This paper proposes the volatility of sovereign credit default swaps (CDS) as a measurement of economic uncertainty. Sovereign CDS provide protection against losses from sovereign defaults and are traded for almost all countries by the world’s largest financial institutions. The premium for protection, the so-called CDS spread, depends on a country’s economic conditions and provides an outside view from global financial institutions. Our empirical results show that the volatility of sovereign CDS spreads contains information about economic uncertainty. For a broad panel of 16 countries, we find that sovereign CDS volatility shares directional information with popular news-based economic policy uncertainty (EPU) indices. Using Bayesian panel vector autoregressions, we find similar responses of output and unemployment to shocks in CDS volatility, equity volatility, and EPU. Our results further suggest that sovereign CDS volatility primarily reflects economic and financial uncertainty rather than political uncertainty.

This paper analyses the effects of disease and war on the accumulation of human and physical capital. We employ an overlapping generation framework in which young adults, motivated by old-age provision and possibly altruism, make decisions about investments in schooling and capital. A poverty trap exists for a wide range of constant war losses and premature adult mortality. If parents are altruistic and the sub-utility function for own consumption is more concave than that for their evaluation of their children’s full income in adulthood, the only possible steady-state growth path involves full education. Otherwise, steady-state paths with incompletely educated children may exist. When mortality and destruction rates are stochastic, the initial boundary conditions and agents’ beliefs have a strong influence on the paths generated by a sequence of shocks. Calibrating the model to Kenya, simulations for stochastic settings yield the finding that a trap exists and is always avoided, but the chances of a slow recovery are substantial.

We assess the responses of output and inflation to monetary policy shocks in the context of a Bayesian, monetary structural vector autoregressive model. We allow money supply and leverage measures to enter into the interest rate policy rule and use an identification approach that is by construction devoid of any price puzzles. We provide a comprehensive comparison between monetary policy shocks under a policy regime that follows a standard Taylor rule and those that augment the standard reaction function of the central bank with measures of leverage and the money supply. We find that contractionary monetary policy is more pronounced and persistent when the reaction function of the central bank is augmented with measures of money and leverage than when the reaction function follows a typical Taylor rule. Our results support the use and inclusion of monetary aggregates in monetary policy and business cycle analysis.

In this work, we introduce rental markets in a general equilibrium model with borrowing constraints and infinitely lived agents. We estimate our model using standard Bayesian methods and match US data on recent decades. We highlight a crucial relationship that strongly links interest rates, house prices, and rents. It represents agents’ arbitrage when choosing their degree of participation in the housing market (i.e. their real estate holdings). This framework is particularly well suited for explaining how policy-induced changes in households’ preferences have driven house prices up while pushing rent-price ratios down in the aftermath of the Covid-19 outbreak. It also allows us to parsimoniously track the unequal impact of these changes on agents’ decisions and welfare, which crucially depends on whether they are owners or renters.

This paper analyzes the use of unconventional policy instruments in New Keynesian setups in which the “divine coincidence” breaks down. The paper discusses the role of a second instrument that, in addition to the effect of conventional interest rate policy, may enter the Phillips curve, the investment–saving (IS) curve, and the welfare function, thus influencing inflation and output. The paper presents theoretical results on equilibrium determinacy, the inflation bias, the stabilization bias, and the optimal central banker’s preferences when both instruments are available. We show that the use of an unconventional instrument reduces the zone of equilibrium indeterminacy and may reduce the volatility of the economy. However, in some circumstances, committing to not use the second instrument may be welfare-improving (a result akin to Rogoff (Journal of International Economics 18(3-4), 199–217, 1985) example of counterproductive coordination). We also show that the optimal central banker should be both aggressive against inflation and interventionist in using the unconventional policy instrument, and we analyze the optimal central banker’s preferences when social preferences would yield equilibrium indeterminacy.

When bubonic plague arrived in Britain in the mid-14th century, it caused dramatic economic and structural change. Within 50 years, the skill-premium was reduced by half, and another 50 years on, agriculture’s share of the labor force had declined by more than 20 percentage points. This paper develops a two-sector pre-industrial growth model and draws on recent data sources covering Late Medieval and Early Modern Britain to explain these and the ensuing developments. Our main findings are that the skill-premium’s decline was related to the guild and apprenticeship system and that it and the other post-Plague adjustments were crucial determinants of the British trajectory toward industrialization. In particular, prior sectoral transformation and the skill-premium’s determination were important when the Early Modern population boom (1525–1654) threatened to reverse the adjustments caused by the Plague.

Our growth model explores the complex relationship between income, obesity, and changes in exercise-related behavior. Combining Becker’s theory of time allocation (The Economic Journal 75(299), 493–517, 1965) with Veblen’s theory of conspicuous leisure (The Theory of the Leisure Class, 1st ed. New York: Macmillan, 1899), we determine conditions for dynamic and static obesity Kuznets curves. Considering food consumption and exercise choices, we show that dynamic and static Kuznets curves result from the rising opportunity cost of exercise and peer influence, both increasing with income. Focusing on calorie expenditure, we investigate the rise and slowdown in obesity prevalence in the USA and the correlation between obesity and income per worker. Our numerical simulations indicate that, as the economy grows, exercise choices slow down the rise in obesity prevalence but do not generate a dynamic Kuznets curve in the USA. By contrast, they generate a static Kuznets curve for a population cross section. We discuss policy implications of our findings.