Macro Colloquium Spring 2007 _ Columbia University

Coordinators: Stefania Albanesi and Pietro Reichlin

Logistics: W 1-2 PM 1027 IAB

The colloquium is a venue where graduate students interested in macroeconomics in the third year and above present their research. Second year students are also encouraged to attend. Research can be very preliminary. The audience provides feedback.

If you wish to attend the colloquium or require further information, e-mail Stefania Albanesi.

Schedule

Date	Speaker	Topic
1/17	No meeting
1/24	No meeting
1/31	Mai Dao	International spillover of labor market policy in a Monetary Union Abstract: Redistributive policies in the European Union are still decided exclusively on national level. However, growing concern about the future of the welfare state has induced policy makers and most recently researchers to argue for a coordination of social policy on the EU level. Using a micro-founded model, this paper explores possible channels of externalities of labor market policies, in particular tax progressivity, across countries in the monetary union. The model includes trades in two sectors with pricing asymmetries, union bargaining over the wage and an exogenous money supply at the union level. Domestic tax progression has a positive employment effect and a positive spillover effect on the other union member, essentially through increase of union-wide purchasing power. The results are more limited if capital mobility is introduced. Nevertheless, different externalities suggest that there is scope and need for coordination of redistributive policy at the union level.
2/13 4.15-5.45 PM	Mauro Roca	Search in the Labor Market under Imperfectly Insurable Income Risk For an abstract, see here. This colloquium presentation will take place during the Money and Macro seminar.
2/14	No meeting
2/21	No meeting
2/28	Anton Korinek	Dividend Taxation and Intertemporal Tax Arbitrage (with Joseph E. Stiglitz) Abstract: Dividend taxation makes it costly for firms to distribute funds to shareholders; on the other hand, agency problems limit the amount of funds that shareholders are willing to leave with firms. Firms thus balance agency costs and tax consequences to determine their optimal amount of working capital. Building on these considerations, we develop a life-cycle model of the firm to analyze the effects of dividend tax policy on aggregate investment. New firms raise less equity and invest less the higher the level of dividend taxes, in accordance with the traditional view of dividend taxation. However, the dividend tax rate is irrelevant for the investment decisions of internally growing and mature firms, as postulated by the new view of dividend taxation. Aggregate investment is dominated by these latter two categories and therefore unanticipated tax changes have only insignificant real effects. Anticipated tax changes and temporary tax changes allow firms to engage in inter-temporal tax arbitrage so as to reduce investors' tax burden. This can significantly distort firms' cash balances and by extension aggregate investment and output. Furthermore, we show that the analysis of any policy in a contestable democracy has to take into account expectations about future regime changes and the ensuing dividend tax changes. This can significantly change the evaluation of any policy.
3/7	No meeting
3/14	Spring Break
3/21	Gideon du Rand	The Sensitivity of Fit of DSGE models to different methods of detrending Abstract: Several recent papers have documented successes in fitting DSGE models to macro data which both match the properties of atheoretical VARs and seem to outperform them in predictive power. These papers use various very different techniques to convert the trended series to stationary ones. This paper attempts a very simple experiment and finds that in the case of a simple three variable DSGE model, the HP-Filter performs well in uncovering the structural parameters from detrended data, whether trend or difference stationary.
3/28	Justin Svec	Fiscal Policy under Consumer Uncertainty Abstract: Set in the Lucas and Stokey (1983) optimal taxation model, I characterize robustly optimal fiscal policy when agents do not have rational expectations. More specifically, consumers are uncertain about the probability distribution governing the government spending shock and so apply robust control. The benevolent government, endowed with rational expectations, chooses a linear tax on labor and a debt process to maximize consumer welfare. I find that the government would optimally set a history dependent allocation, breaking the direct link between the government spending process and the labor tax.
4/4	Kyung-Woo Lee	Social Security and Private Information Abstract: I study the pension system with the approach that have been used in a growing literature of new dynamic public finance. In an overlapping generation model where the productivity of individuals is a private information and a fraction of individuals lose their productivity when they get old, I characterize the constrained efficient allocation. The planner balances providing incentives against providing insurance so that a condition similar to the celebrated inverse Euler equation is satisfied in the constrained efficient allocation. Although the pension alone in general cannot attain the constrained efficient allocation, one can find a combination of tax system and a pension to implement the constrained efficient allocation.
4/11	Luminita Stevens	Clusters, Factors, and International Business Cycles Abstract:   We explore the sensitivity of factor models to the cluster structure of the data in the context of international business cycles. We move beyond choosing an ad-hoc cluster structure (such as clustering by geography, or by level of development) and endogenously determine the composition of clusters. The goal is to provide a map of the world identifying different clusters and to re-estimate the factor model incorporating this additional information. Several illustrations of the potential usefulness of cluster analysis are provided. Future research will seek to determine the extent to which clustering the data yields better forecasting results in small samples.
4/18	Demetris Koursaros	Nominal Rigidities and Search Unemployment Abstract: In this paper we analyze a monetary model (MIU) with nominal rigidities and search unemployment. The value of the composite good each period is a function of the employment rate, because a higher employment rate contributes to a better quality composite good. The price of the better composite good is also higher because of an increase in the number of goods I the economy. Therefore inflation is not only a function of the deviation of relative prices from the steady state, but also a function of the deviation of employment from the steady state. My goal by doing this exercise is to argue that monetary authorities, in their attempt to fight inflation, must take into consideration that part of inflation is linked with the quality of the composite good. This Part of inflation is due to the increase in the number of goods (or quality) and does not necessarily affect the relative prices, thus it is not distortionary. A Central Bank should take this into consideration when conducting Monetary Policy.
4/25	Yuki Teranishi	Loan Contract in New Keynesian Model Abstract: This paper investigates a new source of economic stickiness, staggered loan rate contract between a private bank and a firm. Simulation outcomes of the model show that the staggered loan contract can play an important role in making an economic fluctuation and in revealing a mechanism of economic persistence. We introduce this staggered loan contract mechanism into the standard New Keynesian model in a tractable way.