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Working Paper
Rational Bubbles in Non-Linear Business Cycle Models: Closed and Open Economies
Kollmann, Robert (2020-02-11)
This paper studies rational bubbles in non-linear dynamic general equilibrium models of the macroeconomy. The term ‘rational bubble’ refers to multiple equilibria due to the absence of a transversality condition (TVC) for capital. The lack of TVC can be due to an OLG population structure. If a TVC is imposed, the macro models considered here have a unique solution. Bubbles reflect self-fulfilling fluctuations in agents’ expectations about future investment. In contrast to explosive rational bubbles in linearized models (Blanchard (1979)), the rational bubbles in non-linear models here ...
Globalization Institute Working Papers , Paper 378

Working Paper
Equilibrium Multiplicity in Aiyagari and Krusell-Smith
Walsh, Kieran; Young, Eric (2024-06-20)
Repeatedly solving the Aiyagari (1994) model with random parameters, we construct hundreds of examples with multiple stationary equilibria. We never find multiplicity with risk aversion less than ≈ 1.49, depreciation less than ≈ 0.19, or income persistence less than ≈ 0.47, and multiplicity requires a disaster state for income. In cases with multiplicity, the lowest rental rate occurs near depreciation times the capital share. It is possible for the economy, without a change in fundamentals, to transition rationally from a higher-rate equilibrium to one with a lower rental rate, lower ...
Working Papers , Paper 24-13

Working Paper
The Chicago Fed DSGE Model: Version 2
Campbell, Jeffrey R.; Ferroni, Filippo; Fisher, Jonas D. M.; Melosi, Leonardo (2023-09-26)
The Chicago Fed dynamic stochastic general equilibrium (DSGE) model is used for policy analysis and forecasting at the Federal Reserve Bank of Chicago. This guide describes its specification, estimation, dynamic characteristics, and how it is used to forecast the U.S. economy. In many respects the model resembles other medium-scale New Keynesian frameworks, but there are several features which distinguish it: the monetary policy rule includes anticipated future deviations, productivity is driven by both neutral and investment specific technical change, multiple price and wage indices identify ...
Working Paper Series , Paper WP 2023-36

Working Paper
How Fast are Semiconductor Prices Falling?
Oliner, Stephen D.; Sichel, Daniel E.; Byrne, David M. (2017-01)
The Producer Price Index (PPI) for the United States suggests that semiconductor prices have barely been falling in recent years, a dramatic contrast to the rapid declines reported from the mid-1980s to the early 2000s. This slowdown in the rate of decline is puzzling in light of evidence that the performance of microprocessor units (MPUs) has continued to improve at a rapid pace. Over the course of the 2000s, the MPU prices posted by Intel, the dominant producer of MPUs, became much stickier over the chips' life cycle. As a result of this change, we argue that the matched-model methodology ...
Finance and Economics Discussion Series , Paper 2017-005

Journal Article
Aging and Wealth Inequality in a Neoclassical Growth Model
Vandenbroucke, Guillaume (2016)
In this article, the author uses a version of the neoclassical growth model with overlapping generations of individuals to investigate the effect of aging on wealth inequality. When an economy?s population becomes older?that is, when the proportion of individuals 65 years of age and older increases?two effects are at work: a direct effect from the changing age composition of the population and an indirect, equilibrium effect from the change in asset holdings by owner?s age. The main result is that wealth inequality in an aging population may decrease or increase depending on the cause of the ...
Review , Volume 98 , Issue 1 , Pages 61-80

Journal Article
Economic Activity during the COVID-19 Pandemic: A Model with “Acquired Immunity”
Carranza, Juan Esteban; Riascos, Álvaro José; Martin, Juan David (2022)
We calibrate a macroeconomic model with epidemiological restrictions using Colombian data. The key feature of our model is that a portion of the population is immune and cannot transmit the virus, which improves substantially the fit of the model to the observed contagion and economic activity data. The model implies that during 2020, government restrictions and the endogenous changes in individual behavior saved around 15,000 lives and decreased consumption by about 4.7 percent. The results suggest that most of this effect was the result of government policies.
Review , Volume 104 , Issue 1 , Pages 1-16

Working Paper
Payments on Digital Platforms: Resiliency, Interoperability and Welfare
Chiu, Jonathan; Wong, Russell (2021-02-17)
Digital platforms, such as Alibaba and Amazon, operate an online marketplace to facilitate transactions. This paper studies a platform’s business model choice between accepting cash and issuing tokens, as well as the implications for welfare, resiliency, and interoperability. A cash platform free rides on the existing payment infrastructure and proﬁts from collecting transaction fees. A token platform earns seigniorage, albeit bearing the costs of setting up the system and holding reserves to mitigate the cyber risk. Tokens earn consumers a return, insulating transactions from the ...
Working Paper , Paper 21-04

Working Paper
On the Structural Interpretation of the Smets-Wouters “Risk Premium” Shock
Fisher, Jonas D. M. (2014-10-22)
This article shows that the "risk premium" shock in Smets and Wouters (2007) can be interpreted as a structural shock to the demand for safe and liquid assets such as short-term US Treasury securities. Several implications of this interpretation are discussed.
Working Paper Series , Paper WP-2014-8

Working Paper
The impact of medical and nursing home expenses and social insurance
Koreshkova, Tatyana; Kopecky, Karen A. (2010)
We consider a life-cycle model with idiosyncratic risk in earnings, out-of-pocket medical and nursing home expenses, and survival. Partial insurance is available through welfare, Medicaid, and social security. Calibrating the model to the United States, we show that (1) savings for old-age, out-of-pocket expenses account for 13.5 percent of aggregate wealth, half of which is due to nursing home expenses; (2) cross-sectional out-of-pocket nursing home risk accounts for 3 percent of aggregate wealth and substantially slows down wealth decumulation at older ages; (3) the impact of medical and ...
FRB Atlanta Working Paper , Paper 2010-19

Working Paper
Perturbation methods for Markov-switching DSGE models
Foerster, Andrew; Rubio-Ramirez, Juan F.; Waggoner, Daniel F.; Zha, Tao (2013-03-01)
This paper develops a general perturbation methodology for constructing high-order approximations to the solutions of Markov-switching DSGE models. We introduce an important and practical idea of partitioning the Markov-switching parameter space so that a steady state is well defined. With this definition, we show that the problem of finding an approximation of any order can be reduced to solving a system of quadratic equations. We propose using the theory of Grobner bases in searching all the solutions to the quadratic system. This approach allows us to obtain all the approximations and ...
FRB Atlanta Working Paper , Paper 2013-01

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