This paper examines how the degree of gender-egalitarianism embedded in inheritance rules impacts state capacity at its early stages during medieval times. We present a theoretical model in which building state capacity enables nobles to raise taxes and overcome rivals. The model addresses the use of inheritance to consolidate landholding dynasties, also accommodating interstate marriages between landed heirs. On the one hand, dynastic continuity—of utmost importance to medieval lords—directly encourages state-building. Male-biased inheritance rules historically maximize the likelihood of dynastic continuity. We weigh this effect against the indirect impact of the more frequent land-merging marriages under gender-egalitarian rules. Contrary to the literature, our results suggest that gender-egalitarian norms—offering a low probability of dynastic continuity—promote state capacity in the short run more than gender-biased norms. In the long run, results are reversed, providing a rationale for the pervasive European tradition of preference for men as heirs.

The European sovereign debt crisis has revived the debate about appropriate fiscal rules in the European Economic and Monetary Union. Whereas the Stability and Growth Pact and the Fiscal Compact make no distinction between public consumption and investment expenditure, the aim of the current paper is to analyze the implications of the adoption of the Golden rule in a monetary union, distinguishing between the two types of public expenditure. With the help of a macroeconomic model, we show that introducing a Golden rule and smoothing public investment expenditure would be welfare-improving, and mostly for countries where taxation rates and the productivity of public investment are highest, and for the most closed countries. It would also be the most beneficial for countries where the monetary transmission parameter, the propensity to consume, and the price elasticity of supply are weakest, whereas supply-side distortions are the strongest.

This special issue of Macroeconomic Dynamics presents a timely and fresh body of high-quality research on the complexity and evolution of the international oil markets, the dynamics of the price of oil, and the financialization and the interconnections of oil, energy, and nonenergy commodity markets.

This note shows that Lemma 3 in the paper by Tiago N. Sequeira [R&D spillovers in an endogenous growth model with physical capital, human capital and varieties, Macroeconomic Dynamics (2011)] is insufficient to guarantee stability and provides an alternative sufficient condition for stability.

It is commonly accepted that credit market frictions are an important source of macroeconomic fluctuations. But what is the link between the two? And what is the driving factor of asset prices volatility? To answer these questions, we have introduced a specific credit friction, limited commitment, in a general equilibrium model with production and investment in productive capital, where agents can trade bonds. The model always displays a stationary equilibrium where bonds are traded. More importantly, limited commitment may generate stochastic endogenous fluctuations driven by self-fulfilling volatile expectations (sunspots), yielding credit and investment cycles and bond price volatility consistent with data.

This paper studies the role of monetary policy for the dynamics of US mortgage debt, which accounts for the largest part of household debt. A time-varying parameter vector autoregressive (VAR) model allows us to study the variation in the sensitivity of mortgage debt to monetary policy. We find that an identically sized policy shock became less effective over time. We use a dynamic stochastic general equilibrium model to show that a fall in the share of adjustable rate mortgages (ARMs) can replicate this finding. Calibrating the model to the drop in the ARM share since the 1980s yields a decline in the sensitivity of housing debt to monetary policy which is quantitatively similar to the VAR results. A sacrifice ratio for mortgage debt reveals that a policy tightening directed toward reducing household debt became more expensive in terms of a loss in employment. Counterfactuals show that this result cannot be attributed to changes in monetary policy itself.

We compare model forecast error statistics with forecast error statistics of professional forecasts. We look at a standard sticky-prices–wages model, concluding that it delivers too strong a theoretical forecastability of the variables under scrutiny, at odds with the data (professional forecasts). We argue that the lack of compatibility between the model and professional forecasts results from trying to fit inflation (which is probably nonstationary) to a model that assumes inflation is stationary. A modified version of the model, one with a varying inflation target, delivers a better fit in terms of forecastability.

The previous conclusion that a uniform lump-sum estate tax could implicitly provide annuity income was reached by ignoring the inheritance that agents receive. However, when the agents leave a bequest, they should also receive an inheritance from their parents. Thus, we make the inheritance received—bequests left cycle complete and fully endogenous. Interestingly, the differential timing and sizes of inheritance then generate unequal wealth effects even with actuarially fair annuity markets. To restore the first best, the government has to adopt an estate tax regime that is no longer uniform. Thus, once bequest is fully endogenized, a uniform estate tax no longer bears the annuity role. Further, the differential timing in receiving inheritance creates an unequal wealth distribution, which is also nonstationary. The paper manifests the importance of accounting for and tracing the inheritance received by agents for any crucial policy recommendation.

This paper develops a general technique for the computation of comparative dynamics in perfect-foresight discrete-time models. The method developed here is both applicable and general; it can be used to analyze the effects of the perturbation of parameters on endogenous variables and the welfare of an economic system derived from more general multisector models. It is neither restricted to the system's dimensions nor restricted by the assumption of distinct eigenvalues in the system.

Two essential imperfections determine the degree of the financial sector development in an economy: lending frictions, which constrain the ability to extend loans to borrowers; and, trading frictions, which constrain the trading of these loans in secondary markets. I develop a dynamic general equilibrium model where long-term investment is the engine of growth to study macroeconomic consequences of financial development. In the model, long-term loans are extended to entrepreneurs in a primary market and then traded in a secondary market among financiers. In competitive equilibria, reductions in either lending or trading frictions enlarge the financial sector. Although financial deepening through low-cost lending is always welfare improving, financial deepening stimulated by low-cost trading could be detrimental to the society. I illustrate that a model qualitatively consistent with the U.S. financial development episode of the last 30 years should exhibit disproportionately large reductions in trading frictions relative to lending frictions.

Over the past three decades, analysis of dynamics has come to the forefront of macroeconomic theory. A key impetus for progress on this front has been the connections developed between equilibrium growth theory, on one hand, and the field of nonlinear dynamics, on the other. Kazuo Nishimura's work has been at the center of these advances, and the lines of research he initiated remain an exciting area of study for young researchers with strong technical skills.

We motivate and provide an overview to New Monetarist Economics. We then briefly describe the individual contributions to the Macroeconomics Dynamics special issues on money, credit, and liquidity.

This paper shows that complex dynamics arises naturally in deterministic discrete choice problems. In particular, it shows that if the objective function of a maximization problem can be written as a function of a sequence of discrete variables, and if the (maximized) value function is strictly increasing in an exogenous variable, then for almost all values of the exogenous variable, any optimal path exhibits aperiodic dynamics. This result is applied to a maximization problem with indivisible durable goods, as well as to a Ramsey model with an indivisible consumption good. In each model, it is shown that optimal dynamics is almost always complex. These results are illustrated with various numerical examples.

This paper studies the effect of different types of child subsidies on the economic allocation and the cross-sectional fertility pattern. I construct a rich but tractable general equilibrium model with overlapping generations of heterogeneous individuals, two sectors of production and a government. I derive analytically how fertility choices are affected by changes in household resources and child subsidies and show the numerical results of two policy experiments. A subsidy on childcare favors the birth rates of educated, high-wage individuals. Parents work more so that the subsidy program is partly financed by a rise in labor earnings. In contrast, a lump-sum child allowance stimulates fertility of uneducated, low-wage parents the most. This policy has a larger effect on the average birth rate, but as parents perform most of the care themselves it comes at the expense of a lower supply of labor and a greater tax burden.

We employ a life-cycle model with income risk to analyze how tax-deferred individual accounts affect households' savings for retirement. We consider voluntary accounts as opposed to mandatory accounts with minimum contribution rates. We contrast add-on accounts with carve-out accounts that partly replace social security contributions. Quantitative results suggest that making add-on accounts mandatory has adverse welfare effects across income groups. Carve-out accounts generate positive welfare effects across all income groups, but gains are lower for low income earners. Default investment rules in individual accounts have a modest impact on welfare.

Recent empirical research stresses the importance of foresight in tax policy analyses, because failing to model foresight adequately leads to two types of biases: a bias that relates to a mismatch of information sets in the presence of foresight, and one that arises when time variation in foresight is ignored. This paper incorporates tax foresight into a framework of time-varying structural vector autoregression models with stochastic volatility to account for both types of biases. This reveals the effects of changing degrees of tax foresight on U.S. tax policy. Two findings stand out: First, anticipated and unanticipated tax shocks show considerable time variations, suggesting that some tax reforms were more anticipated than others. Second, the time-varying bias reveals that tax foresight was higher during the 1980s and 1990s than during the 1960s and 1970s. The results compare well with the literature and find support in documented U.S. tax episodes.

This paper argues that not only actual lockdowns can affect economies but also noisy information about them. We construct a New Keynesian model with imperfect information about how long the lockdown would last. On the one hand, a false signal about the lockdown lowers consumption, investment, employment, and output, and this effect can be quantitatively sizable. On the other hand, a true information about a lockdown being introduced can also be misinterpreted and hence cause an impact on agents’ decisions being quantitatively different from the one desired by the authorities. To the extent that the latter have less noisy information about future lockdowns than the private sector, they can reduce these undesired fluctuations by precisely communicating the lockdown policy. Importantly, under some circumstances only radical improvements in information precision are successful.

Martin Feldstein is one of the most influential empirical economists of the late twentieth century. In the 1960's, as a research fellow at Oxford University, where he earned a D.Phil. in Economics, he pioneered the empirical analysis of production functions for hospitals and for other health care providers. In the process, he helped to launch the modern field of health economics. In the 1970's, shortly after moving from Oxford to Harvard, his research expanded from health economics to a broader range of social insurance programs, particularly Social Security and unemployment insurance. He developed theoretical models for analyzing how these programs affected the incentives facing households and firms, and then marshaled empirical evidence to document the substantive importance of these program-induced distortions. Feldstein's work sparked an active public policy debate on the economic effects of these programs, and this debate continues to the present day.

Feldstein was one of the first to use household-level data from surveys and administrative records to analyze how taxes and government transfer programs affect household behavior. His research contributions, and his pedagogical role in training dozens of graduate students, accelerated the diffusion of new empirical strategies in the field of applied economics. Researchers in public finance still make widespread use of the TAXSIM computer model, a household-level program for computing tax liabilities, which Feldstein began to build during the 1970's.

In the early 1980's, Feldstein spent two years as the Chairman of the Council of Economic Advisers. During that time, he warned frequently of the long-term economic costs of large budget deficits, even though this was a very unpopular view on political grounds. Feldstein's time in Washington expanded his interests still further, to encompass international economic policy issues as well as domestic questions. When he returned to Harvard and the NBER in the mid-1980's, Feldstein directed several projects on the sources of, and policy responses to, international economic crises.

Throughout the late 1980's and early 1990's, Feldstein continued to make central contributions to his primary field of public finance. In a series of papers on how taxable income responds to changes in marginal tax rates, Feldstein developed a new framework for evaluating the efficiency cost of income taxation. These papers also contributed in a very significant way to the debate on how congressional tax analysts should compute the revenue effects of tax reforms. He also continued his long-standing interest in social insurance policy. His 1995 Ely Lecture to the American Economic Association was a clarion call drawing economic researchers to the analysis of Social Security reform proposals, and it anticipated the very active policy debate of the last half decade.

Feldstein has been actively involved in both undergraduate and graduate teaching during his 35 years on the Harvard faculty. He has served on the dissertation committees of more than 60 graduate students, and he has trained many of the current leaders in the field of public economics. He currently directs and lectures in Harvard's Principles of Economics course, which is the largest undergraduate course at Harvard.

Martin Feldstein has made landmark contributions in many subfields of applied economics. He has also played a critical role in shaping the direction of economic research more generally in his position as President of the National Bureau of Economic Research, a post he has held since 1977. Feldstein has made the NBER a clearinghouse for a wide range of current policy-relevant economic research, and he has directed numerous research projects that have generated important new economic insights. During Feldstein's tenure as NBER president, yellow-covered NBER working papers and, increasingly, the NBER internet site, www.nber.org, have become standard starting points for researchers investigating many topics in applied economics.

In 1977, Martin Feldstein received the John Bates Clark Medal from the American Economic Association, recognizing him as the outstanding economist under the age of 40. Twenty-five years later, in 2002, he was elected president of that association.

This interview was conducted at Martin Feldstein's office at the NBER. One wall of the small conference room in which we worked is decorated with original drawings of some of the political cartoons that lampooned Feldstein's deficit worries during his time at the Council of Economic Advisers. Outside the conference room, a glass case contains literally hundreds of books that are the results of NBER research studies dating back to 1920. The interview follows a loose chronological pattern.