As recent immigration flows are reshaping the host countries workforce composition, this paper aims to assess whether age composition and skill adjustment dynamics play a relevant role in the welfare impact of immigration. To this end, we build and simulate a search and matching model that allows for endogenous natives’ skill acquisition and intergenerational transfers to analyze the welfare effects of immigration on a selected group of 19 OECD countries. The obtained results are then compared with those obtained under different assumptions on age composition and skill adjustment dynamics. Our comparative statics analysis shows that stronger job creation effects take place when natives adjust their skill in response to immigration. Moreover, taking into account age composition plays a key role in assessing the fiscal impact of immigration, which turns out to be positive when we include intergenerational transfers to retirees and immigration is high-skilled. Finally, we find that our model yields more optimistic welfare effects than standard search models that abstract from skill decision and intergenerational redistribution.

We contribute to the literature on empirical macroeconomic models with time-varying conditional moments, by introducing a heteroskedastic score-driven model with Student’s t-distributed innovations, named the heteroskedastic score-driven $t$-QVAR (quasi-vector autoregressive) model. The $t$-QVAR model is a robust nonlinear extension of the VARMA (VAR moving average) model. As an illustration, we apply the heteroskedastic $t$-QVAR model to a dynamic stochastic general equilibrium model, for which we estimate Gaussian-ABCD and $t$-ABCD representations. We use data on economic output, inflation, interest rate, government spending, aggregate productivity, and consumption of the USA for the period of 1954 Q3 to 2022 Q1. Due to the robustness of the heteroskedastic $t$-QVAR model, even including the period of the coronavirus disease of 2019 (COVID-19) pandemic and the start of the Russian invasion of Ukraine, we find a superior statistical performance, lower policy-relevant dynamic effects, and a higher estimation precision of the impulse response function for US gross domestic product growth and US inflation rate, for the heteroskedastic score-driven $t$-ABCD representation rather than for the homoskedastic Gaussian-ABCD representation.

We estimate elasticities of substitution between components of the Bank of England’s household-sector UK Divisia monetary aggregate using quarterly data from 1999 to 2019, encompassing the period surrounding the global financial crisis. The demand system includes interest-bearing sight and time deposits at monetary financial institutions as components, since deposit data for banks (excluding mutuals) and for mutuals are no longer published separately. We find that the elasticities of substitution that relate to changes in the user cost of noninterest-bearing monetary assets imply inelastic substitution over all or almost all of the sample and, consequently, a conventional monetary aggregate would be a highly misleading economic indicator relative to a Divisia monetary aggregate.

Bad news about future economic developments have larger effects than good news. The result is obtained by means of a simple nonlinear approach based on SVAR and SVARX models. We interpret the asymmetry as arising from the uncertainty surrounding economic events whose effects are not perfectly predictable. Uncertainty generates adverse effects on the economy, amplifying the effects of bad news and mitigating the effects of good news.

We estimate a smooth-transition vector autoregression model (ST-VAR) using panel data from 14 OECD countries to study the cross-country spillover effects of economic policy uncertainty (EPU) shocks. An unexpected elevation of EPU originating abroad has an overall contractionary real effect, and the spillover effects depend on the state of the business cycle of the recipient country. EPU spillover shocks during recessions have stronger but less persistent effects on a number of economic indicators. We also find that the interconnectedness of EPU, financial markets, and business confidence are important channels for the EPU shocks to propagate across countries, while the trade channel has limited effects, especially during expansions.

This paper proposes that an International Monetary Fund (IMF) policy shift was the reason behind major changes in sovereign debt negotiation outcomes observed in 1989. The new policy, in marked departure from past policy, allowed the IMF to lend to nations in default. The paper highlights the stark improvements in debt forgiveness and post-negotiation debt servicing ability coincident with the IMF policy shift. A theoretical framework is proposed in which the IMF policy shift causes the observed changes in negotiation outcomes. The model highlights the policy’s potential to improve a country’s outside option during negotiations of defaulted debt. In the model, this improvement leads to increased debt forgiveness which in turn leads to less post-negotiation debt servicing difficulties. The model is then used to address an important question regarding the nature of post-negotiation default risk. The case is made that countries face persistent, rather than temporary, default risk after such negotiations. To avert such risk, they moderate their borrowing.

This paper investigates the relationship between credits and sector-level output dynamics in a sample of 41 advanced and developing countries. The existing literature shows that household credits are associated with boom-bust cycles in aggregate output, whereas business loans do not cause such output dynamics. The present paper expands these findings in terms of advanced versus developing countries and manufacturing versus services sectors. The new findings indicate that the resulting boom-bust cycles in the aggregate output in response to household credits are generally observed in the sample of developing countries, with no similar dynamics in the advanced countries. Another significant conclusion is that the boom-bust cycles are generated mostly in the services sector. No equivalent boom-bust dynamics are observed in the manufacturing sector, but the negative medium-run effects of household credits are larger in this sector. These findings indicate that credit mechanisms and consequences can significantly vary across countries and sectors.

Optimal monetary policy, under flexible and sticky prices, and sticky nominal wages are studied in the canonical matching model of the labor market with a working capital channel. A money demand by firms is motivated by the fact that a significant amount of M1 is held by firms. As a result of the working capital, the Ramsey-optimal monetary policy calls for inflation when employment is above the socially efficient level and for deflation when it is below that level. This result holds under flexible wages as well as nominal wage rigidities. In other words, to improve labor market efficiency, deflation is necessary to “grease the wheels of the labor market.” Although there is no relationship between optimal monetary policy and the market tightness under flexible prices, a long-run and mainly negative relationship between the optimal inflation rate and the equilibrium tightness emerges under sticky prices.

This paper incorporates the variable elasticity of substitution preferences in the variety expansion model developed by Grossman and Helpman [(1991) Innovation and Growth in the Global Economy, MIT Press]. There exists a balanced growth path when the elasticity of substitution is constant with knowledge spillover. When the elasticity of substitution is variable and the knowledge spillover is sufficiently small, a unique and stable steady state exists. When the knowledge spillover is sufficiently large, the steady state is unique and unstable. When the size of the knowledge externality is moderate, multiple equilibria exist.

This empirical paper deals with the impacts of sentiment about the future, short-run risk, and long-run risk in a dynamic economic model of optimal consumption decisions with Schroder and Skiadas [(1999) Journal of Economic Theory 89, 68–126.] continuous-time stochastic recursive preferences. The empirical strategy combines both a latent factor method and a democratic orthogonalization technique. The latent factor method is applied to a large database of macroeconomic indicators, and a democratic orthogonalization technique is used to separate the relative importance of sentiment about the future and long-run risk channels in shaping optimal consumption decisions. The empirical results suggest that consumers with recursive preferences are not indifferent to long-run uncertainty shocks to future consumption prospects. Endogenous consumption variations are driven by a multicomponent mechanism, where on average, the sentiment component accounts for 15.33%, the short-run risk accounts for 16.89%, and the long-run risk pertains to 34.51%.