Band 25, Heft 2

Empirical evidence shows that real wages are procyclical and the labor share is countercyclical conditional on monetary policy shocks, a pattern that the standard New Keynesian model fails to capture. This study addresses this inconsistency by developing a quantitative heterogeneous-agent New Keynesian model with sticky wages. I demonstrate that incorporating household heterogeneity resolves this discrepancy. The model successfully generates procyclical real average hourly earnings and a countercyclical labor share, while maintaining countercyclical real wages per efficiency unit of labor. These findings underscore the importance of accurately defining real wages in empirical data to ensure alignment with theoretical models.

This study investigates the labor market dynamics and distributional consequences of the transition to a net-zero economy, with a particular focus on heterogeneity across worker types differentiated by skill level and sectoral employment. We employ a Dynamic Stochastic General Equilibrium (DSGE) model with search-and-matching (SAM) frictions in the labor market, incorporating three dimensions of heterogeneity: (i) differentiation between low-skilled and high-skilled workers; (ii) distinctions among employed, unemployed, and inactive individuals; and (iii) employment distributions across green and dirty sectors. Our main findings are threefold. First, in the short term, the adjustment to higher carbon taxes leads to a reduction in employment and a decline in skill wage premiums. Second, the green transition intensifies inequality in the long run by favoring high-skilled workers, assuming the share of low-skilled labor in the green sector remains persistently limited. Third, we assess the effectiveness of different carbon revenue recycling schemes, including progressive and uniform labor tax cuts and unemployment benefits. We find that aggregate welfare gains are higher when revenues are used to cut labor income taxes for low-skilled workers, and that unemployment benefits generate greater welfare gains than a uniform labor tax cut in the medium to long run.

In the literature on secular stagnation, demographic aging is widely blamed for lowering the IS curve of aggregate demand and therefore the natural interest rate. However, little is known about the impact of workforce aging on long-term aggregate supply, or so-called potential GDP. To fill this gap, this study delves into the effects of workforce aging on two key components of the remarkably sluggish potential GDP growth of developed countries: hours worked and labour productivity. First, using a novel macro-accounting decomposition of EU-KLEMS data, we find that old-labour input has the highest contribution to growth, through both increased hours worked and shifts in labour composition in the EU, US and Japan. Second, we use panel stochastic frontier models highlighting that, however, old workers have an adverse effect on labour productivity growth frontier – though increasing technical efficiency, i.e., reducing the distance to this frontier.

Different series of high-frequency monetary shocks can have a correlation coefficient as low as 0.3 and the same sign in only one half of observations. Both data and methods drive these differences, which are starkest when the federal funds rate is at its effective lower bound. After documenting differences in monetary shock series, we explore their consequences for inference in several specifications. We find that empirical estimates of monetary policy transmission have few qualitative differences. We caution that inference may not be entirely robust to all shock constructions because qualitative differences can emerge when data and methods are interchanged.

I develop a two-asset heterogeneous-agent New Keynesian model with search and matching frictions in the labor market, which extends the transmission mechanism of monetary policy to household consumption. Uninsurable countercyclical unemployment risk plays a crucial role in the transmission of monetary shocks to consumption through a novel channel driven by countercyclical precautionary saving motives. Following an increase in the real interest rate, unconstrained households raise their liquid savings and reduce current consumption to insure against the risk of lower future individual labor income, resulting from longer expected unemployment durations. This mechanism accounts for 16 % of the total decline in consumption in a model calibrated to a realistic wealth distribution. The strength of the countercyclical precautionary saving motive depends on the degree of wage rigidity and the fiscal policy rule in general equilibrium. Additionally, I extend the sequence-space Jacobian algorithm to a continuous-time framework, where the efficiency of constructing partial equilibrium Jacobians is enhanced by a generalized approach to handling a large number of income grid points in the heterogeneous-agent block.

Whether capital market liberalization generates spillover effects on bank credit decisions is an important and intriguing topic. This paper uses the “Mainland-Hong Kong Stock Connect” as a quasi-natural experiment, with A-share listed companies from 2013 to 2022 as samples, to construct a multi-period difference-in-differences (DID) model, studying the impact of capital market liberalization on bank credit decisions from the perspective of banks. The study finds that, following the implementation of the “Mainland-Hong Kong Stock Connect” trading system, banks have reduced loan interest rates and relaxed collateral requirements. Heterogeneity analysis indicates that the impact of capital market liberalization on bank credit decisions is mainly evident in non-state-owned enterprises, firms operating in poorer institutional environments, and firms facing higher product market competition. Mediation mechanism tests reveal that enhancing corporate information transparency and reducing credit risk are two crucial pathways through which capital market liberalization influences bank credit decisions. Theoretically, the research not only enriches the literature on the economic effects of capital market liberalization but also contributes to the literature on factors influencing bank credit decisions. Practically, the research findings not only offer new insights for optimizing the allocation of bank credit resources but also provide important inspiration for the Chinese government’s continued implementation of strategies for opening up the capital market.

By introducing automation development into a Ramsey–Cass–Koopmans model, this paper shows that the phenomenon of the skill premium will appear when firms use automation to replace labor. As automation becomes more important to production, capital share, including capital rental and profit shares, will rise, while labor share will fall. Meanwhile, the income inequality of unskilled labor relative to other income earners will increase. When households have endogenous occupational choices, the results still hold. Although the government’s policy of subsidizing people’s learning costs helps to reduce the wage gap between skilled and unskilled labor, it does not stop the decline in the labor share regardless of whether the government subsidy is financed by lump-sum taxes or the taxes on earnings generated from assets.

This paper investigates the asymmetric transmission of monetary policy across business cycles in Korea during the period following the global financial crisis. Utilizing a smooth transition-local projection regression method, we explore the asymmetric responses of output and prices to monetary policy shocks during economic booms and recessions. Monetary policy innovations are identified by orthogonalizing changes in the policy rate with respect to economic forecast information that policymakers consider in their decision-making processes. Our findings reveal that the impact of monetary policy on output and prices is substantial during recessions, whereas it is minimal and statistically insignificant during booms. By examining asymmetries arising from both business conditions and monetary policy stance, we show that the pronounced transmission effects during recessions are primarily driven by tightening monetary policy, while expansionary measures during recessions have limited effectiveness. These results suggest the need to reevaluate previous empirical findings which do not simultaneously consider the possibility of asymmetric transmission stemming from both business cycles and monetary policy stance.

In this paper, we demonstrate a forecastable approach to revisions in the BLS’s monthly Employment Situation report using a Bayesian hierarchical model. By incorporating labor market and economic activity measures, our model accurately predicts both the level and sign of data revisions. Enhancing the ability to forecast data revisions can significantly improve financial market efficiency and support better policy decisions by government and central bank officials, who often depend on initial employment estimates or endure time-consuming revisions to achieve a more accurate understanding of the labor market.

We develop a novel dynamic stochastic general equilibrium model with loan-loss provisions (LLPs) and unsecured-collateralized loan choice, the latter being endogenously determined due to enterprises having heterogeneous production capacity. Further, due to the presence of a second source of production uncertainty, which is only observed ex-post to loan contracting, type-specific aggregate default rates are endogenously determined too, which results in a model economy whose cyclicality can be driven significantly by LLP adjustment shocks. We estimate the model using actual Chinese data from 2004Q4 to 2020Q4. Our estimated model is able to generate co-movement between LLPs and the unsecured-collateralized loan ratio, a feature of the Chinese banking system that is consistent with empirical evidence. We also find that banks’ LLPs are countercyclical, despite the overall LLP regime still remaining relatively backwards-looking, indicating that the present Chinese banking regulations can be overly prudent.

This study investigates the industry effects of monetary policy in Korea by analyzing the role of sectoral heterogeneity regarding price stickiness and inter-industry relations. I extend a standard sticky-price Dynamic Stochastic General Equilibrium (DSGE) model into a model with heterogeneous production sectors, where each industry sector is allowed to have distinct price stickiness and inter-industry production linkages. Input–Output matrices are utilized to construct the inter-industry linkages, which reflect the use of final products from other sectors as material inputs or investment goods. Sectoral price stickiness and other model parameters are estimated using a Bayesian approach. From the estimated model, the asymmetric impact of monetary policy across sectors is investigated. Simulated impulse responses suggest that sectoral variables exhibit clear comovements in response to monetary policy shocks while the magnitudes of the responses differ considerably across sectors, which can be attributed to the differences in price rigidities and production linkages. Compared to the results from a standard single-sector model, the output response is more pronounced, while the inflation response diminishes. The results indicate that ignoring sectoral heterogeneities could bias estimates of monetary policy effects.

This paper evaluates the significance of different channels through which oil price fluctuations affect US inflation. Using monthly data from 1983 to 2024, we find that, when the underlying causes of oil price increases are not distinguished, production costs constitute a key channel amplifying the impact of oil price shocks. Wage growth and inflation expectations also contribute to the pass-through, whereas the role of monetary policy appears comparatively limited. However, further investigation into various oil price shocks reveals that the production cost channel plays a significant role only in the case of oil-specific demand shocks, whereas wage growth amplifies the transmission of both aggregate demand and oil-specific demand shocks into inflation.

A prominent structural feature of many developing countries is the presence of a large shadow or informal economy, which often serves as a form of insurance during economic downturns. Despite this understanding, the impact of the informal economy on inflation and output dynamics in these countries remains poorly understood. This study investigates the extent to which monetary policy can stabilize economies with a large informal market. First, we use VAR analysis to provide new evidence indicating that the labor informality rate increases in response to contractionary monetary policy. Second, we explore the transmission mechanism of monetary policy through a two-sector New Keynesian (NK) model that incorporates endogenous firm entry. This analysis allows us to examine the role of informality in sectoral reallocation, inflation, and output dynamics. Our findings suggest that, under a reasonable calibration of the model, the presence of a flexible, informal sector results in a lower sacrifice ratio in response to a tightening of monetary policy. This suggests that informality enhances the effectiveness of monetary policy.