According to conventional economic wisdom, capital income taxes should be low. The purpose of this paper is to cast doubt on this general conclusion and to show that theory can also point in the ...opposite direction. The paper shows that under rather mild conditions, higher capital income taxes lead to faster growth in an overlapping generations economy with endogeneous growth. Government expenditures are fixed as a fraction of GNP and are financed with labor income taxes as well as capital income taxes. Since capital income accrues to the old, taxing it reliefs the tax burden on the young and leaves them with more income out of which to save. The net effect on savings is positive, if the interest elasticity of savings is sufficiently low, which it seems to be according to several estimates found in the literature. The basic argument is not seriously challenged by a grandfather clause for initial capital or by the old receiving some labor income as well. Extending the model to allow for multiple periods of lives, however, can overturn our results and support the conventional wisdom instead.
This paper examines the role for tax policies in productivity-shock driven economies with catching-up-with-the-Joneses utility functions. The optimal tax policy is shown to affect the economy ...countercyclically via procyclical taxes, i.e., "cooling down" the economy with higher taxes when it is "overheating" in booms and "stimulating" the economy with lower taxes in recessions to keep consumption up. Thus, models with catching-up-with-the-Joneses utility functions call for traditional Keynesian demand-management policies but for rather unorthodox reasons.
UNIT ROOTS IN WHITE NOISE Onatski, Alexei; Uhlig, Harald
Econometric theory,
06/2012, Letnik:
28, Številka:
3
Journal Article
Recenzirano
We show that the empirical distribution of the roots of the vector autoregression (VAR) of order p fitted to T observations of a general stationary or nonstationary process converges to the uniform ...distribution over the unit circle on the complex plane, when both T and p tend to infinity so that (ln T)/p → 0 and p3/T → 0. In particular, even if the process is a white noise, nearly all roots of the estimated VAR will converge by absolute value to unity. For fixed p, we derive an asymptotic approximation to the expected empirical distribution of the estimated roots as T → ∞. The approximation is concentrated in a circular region in the complex plane for various data generating processes and sample sizes.
We consider a setting where agents can choose between two currencies to conduct their goods purchases. The usage of either currency comes with currency-specific transactions costs. For example, ...purchasing some goods with cryptocurrencies rather than dollars is easier and may avoid taxes. We explore an extension of Schilling-Uhlig (2019), allowing for asymmetry in transaction costs as well as dollar-bitcoin exchange fees. Agents alternate in their role as buyers and sellers, necessitating currency. A central bank steers the dollar inflation path, while bitcoins are in fixed supply. We characterize the nonstochastic equilibrium and the resulting exchange rate dynamics.
This paper summarizes recent Bayesian research on unit roots for the applied macroeconomist in the way Campbell and Perron 8 summarized the classical unit roots perspective. The appropriate choice of ...a prior is discussed. In recognizing a consensus distaste for explosive roots, I find the popular Normal-Wishart priors centered at the unit root to be reasonable provided they are modified by concentrating the prior mass for the time trend coefficient toward zero as the largest root approaches unit from below. I discuss that the tails of the predictive density can be sensitive to the prior treatment of explosive roots. Because the focus of an investigation often is on a particular persistence property or medium-term forecasting property of the data, I conclude that Bayesian methods often deliver natural answers to macroeconomic questions.
We provide a critical review of macroeconomic models used for monetary policy at central banks from a finance perspective. We review the history of monetary policy modeling, survey the core monetary ...models used by major central banks, and construct an illustrative model for those readers who are unfamiliar with the literature. Within this framework, we highlight several important limitations of current models and methods, including the fact that local-linearization approximations omit important nonlinear dynamics, yielding biased impulse-response analysis and parameter estimates. We also propose new features for the next generation of macrofinancial policy models, including a substantial role for the financial sector, the government balance sheet, and unconventional monetary policies; heterogeneity, reallocation, and redistribution effects;the macroeconomic impact of large nonlinear risk premium dynamics; time-varying uncertainty; financial sector and systemic risks; imperfect product market and markups; and further advances in solution, estimation, and evaluation methods for dynamic quantitative structural models.
This paper proposes a Bayesian approach to a vector autoregression with stochastic volatility, where the multiplicative evolution of the precision matrix is driven by a multivariate beta variate. ...Exact updating formulas are given to the nonlinear filtering of the precision matrix. Estimation of the autoregressive parameters requires numerical methods: an importance-sampling based approach is explained here.
Many asset pricing puzzles can be explained when habit formation is added to standard preferences. We show that utility functions with a habit then gives rise to a puzzle of consumption volatility in ...place of the asset pricing puzzles when agents can choose consumption and labor optimally in response to more fundamental shocks. We show that the consumption reaction to technology shocks is too small by an order of magnitude when a utility includes a consumption habit. Moreover, once a habit in leisure is included, labor input is counterfactually smooth over the cycle. In the case of habits in both consumption and leisure, labor input is even countercyclical. Consumption continues to be too smooth.
Journal of Economic Literature Classification Numbers: E13, E21, E32.
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