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Episodes of low natural interest rates, even transitory, pose a challenge to monetary policy, by possibly causing the effective lower bound (ELB) on the policy rate to bind. Those episodes are more likely to occur not only when the natural rate is low on average but also when fluctuations around its average level are large. We study the responsiveness of the natural interest rate to structural aggregate shocks affecting the aggregate supply of and demand for savings. Using a quantitative overlapping-generations model, we trace back this responsiveness to the slopes of aggregate savings supply and demand curves and argue that both curves have likely flattened over the past four decades in the US This implies a greater sensitivity of the natural interest rate to structural shocks affecting the supply of and demand for aggregate savings — making it more likely, all else equal, that it fall into negative territory.
Prior to the Covid-19 crisis, the integration of epidemiology and economics that is, economic epidemiology modelling (epi-econ), was relatively limited. The emergence of the Covid-19 crisis has prompted an unprecedented surge in this literature. This paper identifies and develops the main conceptual and modelling challenges involved in the expanding epi-econ stream, with a particular attention to the mathematical issues due, in particular, to the non-convex nature of epi-econ models. Recent extensions are also examined and a few future areas of research highlighted.
We argue that market forces shaped the geographic distribution of upper-tail human capital across Europe during the Middle Ages, and contributed to bolstering universities at the dawn of the Humanistic and Scientific Revolutions. We build a unique database of thousands of scholars from university sources covering all of Europe, construct an index of their ability, and map the academic market in the medieval and early modern periods. We show that scholars tended to concentrate in the best universities (agglomeration), that better scholars were more sensitive to the quality of the university (positive sorting) and migrated over greater distances (positive selection). Agglomeration, selection, and sorting patterns testify to an integrated academic market, made possible by the use of a common language (Latin).
We propose a framework for the analysis of choice behaviour when the latter is made explicitly in chronological order. We relate this framework to the traditional choice theoretic setting from which the chronological aspect is absent, and compare it to other frameworks that extend this traditional setting. Then, we use this framework to analyse various models of preference discovery. We characterise, via simple revealed preference tests, several models that differ in terms of (1) the priors that the decision-maker holds about alternatives and (2) whether the decision-maker chooses period by period or uses her knowledge about future menus to inform her present choices. These results provide novel testable implications for the preference discovery process of myopic and forward-looking agents.
This paper examines the role of social interactions in contract enforcement within the postcolonial Arab world, with a specific focus on Morocco. Through extensive interviews with members of the industrial elite during the import-substituting industrialization (ISI) period, we uncover a significant risk of contractual breaches. Despite this risk, there was a reluctance to use social connections to penalize those who breached contracts. Legal recourse was also rarely pursued. Instead, business leaders leaned on their social networks to assess potential partners and resolve disputes through bilateral channels. This reliance on social ties was facilitated by the close-knit and compact nature of the business community. In the post-ISI era, characterized by a larger and more diverse industrial elite, there was a noticeable increase in contractual disputes, accompanied by a shift towards more aggressive resolution methods. We present a theoretical model that elucidates how these dynamics naturally emerge from an environment where economic and social interactions are intertwined.
How will structural change unfold beyond the rise of services? Motivated by the observed dynamics within the service sector we propose a model of structural change in which productivity is endogenous and output is produced with two intermediate substitutable capital goods. In the productive sector the accumulation of specialized skills leads to an unbounded increase in TFP, as sector becoming asymptotically dominant. We are then able to recover the increasing shares of workers, the increasing real and nominal shares of the output observed in productive service and IT sectors in the US. Interestingly, the economy follows a growth path converging to a particular level of wealth that depends on the initial price of capital and knowledge. As a consequence, countries with the same fundamentals but lower initial wealth will be characterized by lower asymptotic wealth.
We study a 2-player stochastic differential game of lobbying. Players invest in lobbying activities to alter the legislation in her own benefit. The payoffs are quadratic and uncertainty is driven by a Wiener process. We consider the Nash symmetric game where players face the same cost and extract symmetric payoffs, and we solve for Markov Perfect Equilibria (MPE) in the class of affine functions. First, we prove a general sufficient (catching up) optimality condition for two-player stochastic games with uncertainty driven by Wiener processes. Second, we prove that the number and nature of MPE depend on the extent of uncertainty (i.e. the variance of the Wiener processes). In particular, we prove that while a symmetric MPE always exists, two asymmetric MPE emerge if and only if uncertainty is large enough. Third, we study the stochastic stability of all the equilibria. We notably find, that the state converges to a stationary invariant distribution under asymmetric MPE. Fourth, we study the implications for rent dissipation asymptotically and compare the outcomes of symmetric vs asymmetric MPE in this respect, ultimately enhancing again the role of uncertainty.
We investigate how the relationship between capital accumulation and pollution is affected by the source of pollution: production or consumption. We are interested in polluting waste that cannot be naturally absorbed, but for which recycling efforts aim to avoid massive pollution accumulation with harmful consequences in the long run. Based on both environmental and social welfare perspectives, we determine how the interaction between growth and polluting waste accumulation is affected by the source of pollution, i.e., either consumption or production, and by the fact that recycling may or may not act as an income generator, i.e., either capital-improving or capital-neutral recycling efforts. Several new results are extracted regarding optimal recycling policy and the shape of the relationship between production and pollution. Beside the latter concern, we show both analytically and numerically that the optimal control of waste through recycling allows to reaching larger (resp., lower) consumption and capital stock levels under consumption-based waste compared to production-based waste while the latter permits to reach lower stocks of waste through lower recycling efforts.
We study a 2-player stochastic differential game of lobbying. Players invest in lobbying activities to alter the legislation in her own benefit. The payoffs are quadratic and uncertainty is driven by a Wiener process. We consider the Nash symmetric game where players face the same cost and extract symmetric payoffs, and we solve for Markov Perfect Equilibria (MPE) in the class of affine functions. First, we prove a general sufficient (catching up) optimality condition for two-player stochastic games with uncertainty driven by Wiener processes. Second, we prove that the number and nature of MPE depend on the extent of uncertainty (i.e. the variance of the Wiener processes). In particular, we prove that while a symmetric MPE always exists, two asymmetric MPE emerge if and only if uncertainty is large enough. Third, we study the stochastic stability of all the equilibria. We notably find, that the state converges to a stationary invariant distribution under asymmetric MPE. Fourth, we study the implications for rent dissipation asymptotically and compare the outcomes of symmetric vs asymmetric MPE in this respect, ultimately enhancing again the role of uncertainty.