Band 24, Heft 2

This paper quantifies the impact of effective corporate tax rates on aggregate total factor productivity (TFP). Using Chilean manufacturing data, we document a large dispersion in the effective tax rate faced by firms and a mass of firms facing a 0 percent tax rate. We integrate these findings into a standard monopolistic competition model, where firms are subject to corporate taxation and also face output and capital wedges, which represent all other distortions present in the economy. We find that eliminating corporate tax rates increases TFP between 4 and 11 percent. We consider counterfactual policies in which firms face a uniform flat tax rate and find a monotonically decreasing relationship between the level of the tax rate and TFP.

Financial frictions have been considered a crucial factor in explaining growth disparities across countries. These frictions are typically viewed as an exogenous constraint on borrowing capacity that is assumed to be invariant to economic conditions, such as the level of GDP and business cycle fluctuations. However, assuming the exogenous constraint on borrowing often leads to unrealistic dynamics in macroeconomic variables, such as constant investment-to-GDP and loan-to-value ratios. Motivated by these limitations, we develop a growth model in which the severity of the borrowing constraint is endogenously determined. The borrowing constraint adversely affects growth and amplifies the negative effect of volatility on growth. However, these growth effects gradually disappear as the economy continues to grow, because debtors become more willing to honor their debts along with economic growth, resulting in an endogenous relaxation of the borrowing constraint.

We identify the mechanisms governing the propagation of technological shocks to the sectoral allocation of labor in a non-parameterized growth model. These propagation mechanisms are: (i) the change in aggregate income; whose effect on sectoral composition depends on the income elasticities of consumption demand; (ii) the change in the relative prices of consumption goods, which alters the sectoral composition depending on the Allen-Uzawa elasticities of substitution between goods; (iii) the change in the rental rates, whose effect on sectoral composition is determined by the sectoral elasticities of substitution between capital and labor; and, (iv) the direct effect of the sector and factor bias of the technological change. From this analysis, we derive an accounting method to measure the contribution of these propagation mechanisms to structural change in parameterized growth models. By using some well-known parameterizations, we account for the contribution of each mechanism to the U.S. structural change in the period 1948–2010.

Conventional monetary policy has been shown to create differential impacts on industry output. This paper looks at unconventional monetary policy to see its differential impacts on industries in the United States. Identification is achieved with zero and sign restrictions within a structural global vector autoregressive framework. The effects of unconventional monetary policy on output have substantial heterogeneity across industries. Furthermore, the effects on output and monetary policy transmission mechanisms are qualitatively similar to that of conventional monetary policy previously reported in the literature. These findings suggest a substitutability between conventional and unconventional monetary policies. Importantly, policymakers can use unconventional monetary policy and be reassured that impacts on specific industries are similar to those using conventional monetary policy.

I study the effects of monetary policy shocks in Canada on economic and financial variables. With a narrow window around a policy announcement, I create a new set of intraday level, high-frequency monetary policy surprises using the three-month Canadian Bankers’ acceptance rate futures. I use this measure to identify monetary policy shocks as an external instrument in a monthly VAR. Following a 25 basis point contractionary policy shock, I find that the decline in output is more powerful and peaks earlier than previous empirical works show, with a peak decline of 0.5 % points after 18 months. Price level declines are similarly more powerful and earlier, reaching a decline of 0.3 % points after 24 months. In addition, increases in the credit and mortgage spreads indicate the presence of a domestic credit channel of monetary policy transmission for Canada. Finally, I show that the surprise measure is robust to information effects.

Employing an overlapping generations model with endogenous education choice and corruption, we investigate how child labor and corruption influence human capital accumulation and development. We show that multiple steady states exist in the economy. One steady state has a high level of human capital, while the other has a low level of human capital. In the steady state with a low level of human capital, child labor and corruption exist, fertility and child mortality rates are high, and the welfare level is low. Conversely, in the steady state with a high level of human capital, child labor and corruption are diminished, fertility and child mortality rates are low, and welfare is high. In addition, we show that it is difficult to steer an economy away from a poverty trap with child labor and corruption because bureaucrats of the current generation are opposed to policy changes, such as the reinforcement of monitoring and penal regulations. However, we highlight the possibility for the government to develop the economy in the poverty trap by implementing an education policy, which is Pareto improving.

This paper uses survey data to gauge firms’ inflation uncertainty. First, it shows how commonly used proxies of uncertainty, such as ex post squared forecast errors or forecast dispersion differ from measures of actual ex ante inflation uncertainty. Second, this paper documents novel stylized facts: firms’ uncertainty and overconfidence – low ex ante variances compared to ex post (squared) forecast errors – are shown to be relevant for how firms’ form their beliefs about inflation and their inflation forecasts accuracy (firms know what they do not know) and to impact firms’ beliefs about credibility of monetary policy.

This study examines the effect of nominal wage stickiness on the fiscal multiplier in a two-agent new Keynesian model. We demonstrate that in the case of sticky nominal wages, an increased share of liquidity-constrained (LC) consumers decreases the money-financed (MF) fiscal multiplier. Our model shows that the fiscal multiplier under an MF regime outperforms that under a debt-financed (DF) regime. Under empirically plausible calibration, the benchmark model indicates that the MF government-spending multiplier is 1.5–3.0, whereas the DF multiplier is 0.8–1.5. We also find that an increased share of LC consumers magnifies the tax-cut multiplier in the cases of MF and DF regimes despite nominal wage stickiness.

This study delves into the persistent low GDP growth observed in the post-crisis period, despite aggressive financial easing measures. It explores how economic agents allocate available funds, either through investments in new capital creation or the acquisition of existing assets for capital gains (asset redistribution). The former approach bolsters total income and employment, while the latter reshapes wealth distribution among agents. Through a combination of theoretical insights and empirical evidence, we argue that during economic downturns, investors often find it more lucrative, and lenders consider it safer, to finance the repurchasing of existing assets rather than investing in new ones. This trend not only worsens recessions but also hampers the recovery process by limiting entrepreneurs’ access to funding and altering the economy’s capital structure. Moreover, given that asset redistribution tends to benefit the wealthy, a surge in inequality fosters a cycle of income redistribution, further exacerbating economic downturns.

This paper utilizes Greenbook forecasts of consumption and income to estimate expected asset returns through a present value model of consumption. The study finds that, despite the valuable information contained in Greenbook forecasts, the expected asset returns obtained from this approach do not provide meaningful insights into future asset returns. This contrasts with previous literature suggesting predictability using the present-value model.