By using Benassy's (1996) model setting to separate increasing returns from imperfect competi... more By using Benassy's (1996) model setting to separate increasing returns from imperfect competition, we show there are two opposite effects, the external effects of increasing returns to specialization and of business stealing, in terms of governing the relative levels of variety in a competitive steady state and optimal steady state. By shedding light on the business-stealing effect which is absent in the analysis by Devereux et al. (2000), we show that the steady-state levels of capital, consumption, and output in the social optimum can be lower, rather than higher, than those in a monopolistically competitive equilibrium. Further, we also find that the required extent of increasing returns to specialization for a positive level of optimal wasteful government spending seems to be too high to be empirically plausible. This implies that government spending is no longer welfare improving.
This dissertation systematically examines the macroeconomic effects of various types of governmen... more This dissertation systematically examines the macroeconomic effects of various types of government expenditures, including the government employment, government consumption, and government investment, within a unified New-Keynesian DSGE model. A novel feature of this exploration is to consider a government production sector in which the government not only purchases goods from the private sector, but also hires labor from households in order to directly produce government output. This novelty is consistent with the National Income and Product Accounts in the sense that like a producer in the private sector, the government hires labor and accumulates capital and the value added of government production directly contributes to the economy-wide output. Thus, GDP is the sum of private output and the value added of the government production. In addition, to fill the gap in the literature, we shed light on the importance of wage rigidities, which are have insightful implications for the e...
We develop a dynamic general equilibrium growth model, where households purchase final goods on c... more We develop a dynamic general equilibrium growth model, where households purchase final goods on cash or credit and have different capital and money endowments, to investigate whether inflation affects trends in income and consumption inequality. We show that, under a strong substitutability between cash and credit goods, inflation has a negative relationship with income inequality, but a U-shaped relationship with consumption inequality. The divergence between income and consumption inequality explains several recent empirical observations. This result has important policy implications, as consumption inequality better reflects the welfare distribution whereas income inequality fails to capture consumption disparities resulting from different consumption and asset distributions across households. In the growth model with heterogeneous households, there is a mixed relationship between growth and income inequality, confirming the existence of the Kuznets curve. The inflation-driven as...
The great ratios have been regularly used to calibrate the long-run properties of theoretical mac... more The great ratios have been regularly used to calibrate the long-run properties of theoretical macroeconomic models; yet their stationarity is not supported by empirical studies unequivocally. This paper empirically tests whether the international openness governs the stationarity of the great ratios. By considering 21 OECD countries, our results show that the countries with relatively high openness are less likely to exhibit a balanced-growth-path equilibrium. By controlling for a potential endogeneity problem, the great ratios are less likely to be stationary if the economy runs a surplus trade balance.
This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe.... more This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe. 2001. “Monetary Policy and Multiple Equilibria.” American Economic Review 91: 167–186. We systematically explore the role of international capital mobility and the portfolio balance channel in terms of macroeconomic (in)stability when the government follows a commonly-adopted interest-rate feedback rule. In a one-traded-good model, the steady-state equilibrium, in general, is locally determinate; international capital mobility stabilizes the economy against business cycle fluctuations under a simple interest-rate feedback rule. In a two-good (traded and non-traded goods) model, the relationship between equilibrium (in)determinacy and the aggressiveness of interest rate rules is not monotonic, and crucially depends on households’ portfolio preferences. These results suggest that a unified interest rate rule can end up with very different consequences of macroeconomic (in)stability in an ...
By using Benassy's (1996) model setting to separate increasing returns from imperfect competi... more By using Benassy's (1996) model setting to separate increasing returns from imperfect competition, we show there are two opposite effects, the external effects of increasing returns to specialization and of business stealing, in terms of governing the relative levels of variety in a competitive steady state and optimal steady state. By shedding light on the business-stealing effect which is absent in the analysis by Devereux et al. (2000), we show that the steady-state levels of capital, consumption, and output in the social optimum can be lower, rather than higher, than those in a monopolistically competitive equilibrium. Further, we also find that the required extent of increasing returns to specialization for a positive level of optimal wasteful government spending seems to be too high to be empirically plausible. This implies that government spending is no longer welfare improving.
This dissertation systematically examines the macroeconomic effects of various types of governmen... more This dissertation systematically examines the macroeconomic effects of various types of government expenditures, including the government employment, government consumption, and government investment, within a unified New-Keynesian DSGE model. A novel feature of this exploration is to consider a government production sector in which the government not only purchases goods from the private sector, but also hires labor from households in order to directly produce government output. This novelty is consistent with the National Income and Product Accounts in the sense that like a producer in the private sector, the government hires labor and accumulates capital and the value added of government production directly contributes to the economy-wide output. Thus, GDP is the sum of private output and the value added of the government production. In addition, to fill the gap in the literature, we shed light on the importance of wage rigidities, which are have insightful implications for the e...
We develop a dynamic general equilibrium growth model, where households purchase final goods on c... more We develop a dynamic general equilibrium growth model, where households purchase final goods on cash or credit and have different capital and money endowments, to investigate whether inflation affects trends in income and consumption inequality. We show that, under a strong substitutability between cash and credit goods, inflation has a negative relationship with income inequality, but a U-shaped relationship with consumption inequality. The divergence between income and consumption inequality explains several recent empirical observations. This result has important policy implications, as consumption inequality better reflects the welfare distribution whereas income inequality fails to capture consumption disparities resulting from different consumption and asset distributions across households. In the growth model with heterogeneous households, there is a mixed relationship between growth and income inequality, confirming the existence of the Kuznets curve. The inflation-driven as...
The great ratios have been regularly used to calibrate the long-run properties of theoretical mac... more The great ratios have been regularly used to calibrate the long-run properties of theoretical macroeconomic models; yet their stationarity is not supported by empirical studies unequivocally. This paper empirically tests whether the international openness governs the stationarity of the great ratios. By considering 21 OECD countries, our results show that the countries with relatively high openness are less likely to exhibit a balanced-growth-path equilibrium. By controlling for a potential endogeneity problem, the great ratios are less likely to be stationary if the economy runs a surplus trade balance.
This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe.... more This study develops a small-open-economy version of Benhabib, J., S. Schmitt-Grohé, and M. Uribe. 2001. “Monetary Policy and Multiple Equilibria.” American Economic Review 91: 167–186. We systematically explore the role of international capital mobility and the portfolio balance channel in terms of macroeconomic (in)stability when the government follows a commonly-adopted interest-rate feedback rule. In a one-traded-good model, the steady-state equilibrium, in general, is locally determinate; international capital mobility stabilizes the economy against business cycle fluctuations under a simple interest-rate feedback rule. In a two-good (traded and non-traded goods) model, the relationship between equilibrium (in)determinacy and the aggressiveness of interest rate rules is not monotonic, and crucially depends on households’ portfolio preferences. These results suggest that a unified interest rate rule can end up with very different consequences of macroeconomic (in)stability in an ...
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Papers by Hsieh Yu Lin