynamics: Middle-income Trap (L = 0.2) D O Dynamics in Democracy(D) and Oligarchy(O) Private Capital State Capital Private Firm Leverage State Labor Time
48 Dynamics: Middle-income Trap 2 Aggregate Output in Democracy and Oligarchy Oligarchy 1.4 Democracy Time
49 Stage 3, Case 1: Middle-income Trap L small (=0.2) Low cost to retain enough supporters Keep state employment at the critical level State capital grows at the same rate as the private capital Oligarchy is permanently sustained Low growth due to financial repression on private sector Persistent financial market friction
50 Dynamics: Sustained Growth (L = 0.4) Dynamics in Democracy(D) and Oligarchy(O) Private Capital State Capital D O Private Firm Leverage State Labor Time
51 Dynamics: Sustained Growth Aggregate Output in Democracy and Oligarchy Democracy Oligarchy Time
52 Stage 3, Case 2: Sustained Growth L large (=0.4) Too costly to maintain political support Elites choose to democratize State sector declines rapidly and private sector grows again Financial repression is removed Output grows to the high level in democracy
53 China: Now China has been transitioning from stage 1 rapid growth to stage 2 state capitalism Decline of state sector labor stops Overinvestment in the state sector
54 The State Advances as the Private Sector Retreats 1 Investment and Employment Share of the State Sector Investment Employment Year
55 Dynamic Implications Persistent labor market friction Persistent or even increasing capital market friction Capital Wedges between the State and Private Sectors 6.5 Difference of Costs for Capital Year
56 Dynamic Implications: Entrepreneurs Entrepreneur Lifetime Utility in Democracy and Oligarchy Oligarchy Democracy Entrepreneur Asset
57 China: Future Middle-income trap in stage 3 given the current conditions The calibration Z S Z P = 0.7 (Song and Hsieh 2013) L=0.2 τ = 0.1 (to match the state-private wage gap) β = 0.9 (to match the private sector labor growth) α = 0.5, r = 0.05 The state is politically and economically powerful
58 Extras: Reforms Previous analysis Given exogenous parameters: P = { L,η,Z S,... } Reform: change of the exogenous parameters Political reform: more rights for citizens and migrant workers Financial reform: free financial market State sector technology upgrade Conflicting interests: extractive elites v.s. technocrats max (V P (P) V)α (Y (P) Y ) 1 α
59 Political Reform More rights to citizens and migrant workers: Larger L Long run Output and Elite Income Output Percent Elite Income Minimal Support Required
60 Political Reform Higher long-run output Democratization Harm elite interest Elites are against the reform
61 Financial Reform Increase the lower bound of loans to private firms: η Long run Output and Elite Income Output Percent Elite Income Loans to Private Firms
62 Financial Reform Private firms get more loans Larger private sector Higher long-run output Harms elite interest because of a larger state sector Resistance from elites: Shanghai Pilot Free Trade Zone
63 State Sector Technology Upgrade Technology upgrade in the state sector: larger Z S Long run Output and Elite Income Elite Income 140 Percent Output State Firm TFP
64 State Sector Technology Upgrade Less threat from private firms allows the government to relax the financial constraint Lead to higher efficiency and output Benefit the elites so it is supported by them
65 Other Countries Korea and Taiwan Growth in dictatorship before the 80s Democratization and sustained growth Politically connected large firms (chaebol in Korea) Kuwait Employment declined but then stayed or even reversed a bit in dictatorship 90% of adult Kuwaiti in public sector Migrant workers with low wages in private sector
66 Conclusion A theory of politico-economic transition Divide and rule strategy sustains oligarchy Explain rapid growth with labor and capital market frictions Growth is not sustainable in the current political system Democratization will sustain the growth In this critical juncture, reforms can be taken to sustain the growth
67 Appendix: Timing in Democracy 1. Capitals K S,K P are given 2. The government, controlled by the representative worker, decides tax rate τ D on the income of elites and entrepreneurs 3. Competitive equilibrium 4. Elites and entrepreneurs decide whether to hide the income at the cost rate τ 5. Tax income is transferred to workers
68 Oligarchy: Timing 1. Capital K S,K P are given 2. The government, controlled by the representative elite, announces the tax rate τ S on private entrepreneurs and private workers 3. The government sets minimal wage in the state sector w S 4. S and P firms hire L S and L P, separately 5. Workers in S and P sectors decide to support oligarchy or not, sequentially 5.1 supporters L: oligarchy is sustained 5.2 otherwise, democratization occurs 6. Firms produce. Pre-tax incomes are distributed 7. Entrepreneurs and private workers decide whether to hide the income at the cost τ 8. Tax income is transferred to elites
69 Democracy Solution Competitive equilibrium w D S = (1 α)(zk S ) α( L D S) α = w D P =(1 α)k α P Workers income: y D w = w D + τ D( Y S w D S LD S + Y P w D P LD P ) ( ) α L D P Elites income: y D e = (1 τ D)( Y S w D S LD S )
70 Oligarchy Solution Firms: w S w P = (1 α)(zk S ) α L α = (1 α)k α P L α P, S, The representative elite s income in oligarchy y e (L S )=π S (L S )+ τy P (L S ) s.t. w S (L S ) y D w L S L The two political constraint are equivalent to s.t. L L S L
14.461: Technological Change, Lecture 10 Misallocation and Productivity
14.461: Technological Change, Lecture 10 Misallocation and Productivity Daron Acemoglu MIT October 14, 2011. Daron Acemoglu (MIT) Misallocation and Productivity October 14, 2011. 1 / 29 Introduction Introduction
More informationChina s Financial System and Economic Imbalances
China s Financial System and Economic Imbalances Xi LI, Yikai WANG, Tong ZHANG HKUST IEMS Working Paper No. 2018-53 February 2018 HKUST IEMS working papers are distributed for discussion and comment purposes.
More informationCan Financial Frictions Explain China s Current Account Puzzle: A Firm Level Analysis (Preliminary)
Can Financial Frictions Explain China s Current Account Puzzle: A Firm Level Analysis (Preliminary) Yan Bai University of Rochester NBER Dan Lu University of Rochester Xu Tian University of Rochester February
More informationFrom imitation to innovation: Where is all that Chinese R&D going?
From imitation to innovation: Where is all that Chinese R&D going? Michael König Zheng (Michael) Song Kjetil Storesletten Fabrizio Zilibotti ABFER May 24, 217 R&D Misallocation? Does R&D investment translate
More informationCapital Controls and Optimal Chinese Monetary Policy 1
Capital Controls and Optimal Chinese Monetary Policy 1 Chun Chang a Zheng Liu b Mark Spiegel b a Shanghai Advanced Institute of Finance b Federal Reserve Bank of San Francisco International Monetary Fund
More informationHousehold Saving, Financial Constraints, and the Current Account Balance in China
Household Saving, Financial Constraints, and the Current Account Balance in China Ayşe İmrohoroğlu USC Marshall Kai Zhao Univ. of Connecticut Facing Demographic Change in a Challenging Economic Environment-
More informationOn Quality Bias and Inflation Targets: Supplementary Material
On Quality Bias and Inflation Targets: Supplementary Material Stephanie Schmitt-Grohé Martín Uribe August 2 211 This document contains supplementary material to Schmitt-Grohé and Uribe (211). 1 A Two Sector
More informationThe Great Housing Boom of China
The Great Housing Boom of China Department of Economics HKUST October 18, 2018 1 1 Chen, K., & Wen, Y. (2017). The great housing boom of China. American Economic Journal: Macroeconomics, 9(2), 73-114.
More informationReserve Requirements and Optimal Chinese Stabilization Policy 1
Reserve Requirements and Optimal Chinese Stabilization Policy 1 Chun Chang 1 Zheng Liu 2 Mark M. Spiegel 2 Jingyi Zhang 1 1 Shanghai Jiao Tong University, 2 FRB San Francisco 2nd Ann. Bank of Canada U
More informationFirm Entry and Exit and Growth
Firm Entry and Exit and Growth Jose Asturias (Georgetown University, Qatar) Sewon Hur (University of Pittsburgh) Timothy Kehoe (UMN, Mpls Fed, NBER) Kim Ruhl (NYU Stern) Minnesota Workshop in Macroeconomic
More informationEndogenous Managerial Ability and Progressive Taxation
Endogenous Managerial Ability and Progressive Taxation Jung Eun Yoon Department of Economics, Princeton University November 15, 2016 Abstract Compared to proportional taxation that raises the same tax
More informationReserve Requirements and Optimal Chinese Stabilization Policy 1
Reserve Requirements and Optimal Chinese Stabilization Policy 1 Chun Chang 1 Zheng Liu 2 Mark M. Spiegel 2 Jingyi Zhang 1 1 Shanghai Jiao Tong University, 2 FRB San Francisco ABFER Conference, Singapore
More informationChallenges For the Future of Chinese Economic Growth. Jane Haltmaier* Board of Governors of the Federal Reserve System. August 2011.
Challenges For the Future of Chinese Economic Growth Jane Haltmaier* Board of Governors of the Federal Reserve System August 2011 Preliminary *Senior Advisor in the Division of International Finance. Mailing
More informationQuantitative Significance of Collateral Constraints as an Amplification Mechanism
RIETI Discussion Paper Series 09-E-05 Quantitative Significance of Collateral Constraints as an Amplification Mechanism INABA Masaru The Canon Institute for Global Studies KOBAYASHI Keiichiro RIETI The
More informationAging and Deflation from a Fiscal Perspective
Aging and Deflation from a Fiscal Perspective Mitsuru Katagiri, Hideki Konishi, and Kozo Ueda Bank of Japan and Waseda Univ December 2014 @ CIGS FTPL December 2014 @ CIGS 1 / 35 Negative Correlation bw
More informationSovereign Debt and Structural Reforms
Sovereign Debt and Structural Reforms Andreas Müller Kjetil Storesletten Fabrizio Zilibotti Working paper Presented by Ruben Veiga April 2017 Müller-Storesletten-Zilibotti Sovereign ( Working Debt and
More informationEstimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach
Estimating Macroeconomic Models of Financial Crises: An Endogenous Regime-Switching Approach Gianluca Benigno 1 Andrew Foerster 2 Christopher Otrok 3 Alessandro Rebucci 4 1 London School of Economics and
More informationOPTIMAL CAPITAL ACCOUNT LIBERALIZATION IN CHINA
OPTIMAL CAPITAL ACCOUNT LIBERALIZATION IN CHINA ZHENG LIU, MARK M. SPIEGEL, AND JINGYI ZHANG Abstract. China maintains tight controls over its capital account. Its prevailing regime also features financial
More informationRamsey s Growth Model (Solution Ex. 2.1 (f) and (g))
Problem Set 2: Ramsey s Growth Model (Solution Ex. 2.1 (f) and (g)) Exercise 2.1: An infinite horizon problem with perfect foresight In this exercise we will study at a discrete-time version of Ramsey
More information. Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective. May 10, 2013
.. Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective Gary Hansen (UCLA) and Selo İmrohoroğlu (USC) May 10, 2013 Table of Contents.1 Introduction.2 Model Economy.3 Calibration.4 Quantitative
More informationMacroprudential Policies in a Low Interest-Rate Environment
Macroprudential Policies in a Low Interest-Rate Environment Margarita Rubio 1 Fang Yao 2 1 University of Nottingham 2 Reserve Bank of New Zealand. The views expressed in this paper do not necessarily reflect
More informationLecture Notes 1: Solow Growth Model
Lecture Notes 1: Solow Growth Model Zhiwei Xu (xuzhiwei@sjtu.edu.cn) Solow model (Solow, 1959) is the starting point of the most dynamic macroeconomic theories. It introduces dynamics and transitions into
More informationReforms in a Debt Overhang
Structural Javier Andrés, Óscar Arce and Carlos Thomas 3 National Bank of Belgium, June 8 4 Universidad de Valencia, Banco de España Banco de España 3 Banco de España National Bank of Belgium, June 8 4
More informationTaxing Firms Facing Financial Frictions
Taxing Firms Facing Financial Frictions Daniel Wills 1 Gustavo Camilo 2 1 Universidad de los Andes 2 Cornerstone November 11, 2017 NTA 2017 Conference Corporate income is often taxed at different sources
More informationOptimal Credit Market Policy. CEF 2018, Milan
Optimal Credit Market Policy Matteo Iacoviello 1 Ricardo Nunes 2 Andrea Prestipino 1 1 Federal Reserve Board 2 University of Surrey CEF 218, Milan June 2, 218 Disclaimer: The views expressed are solely
More informationINTERMEDIATE MACROECONOMICS
INTERMEDIATE MACROECONOMICS LECTURE 5 Douglas Hanley, University of Pittsburgh ENDOGENOUS GROWTH IN THIS LECTURE How does the Solow model perform across countries? Does it match the data we see historically?
More informationLow Fertility, Rapid Aging and Fiscal Challenges with the Presence of Informal Employment
Low Fertility, Rapid Aging and Fiscal Challenges with the Presence of Informal Employment Tanyasorn Ekapirak 1, Minchung Hsu 1, Pei-Ju Liao 2 1 National Graduate Institute for Policy Studies (GRIPS), Tokyo
More informationFiscal Reform and Government Debt in Japan: A Neoclassical Perspective
Fiscal Reform and Government Debt in Japan: A Neoclassical Perspective Gary Hansen and Selo İmrohoroğlu UCLA Economics USC Marshall School June 1, 2012 06/01/2012 1 / 33 Basic Issue Japan faces two significant
More informationCredit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal 1 / of19
Credit Crises, Precautionary Savings and the Liquidity Trap (R&R Quarterly Journal of nomics) October 31, 2016 Credit Crises, Precautionary Savings and the Liquidity Trap October (R&R Quarterly 31, 2016Journal
More informationCapital Flows to Developing Countries: the Allocation Puzzle. Discussion by Fabio Ghironi 2007 ASSA Annual Meetings Chicago, January 5-7, 2007
Capital Flows to Developing Countries: the Allocation Puzzle Pierre-Olivier Gourinchas and Olivier Jeanne Discussion by Fabio Ghironi 2007 ASSA Annual Meetings Chicago, January 5-7, 2007 Introduction This
More informationPhD Topics in Macroeconomics
PhD Topics in Macroeconomics Lecture 12: misallocation, part four Chris Edmond 2nd Semester 2014 1 This lecture Buera/Shin (2013) model of financial frictions, misallocation and the transitional dynamics
More informationExchange Rate Adjustment in Financial Crises
Exchange Rate Adjustment in Financial Crises Michael B. Devereux 1 Changhua Yu 2 1 University of British Columbia 2 Peking University Swiss National Bank June 2016 Motivation: Two-fold Crises in Emerging
More informationECON 3020: ACCELERATED MACROECONOMICS. Question 1: Inflation Expectations and Real Money Demand (20 points)
ECON 3020: ACCELERATED MACROECONOMICS SOLUTIONS TO PRELIMINARY EXAM 03/05/2015 Instructor: Karel Mertens Question 1: Inflation Expectations and Real Money Demand (20 points) Suppose that the real money
More informationDebt Covenants and the Macroeconomy: The Interest Coverage Channel
Debt Covenants and the Macroeconomy: The Interest Coverage Channel Daniel L. Greenwald MIT Sloan EFA Lunch, April 19 Daniel L. Greenwald Debt Covenants and the Macroeconomy EFA Lunch, April 19 1 / 6 Introduction
More informationQUEEN S UNIVERSITY FACULTY OF ARTS AND SCIENCE DEPARTMENT OF ECONOMICS. Economics 222 A&B Macroeconomic Theory I. Final Examination 20 April 2009
Page 1 of 9 QUEEN S UNIVERSITY FACULTY OF ARTS AND SCIENCE DEPARTMENT OF ECONOMICS Economics 222 A&B Macroeconomic Theory I Final Examination 20 April 2009 Instructors: Nicolas-Guillaume Martineau (Section
More informationSang-Wook (Stanley) Cho
Beggar-thy-parents? A Lifecycle Model of Intergenerational Altruism Sang-Wook (Stanley) Cho University of New South Wales March 2009 Motivation & Question Since Becker (1974), several studies analyzing
More informationExercises on the New-Keynesian Model
Advanced Macroeconomics II Professor Lorenza Rossi/Jordi Gali T.A. Daniël van Schoot, daniel.vanschoot@upf.edu Exercises on the New-Keynesian Model Schedule: 28th of May (seminar 4): Exercises 1, 2 and
More informationThe Lost Generation of the Great Recession
The Lost Generation of the Great Recession Sewon Hur University of Pittsburgh January 21, 2016 Introduction What are the distributional consequences of the Great Recession? Introduction What are the distributional
More informationHousehold Finance in China
Household Finance in China Russell Cooper 1 and Guozhong Zhu 2 October 22, 2016 1 Department of Economics, the Pennsylvania State University and NBER, russellcoop@gmail.com 2 School of Business, University
More informationGrowing Like China. Fabrizio. Zilibotti. Jerusalem - June 29, Fabrizio. Zilibotti () Growing Like China Jerusalem - June 29, / 34
Growing Like China Fabrizio. Zilibotti Jerusalem - June 29, 2011 Fabrizio. Zilibotti () Growing Like China Jerusalem - June 29, 2011 1 / 34 Introduction Real GDP p.c. of China as Percentage of the Real
More informationFinancing National Health Insurance and Challenge of Fast Population Aging: The Case of Taiwan
Financing National Health Insurance and Challenge of Fast Population Aging: The Case of Taiwan Minchung Hsu Pei-Ju Liao GRIPS Academia Sinica October 15, 2010 Abstract This paper aims to discover the impacts
More informationOptimal Borrowing Constraints, Growth and Savings in an Open Economy
Optimal Borrowing Constraints, Growth and Savings in an Open Economy Amanda Michaud Indiana University Jacek Rothert University of Texas at Austin September 4, 2012 Abstract We seek to understand how government
More informationSecondary Capital Markets and the Potential Non-monotonicity between Finance and Economic Development
Secondary Capital Markets and the Potential Non-monotonicity between Finance and Economic Development Burak R Uras Tilburg University European Banking Center Midwest Economic Theory Conference Uras (Tilburg)
More information14.461: Technological Change, Lecture 11 Misallocation and Productivity Differences across Countries
14.461: Technological Change, Lecture 11 Misallocation and Productivity Differences across Countries Daron Acemoglu MIT October 9, 2014. Daron Acemoglu (MIT) Misallocation and Productivity October 9, 2014.
More informationQuantifying the Impact of Financial Development on Economic Development
Quantifying the Impact of Financial Development on Economic Development Jeremy Greenwood, Juan M. Sanchez, Cheng Wang (RED 2013) Presented by Beatriz González Macroeconomics Reading Group - UC3M January
More informationA MODEL OF SECULAR STAGNATION
A MODEL OF SECULAR STAGNATION Gauti B. Eggertsson and Neil R. Mehrotra Brown University BIS Research Meetings March 11, 2015 1 / 38 SECULAR STAGNATION HYPOTHESIS I wonder if a set of older ideas... under
More informationFinancial Crises, Dollarization and Lending of Last Resort in Open Economies
Financial Crises, Dollarization and Lending of Last Resort in Open Economies Luigi Bocola Stanford, Minneapolis Fed, and NBER Guido Lorenzoni Northwestern and NBER Restud Tour Reunion Conference May 2018
More informationSang-Wook (Stanley) Cho
Beggar-thy-parents? A Lifecycle Model of Intergenerational Altruism Sang-Wook (Stanley) Cho University of New South Wales, Sydney July 2009, CEF Conference Motivation & Question Since Becker (1974), several
More information14.05 Lecture Notes. Endogenous Growth
14.05 Lecture Notes Endogenous Growth George-Marios Angeletos MIT Department of Economics April 3, 2013 1 George-Marios Angeletos 1 The Simple AK Model In this section we consider the simplest version
More informationA Model of China s State Capitalism
A Model of China s State Capitalism Xi Li, Xuewen Liu, Yong Wang HKUST June 2012 Li, Liu, Wang (HKUST) China s State Capitalism June 2012 1 / 47 State Capitalism! State capitalism as alternative growth
More informationGovernment Investment and Fiscal Stimulus
Government Investment and Fiscal Stimulus Eric M. Leeper; Todd B. Walker; Shu-Chun S. Yang HKUST Macro Group Seminar Series: 02/21/2018 Abstract: This paper studies the effects of government investment
More informationThe Measurement Procedure of AB2017 in a Simplified Version of McGrattan 2017
The Measurement Procedure of AB2017 in a Simplified Version of McGrattan 2017 Andrew Atkeson and Ariel Burstein 1 Introduction In this document we derive the main results Atkeson Burstein (Aggregate Implications
More informationHow Effectively Can Debt Covenants Alleviate Financial Agency Problems?
How Effectively Can Debt Covenants Alleviate Financial Agency Problems? Andrea Gamba Alexander J. Triantis Corporate Finance Symposium Cambridge Judge Business School September 20, 2014 What do we know
More informationMacroeconomics of Financial Markets
ECON 712, Fall 2017 Financial Markets and Business Cycles Guillermo Ordoñez University of Pennsylvania and NBER September 17, 2017 Introduction Credit frictions amplification & persistence of shocks Two
More informationDemographic Aging, Industrial Policy, and Chinese Economic Growth
Working Papers WP 19-21 March 219 https://doi.org/1.21799/frbp.wp.219.21 Demographic Aging, Industrial Policy, and Chinese Economic Growth Michael Dotsey Federal Reserve Bank of Philadelphia Research Department
More informationHealth Care Reform or Labor Market Reform? A Quantitative Analysis of the Affordable Care Act
Health Care Reform or Labor Market Reform? A Quantitative Analysis of the Affordable Care Act Makoto Nakajima 1 Didem Tüzemen 2 1 Federal Reserve Bank of Philadelphia 2 Federal Reserve Bank of Kansas City
More informationExternal Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory. November 7, 2014
External Financing and the Role of Financial Frictions over the Business Cycle: Measurement and Theory Ali Shourideh Wharton Ariel Zetlin-Jones CMU - Tepper November 7, 2014 Introduction Question: How
More informationLecture 14 Consumption under Uncertainty Ricardian Equivalence & Social Security Dynamic General Equilibrium. Noah Williams
Lecture 14 Consumption under Uncertainty Ricardian Equivalence & Social Security Dynamic General Equilibrium Noah Williams University of Wisconsin - Madison Economics 702 Extensions of Permanent Income
More informationPrinciples of Banking (III): Macroeconomics of Banking (1) Introduction
Principles of Banking (III): Macroeconomics of Banking (1) Jin Cao (Norges Bank Research, Oslo & CESifo, München) Outline 1 2 Disclaimer (If they care about what I say,) the views expressed in this manuscript
More informationFiscal Consolidation in a Currency Union: Spending Cuts Vs. Tax Hikes
Fiscal Consolidation in a Currency Union: Spending Cuts Vs. Tax Hikes Christopher J. Erceg and Jesper Lindé Federal Reserve Board October, 2012 Erceg and Lindé (Federal Reserve Board) Fiscal Consolidations
More informationEconomic Growth. (c) Copyright 1999 by Douglas H. Joines 1. Module Objectives
Economic Growth Module Objectives now what determines the growth rates of aggregate and per capita GDP Distinguish factors that affect the economy s growth rate from those that merely shift the level of
More informationDebt Constraints and the Labor Wedge
Debt Constraints and the Labor Wedge By Patrick Kehoe, Virgiliu Midrigan, and Elena Pastorino This paper is motivated by the strong correlation between changes in household debt and employment across regions
More informationDoes the Social Safety Net Improve Welfare? A Dynamic General Equilibrium Analysis
Does the Social Safety Net Improve Welfare? A Dynamic General Equilibrium Analysis University of Western Ontario February 2013 Question Main Question: what is the welfare cost/gain of US social safety
More informationInflation Dynamics During the Financial Crisis
Inflation Dynamics During the Financial Crisis S. Gilchrist 1 1 Boston University and NBER MFM Summer Camp June 12, 2016 DISCLAIMER: The views expressed are solely the responsibility of the authors and
More informationWhat is Cyclical in Credit Cycles?
What is Cyclical in Credit Cycles? Rui Cui May 31, 2014 Introduction Credit cycles are growth cycles Cyclicality in the amount of new credit Explanations: collateral constraints, equity constraints, leverage
More informationTax Competition and Coordination in the Context of FDI
Tax Competition and Coordination in the Context of FDI Presented by: Romita Mukherjee February 20, 2008 Basic Principles of International Taxation of Capital Income Residence Principle (1) Place of Residency
More informationAnatomy of a Credit Crunch: from Capital to Labor Markets
Anatomy of a Credit Crunch: from Capital to Labor Markets Francisco Buera 1 Roberto Fattal Jaef 2 Yongseok Shin 3 1 Federal Reserve Bank of Chicago and UCLA 2 World Bank 3 Wash U St. Louis & St. Louis
More informationAdvanced Macroeconomics I ECON 525a - Fall 2009 Yale University
Advanced Macroeconomics I ECON 525a - Fall 2009 Yale University Week 4 Introduction Credit frictions amplification & persistence of shocks Two roles for capital - Factor of production - Collateral for
More informationAdvanced International Finance Part 3
Advanced International Finance Part 3 Nicolas Coeurdacier - nicolas.coeurdacier@sciences-po.fr Spring 2011 Global Imbalances and Valuation Effects (2) - Models of Global Imbalances Caballerro, Fahri and
More informationExploding Bubbles In a Macroeconomic Model. Narayana Kocherlakota
Bubbles Exploding Bubbles In a Macroeconomic Model Narayana Kocherlakota presented by Kaiji Chen Macro Reading Group, Jan 16, 2009 1 Bubbles Question How do bubbles emerge in an economy when collateral
More informationd. Find a competitive equilibrium for this economy. Is the allocation Pareto efficient? Are there any other competitive equilibrium allocations?
Answers to Microeconomics Prelim of August 7, 0. Consider an individual faced with two job choices: she can either accept a position with a fixed annual salary of x > 0 which requires L x units of labor
More informationUnemployment Fluctuations and Nominal GDP Targeting
Unemployment Fluctuations and Nominal GDP Targeting Roberto M. Billi Sveriges Riksbank 3 January 219 Abstract I evaluate the welfare performance of a target for the level of nominal GDP in the context
More informationFinancial Amplification, Regulation and Long-term Lending
Financial Amplification, Regulation and Long-term Lending Michael Reiter 1 Leopold Zessner 2 1 Instiute for Advances Studies, Vienna 2 Vienna Graduate School of Economics Barcelona GSE Summer Forum ADEMU,
More informationOutward FDI and domestic input distortions: evidence from Chinese Firms
Title Outward FDI and domestic input distortions: evidence from Chinese Firms Author(s) Chen, C; Tian, W; Yu, M Citation The Asian Development Bank Inaugural Conference on Economic Development (ADB-ACED
More informationFrom Consumer Incomes to Car Ages: How the Distribution of Income Affects the Distribution of Vehicle Vintages
From Consumer Incomes to Car Ages: How the Distribution of Income Affects the Distribution of Vehicle Vintages Anna V. Yurko National Research University - Higher School of Economics Pokrovski Bulvar,
More informationConvergence of Life Expectancy and Living Standards in the World
Convergence of Life Expectancy and Living Standards in the World Kenichi Ueda* *The University of Tokyo PRI-ADBI Joint Workshop January 13, 2017 The views are those of the author and should not be attributed
More informationLecture 3: Quantifying the Role of Credit Markets in Economic Development
Lecture 3: Quantifying the Role of Credit Markets in Economic Development Francisco Buera UCLA January 18, 2013 Finance and Development: A Tale of Two Sectors Buera, Kaboski & Shin 2011 Development Facts
More informationInflation Dynamics During the Financial Crisis
Inflation Dynamics During the Financial Crisis S. Gilchrist 1 R. Schoenle 2 J. W. Sim 3 E. Zakrajšek 3 1 Boston University and NBER 2 Brandeis University 3 Federal Reserve Board Theory and Methods in Macroeconomics
More informationReforming State Owned Enterprises in China: Effects of WTO Accession
Reforming State Owned Enterprises in China: Effects of WTO Accession Claustre Bajona Ryerson University Toronto, ON M5B 2K3, Canada Tianshu Chu South Western University of Finance and Economics Chengdu,
More informationChapter 6. Endogenous Growth I: AK, H, and G
Chapter 6 Endogenous Growth I: AK, H, and G 195 6.1 The Simple AK Model Economic Growth: Lecture Notes 6.1.1 Pareto Allocations Total output in the economy is given by Y t = F (K t, L t ) = AK t, where
More informationOn the Merits of Conventional vs Unconventional Fiscal Policy
On the Merits of Conventional vs Unconventional Fiscal Policy Matthieu Lemoine and Jesper Lindé Banque de France and Sveriges Riksbank The views expressed in this paper do not necessarily reflect those
More informationFrom imitation to innovation: Where is all that Chinese R&D going?
From imitation to innovation: Where is all that Chinese R&D going? Michael König (University of Zurich) Zheng (Michael) Song (Chinese University of Hong Kong) Kjetil Storesletten (University of Oslo) Fabrizio
More information1 Fiscal stimulus (Certification exam, 2009) Question (a) Question (b)... 6
Contents 1 Fiscal stimulus (Certification exam, 2009) 2 1.1 Question (a).................................................... 2 1.2 Question (b).................................................... 6 2 Countercyclical
More informationPublic Good Provision: Lindahl Tax, Income Tax, Commodity Tax, and Poll Tax, A Simulation
20th International Congress on Modelling and Simulation, Adelaide, Australia, 1 6 December 2013 www.mssanz.org.au/modsim2013 Public Good Provision: Lindahl Tax, Income Tax, Commodity Tax, and Poll Tax,
More informationDo Financial Frictions Explain Chinese Firms Saving and Misallocation?
Do Financial Frictions Explain Chinese Firms Saving and Misallocation? Yan Bai University of Rochester NBER Dan Lu University of Rochester Xu Tian University of Rochester July 15, 2016 Abstract This paper
More informationTechnology Advancement and Growth
Technology Advancement and Growth Ping Wang Department of Economics Washington University in St. Louis March 2017 1 A. Introduction Technological under-achievement is a major barrier to economic development.
More informationTrade Credit, Financing Structure and Growth
Trade Credit, Financing Structure and Growth Junjie Xia Department of Economics University of Southern California Job Market Paper Jan. 12, 2017 Junjie Xia (USC-Economics) Trade Credit Job Market Paper
More informationUNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS
UNIVERSITY OF OSLO DEPARTMENT OF ECONOMICS Postponed exam: ECON4310 Macroeconomic Theory Date of exam: Wednesday, January 11, 2017 Time for exam: 09:00 a.m. 12:00 noon The problem set covers 13 pages (incl.
More informationCapital Income Tax Reform and the Japanese Economy (Very Preliminary and Incomplete)
Capital Income Tax Reform and the Japanese Economy (Very Preliminary and Incomplete) Gary Hansen (UCLA), Selo İmrohoroğlu (USC), Nao Sudo (BoJ) December 22, 2015 Keio University December 22, 2015 Keio
More informationOptimal Monetary Policy in a Sudden Stop
... Optimal Monetary Policy in a Sudden Stop with Jorge Roldos (IMF) and Fabio Braggion (Northwestern, Tilburg) 1 Modeling Issues/Tools Small, Open Economy Model Interaction Between Asset Markets and Monetary
More informationDiscussion: The Optimal Rate of Inflation by Stephanie Schmitt- Grohé and Martin Uribe
Discussion: The Optimal Rate of Inflation by Stephanie Schmitt- Grohé and Martin Uribe Can Ramsey optimal taxation account for the roughly 2% inflation target central banks seem to follow? This is not
More informationFinancial Development and the Effects of Trade Liberalizations
Financial Development and the Effects of Trade Liberalizations David Kohn Pontificia Universidad Católica de Chile Fernando Leibovici Federal Reserve Bank of St. Louis Michal Szkup University of British
More informationEndogenous Managerial Capital and Financial Frictions
Endogenous Managerial Capital and Financial Frictions Jung Eun Yoon Department of Economics, Princeton University [Link to the Latest Version] December 14, 2016 Abstract Aggregate total factor productivity
More informationSerial Entrepreneurship and the Impact of Credit. Constraints of Economic Development
Serial Entrepreneurship and the Impact of Credit Constraints of Economic Development Galina Vereshchagina Arizona State University January 2014 preliminary and incomplete please do not cite Abstract This
More informationDirectory. The Value of Life and the Rise in Health Spending p.1/34
Directory Introduction Related Papers Outline Figure 1. The Health Share Figure 2. Life Expectancy Basic Model Environment Optimal Allocation Alternative characterization General utility Discussion The
More informationFiscal Policy and Unemployment. Marco Battaglini Princeton University, NBER and CEPR and Stephen Coate Cornell University and NBER
Fiscal Policy and Unemployment Marco Battaglini Princeton University, NBER and CEPR and Stephen Coate Cornell University and NBER 1 Introduction During the Great recession, countries have pursued a variety
More informationK and L by the factor z magnifies output produced by the factor z. Define
Intermediate Macroeconomic Theory II, Fall 2014 Instructor: Dmytro Hryshko Solutions to Problem Set 1 1. (15 points) Let the economy s production function be Y = 5K 1/2 (EL) 1/2. Households save 40% of
More informationOn the Optimality of Financial Repression
On the Optimality of Financial Repression V.V. Chari, Alessandro Dovis and Patrick Kehoe Conference in honor of Robert E. Lucas Jr, October 2016 Financial Repression Regulation forcing financial institutions
More informationOptimal Redistribution in an Open Economy
Optimal Redistribution in an Open Economy Oleg Itskhoki Harvard University Princeton University January 8, 2008 1 / 29 How should society respond to increasing inequality? 2 / 29 How should society respond
More informationInflation. David Andolfatto
Inflation David Andolfatto Introduction We continue to assume an economy with a single asset Assume that the government can manage the supply of over time; i.e., = 1,where 0 is the gross rate of money
More information