The development of artificial intelligence (AI) does influence human jobs but not necessarily in a negative way. Although labor force participation rates and firms’ job vacancies for human labor decline, the unemployment rate may be lower than that in an economy without AI. In an economy with heterogeneously skilled workers, the invention of AI usually has a negative effect on the skilled labor market but a positive effect on the unskilled labor market. The overall unemployment rate may decline as AI develops.

In this paper, we investigate the causal effects of public and private debts on US output dynamics. We estimate a battery of Cointegrated Structural Vector Autoregressive models, and we identify structural shocks by employing Independent Component Analysis, a data-driven technique which avoids ad-hoc identification choices. The econometric results suggest that the impact of debt on economic activity is Janus-faced. Public debt shocks have positive and persistent influence on economic activity. In contrast, rising private debt has a milder positive impact on gross domestic product, but it fades out over time. The analysis of the possible transmission mechanisms reveals that public debt crowds in private consumption and investment. In contrast, mortgage debt fuels consumption and output in the short-run, but shrinks them in the medium-run.

This paper deals with the optimal management of the public debt-to-GDP ratio. We specifically focus on a contrasting tax evasion-based strategy for controlling the debt-to-GDP ratio. Two devices can be employed by the policymaker: by the one side, the tax rate is to be applied to the tax payers; by the other side, the monitoring activity is to be performed in order to detect the evaded taxes. To pursue our scopes, a stochastic control problem is developed and solved. Some numerical experiments validate the theoretical proposal and lead to an intuitive discussion of the obtained findings.

This paper employs the state-space model to reexamine the fundamental issue in finance of whether it is the expected returns or the expected dividends growth that is primarily responsible for stock price variations. We use Bayesian methods to show that there is a substantial uncertainty about the contributions of expected returns and expected dividends to fluctuations in the price–dividend ratio when the aggregate returns and dividends data are used. The substantial uncertainty of the contributions results from the model being weakly identified. Our finding challenges the notion long held in the existing literature that it is the expected returns that contribute most to price–dividend variations.

We present an analysis of interregional consumption risk sharing in Russia between 1999 and 2009 using novel estimation methods. In addition to standard fixed-effects panel estimations, we use system and difference GMM estimators to reflect time dynamic properties and possible endogeneity between output and consumption. Furthermore, we apply spatial models that control for spatial dependence across regions. The results show that regional consumption deviations from the national average are highly persistent in time and space. Nevertheless, the regional consumption risk sharing in Russia is relatively high with 70%–90% of idiosyncratic risk being smoothed. Finally, fiscal policy and the degree of financial development appear to contribute to the consumption smoothing.

We show that, even in a framework in which monopolistic exploitation of patents does not occur, patents still give rise to serious drawbacks. We rely on a recombinant growth framework that provides a stylized but clear description of the formation of knowledge externalities. In our setting a benevolent government buys immediately new patents in a competitive market and releases their contents for free. We show that inefficiencies nevertheless arise and welfare can be improved by correcting the market price through a tax–subsidy scheme. We characterize the (asymptotic) steady-state equilibrium, and some properties of the transitional path. We show that if certain conditions are met, then the economy will converge to its (asymptotic) balanced growth path, and along such a pathgrowth will be independent of the policy parameter; conversely, transition dynamics are affected by the choice of the policy parameter. We then quantitatively analyze the effect of different policy interventions on welfare, and show that stricter tax (weaker appropriability) regimes lead to higher social welfare.

This paper investigates the macroeconomic impact of uncertainty by using three recently constructed US economic uncertainty proxies. Emphasis is placed on examining the informational value of these indicators and their ability to better predict economic activity. We focus on the direct and/or indirect transmission chains of economic uncertainty on US macroeconomic aggregates, the magnitude of the forecast improvement induced by economic uncertainty and the strength of the observed dynamic relations. Our results show that macroeconomic uncertainty can help in forecasting key macroeconomic aggregates across multiple horizons, and this predictive power is economically and statistically significant. The two macroeconomic uncertainty measures anticipate industrial production and consumption directly, and investment and employment indirectly, with a time-delay. The transmission chains for investment include consumption and the stock market as intermediate variables, and for employment consumption and investment. No substantial evidence of feedback effects from real activity to macroeconomic uncertainty is found. Moreover, asymmetry in macroeconomic uncertainty is found to be important. Upside and downside uncertainty produce significant macroeconomic effects, yet downside uncertainty produces the strongest impact. Results from a “news-based” economic policy uncertainty measure are weaker.

This article analyzes an economy where both nonrenewable resources and a costly energy resource are essential inputs in production. The extraction of the nonrenewable resources leads to emissions that increase the probability of a catastrophe. We find that, in contrast to the constant-probability case, the endogenous probability of a catastrophe implies that some nonrenewable resources might optimally be left in the ground. The larger the effect of the fossil energy use on the probability of a catastrophe, the fewer nonrenewable resources should be extracted and the earlier should be the switch to the renewable substitute. The richer a country, the earlier it should shift to the energy substitute. In the trade-off between higher consumption and a higher probability of catastrophe, even small probability changes are likely to be more important for the planner than higher consumption.

We consider an overlapping-generations economy with two consumption goods. There are two sectors that produce a pure consumption good and a mixed good that can be either consumed or used as capital. We prove that the existence of Pareto-optimal expectations-driven fluctuations is compatible with standard sectoral technologies if the share of the pure consumption good is low enough. Following Reichlin's [Journal of Economic Theory 40 (1986), 89–102] influential conclusion, this result suggests that some fiscal policy rules can prevent business-cycle fluctuations in the economy by driving it to the optimal steady state as soon as they are announced.

Soon after the start of transition to a market economy in the early 1990s, Poland has experienced both a dramatic decline in the fertility rate and an increase in the share of students among young high-school graduates. These two processes significantly changed the age structure of population and average income characteristics of households. Using a general equilibrium model with heterogeneous households and uninsured income shocks, I try to assess the impact of these changes on the Polish economy as a whole and inequalities within it. I find that, in the long term, the positive effects of the educational change on output per capita will more than offset the negative impact of lower fertility. I also show that the educational change increases income and consumption inequalities, while the fertility change decreases inequality in assets.

In this paper, I explore the dynamics of real estate market fluctuations and business cycle co-movements in a neoclassical setting. Applying a dynamic stochastic general equilibrium model of collateral constraints with asset reallocation to Japan, I find that public policy shocks account well for the business cycle dynamics. In particular, taxes on land holdings of households mimic the impact of a housing preference shock, and if volatile enough, can trigger large asset price fluctuations. However, in the absence of volatility, the impact on prices is intrinsically linked to the persistence of shocks. Dependence on fixed assets such as real estate to secure collateral-based financing significantly amplifies the effect of initial shocks on the real macro aggregates. The financial accelerator works through the “redistribution channel,” shifting a large fraction of the collateral between constrained and unconstrained agents in response to an external stimuli.

We introduce a model of the optimal education policy at the macro level, allowing for heterogeneity of the workforce with respect to its age and qualification skills. Within this framework we study the optimal education rate in the context of changes in labor demand (as represented by the elasticity of substitution across ages and qualification) and labor supply (as represented by a change in the population growth rates). Applying an age-structured optimal-control model, we derive features of the optimal age-specific education rate. Our results show that the relation between the elasticities of substitution of labor across ages plays a crucial role in the way the demographic changes affect (both in the short and in the long run) the optimal educational policy. We also show that under imperfect substitutability across age and qualification groups, the optimal educational policy is adjusted in advance to any change in the labor supply.

How does patent policy affect innovation when patent licensing is crucial for firms? To address this question, the present study incorporates voluntary patent licensing between an innovator and followers, as discussed in the literature of industrial organization, into a dynamic general equilibrium model. Unlike previous studies, both the licensing fee and the number of licensees are endogenously determined by the innovator’s maximization and the free-entry condition. Using this model, we show that strong patent protection does not always enhance innovation, economic growth, and welfare. Furthermore, the extended analysis provides the policy implication that the effect of patent policy depends on how difficult further innovation is without patent licensing of the current leading technology.

Why do governments in developing economies favor roads rather than schools in public investment scale-ups? We study this question using a dynamic general equilibrium model and argue that the different pace at which roads and schools contribute to economic growth, public debt intolerance, and political myopia are central to this decision. In a thought experiment with a large return differential in favor of schools, a benevolent government would intuitively devote the majority of an investment scale-up to them. However, the fraction of schools chosen by the government falls with increasing levels of debt intolerance and political myopia. In particular, political myopia is a meaningful explanation for the observed result to the extent that an extremely myopic government would not invest in schools at all.

This paper studies the government spending multiplier in the presence of the cost channel of the nominal interest rate. I find that the spending multiplier of normal times declines markedly when this channel is introduced. The rise in government spending leads to a rise in the nominal interest rate and, with the cost channel, to a rise in the marginal cost and inflation. In turn, this leads to a bigger rise in the nominal interest rate and the expected real interest rate, hence a lower multiplier, than in a model that abstracts from the cost channel. On the other hand, in a liquidity trap, the cost channel makes the spending multiplier larger. Therefore, by ignoring the cost channel, the spending multiplier is overestimated in normal times and underestimated during liquidity trap episodes. Since liquidity traps are rare, however, the spending multiplier is mostly lower than in previous estimates.

How do taxes affect human capital accumulation? This question has been studied extensively in the context of two model classes: overlapping generations (OLG) and infinite horizon (IH). These embody very different assumptions about the intergenerational transmission of physical and human capital. This paper investigates how such differences in intercohort persistence affect the responsiveness of human capital to taxation. A model is developed that nests OLG and IH models as special cases. The steady-state and transitional effects of tax changes are computed for varying degrees of persistence. The main finding is that stronger intercohort persistence magnifies the impact of taxation on human capital and leads to slower transitional dynamics. As a result, IH models generate systematically larger tax effects than OLG models. For the tax experiments studied here, models with complete persistence generate steady-state tax elasticities at least two times larger and transitional half-lives at least three times longer than do models without persistence.

In this paper we investigate the growth implications of relative wealth preferences in a small open economy model. Domestic capital accumulation, subject to installation costs, is the engine of economic growth in this framework. Crucial in deriving the balanced growth rate is the effective rate of return that arises from agents' status preferences. This results not only in a common balanced growth rate for consumption, the domestic capital stock, and net international financial assets, but also saddle-path dynamics in response to structural shifts. We investigate the short- and long-run dynamics of the model by considering the following standard fiscal shocks: (i) government expenditure, (ii) capital tax, (iii) tax on international financial assets, (iv) consumption tax. Among our results, we find that a permanent fiscal expansion leads to a temporary increase in growth and that a rise in the consumption tax results in a temporary decrease in growth.

We show how introducing home bias in government spending in the redux model generates quasi neutrality of fiscal policy shocks. We offer an intuitive explanation for this result and we stress its policy implications.

In a knowledge-based growth model where skilled workers are used in innovation and production, skill-biased technological change may lower average R&D productivity via an innovation possibilities frontier effect that eliminates scale effects. We show that skill-biased technological change increases the skill premium even if the elasticity of substitution between skilled and unskilled workers is less than two. Trade between developed countries promotes skill-biased technological change, thus raising wage inequality. Trade between developed and developing countries has differing effects: it induces relatively skill-replacing technological change and lowers wage inequality in the developed country but has the opposite effects in the developing country. Finally, we show that trade can stimulate or hurt economic growth.

This paper shows that high-frequency, irregularly spaced, foreign exchange (FX) data can generate nonnormality, conditional heteroskedasticity, and leptokurtosis when aggregated into fixed-interval calendar time, even when these features are absent in the original DGP. Furthermore, we introduce a new approach to modeling these high-frequency irregularly spaced data based on the Poisson regression model. The new model is called the autoregressive conditional intensity model and it has the advantage of being simple and of maintaining the calendar timescale. To illustrate the virtues of this approach, we examine a classical issue in FX microstructure: the variation in information content as a function of fluctuations in the intensity of activity levels.