CEF.UP – ECO Seminar

Tuesday – January 21^st, 2025, at 13:00h | Room 305

“Returns Heterogeneity and Consumption Inequality Over the Life Cycle“

Claudio Daminato –  Lund University (Sweden)

Abstract:
“A recent literature argues that persistent heterogeneity in wealth returns (“type dependence”) as well as a positive association with wealth levels (“scale dependence”) play an important role for explaining features of the wealth distribution, especially its extreme concentration at the top. In contrast, traditional models of wealth accumulation emphasize the role of persistent differences in labor earnings. Using panel data from the PSID, we first document that a common unobserved component (which we interpret as the endowment of cognitive and non-cognitive skills of an individual) drives persistent heterogeneity in both wealth returns and labor earnings. We embed these features of the joint wealth return-earnings process in a life-cycle model of consumer behavior and show that ignoring them would dramatically understate average returns for people at the top of the wealth distribution as well as the level and rise of consumption inequality over the life cycle.”

CEF.UP – ECO Seminar

Friday – February 7^th 2025, at 13:00h | Room 305

Lost in Transition: Financial Barriers to Green Growth

Antonin Bergeaud – HEC Paris (France), CEPR (England, United Kingdom) and Centre for Economic Performance at LSE (England, United Kingdom)

Abstract:

“Green innovation offers a solution to climate change without compromising living standards. Yet the share of climate-enhancing innovations in total patents, after booming for two decades, has seized to grow since the Global Financial Crisis. We develop a quantitative framework in which firms direct innovation towards green or polluting technologies, and become better at innovating in technologies that they have previously succeeded in. This causes mature, incumbent firms to predominantly innovate in polluting technologies. When green technologies become more attractive, e.g. due to a carbon tax, young firms are responsible for a large share of the transition to green innovation. As young firms are financially constrained, a credit shock harms their innovation, bringing the green transition to a halt. We validate the theory with two empirical exercises. First, we use micro data to provide causal evidence that tight credit disproportionately affects green innovation, through its effect onyoungfirms. Second,weshowthatcontractionarymonetarypolicyshockshaveasignificantly larger effect on green patenting than non-green patenting, in line with the model. Quantifying the model, we find that tight credit can explain around 60% of the recent slowdown in the rise of green patenting. This translates to a cumulative increase in emissions by half a year of the initial (high pollution) steady state.”

CEF.UP – ECO Seminar

Tuesday – February 18^th, 2025, at 1:00 p.m. | Room 305| Online

“The Political Economy of Domestic and External Sovereign Debt“

Almuth Scholl –  University of Konstanz (Germany)

Abstract:

“This paper explores the political and distributional consequences of sovereign debt and default taking into account that a sizable share of public debt is held by domestic creditors. We develop a quantitative macroeconomic model in which heterogeneous households face idiosyncratic income risk and save in non-state-contingent government bonds. Debt contracts are not enforceable and the government is politically constrained in its policy choices: A fiscal plan is required to receive the support of the majority of households. If neither fiscal plan is approved, the government has to default and to restructure domestic and external debt. Debt crises are characterized by a political conflict. In the course of a crisis, rising debt service costs force the government to cut redistributive spending. While wealthy households benefit from high interest rates on their savings, poor households support a default. Consequently, the approval of the fiscal plan decreases and the likelihood of a political default rises. Political constraints generate sizable welfare costs highlighting that individuals do not internalize the impact of their voting on interest rates and redistributive spending in equilibrium.”

CEF.UP – ECO Seminar

Tuesday – March 18^th, 2025, at 1:00 p.m. | Room 305| Online

Brothers in Arms: Near Equivalence of Monetary and Fiscal Rules

Lukasz Rachel  –  University College London (England, United Kingdom)

Abstract:

“We consider monetary-fiscal interaction in a New Keynesian model with finite planning horizons. We argue that the introduction of finite planning horizons has fundamental implications for the impact of monetary and fiscal policy rules and for the impact of aggregate shocks. There are three main findings. First, the determinacy properties are dramatically different in our model, relative to the standard setting: bounded equilibria might cease to exist when the central bank follows the Taylor principle and the fiscal policy does not stabilize government debt sufficiently. Second, the sharp difference in equilibrium outcomes depending on the precise parameters of the policy rules that is present in the textbook model largely disappears — indeed, the properties of the equilibria vary smoothly with policy rule parameters. Third, and different to the textbook model, anticipation of shocks plays a major role: an expansionary deficit-news shock can lead a recession accompanied with higher inflation and heightened macroeconomic volatility.”