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We take an off-the-shelf model with financial frictions and heterogeneity, and study the mapping from a credit crunch, modeled as a shock to collateral constraints, to simple aggregate wedges. We study three variants of this model that only differ in the form of underlying heterogeneity. We find that in all three model variants a credit crunch shows up as a different wedge: efficiency, investment, and labor wedges. Furthermore, all three model variants have an undistorted Euler equation for the aggregate of firm owners. These results highlight the limitations of using representative agent models to identify sources of business cycle fluctuations.

Zonder onderwerpscode: economie

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Motivated by evidence from the micro data that the type of financial frictions faced by individuals varies across regions within countries, we develop a general equilibrium framework that encompasses different micro financial underpinnings. We use it to compare the implications of two concrete frictions, limited commitment and moral hazard, and argue that these have potentially very different implications at both the macro and the micro level. Aggregate productivity is depressed in the two regimes but for completely different reasons: under limited commitment capital is misallocated across heterogeneous firms. In contrast, under moral hazard, productivity is endogenously lower at the firm level because entrepreneurs exert suboptimal effort. Occupational choice, productivity and firm size distribution, income and wealth inequality, and the speed of individual transitions also differ markedly. We also present an economy with different frictions in different regions. Such mixture regimes turn out to be different from simple convex combinations of the pure moral hazard and pure limited commitment regimes, and they produce interregional patterns of aggregate income, capital and labor flows and external finance that resemble rural-urban patterns observed in the data.

Zonder onderwerpscode: economie

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Using recently available large-sample micro data from 36 countries, we document that experience-earnings profiles are flatter in poor countries than in rich countries. Motivated by this fact, we conduct a development accounting exercise that allows the returns to experience to vary across countries but is otherwise standard. When the country-specific returns to experience are interpreted in such a development accounting framework – and are therefore accounted for as part of human capital – we find that human and physical capital differences can account for almost two thirds of the variation in cross-country income differences, as compared to less than half in previous studies.

Zonder onderwerpscode: economie

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How much does life-cycle human capital accumulation vary across countries? This paper seeks to answer this question by studying U.S. immigrants, who come from a wide variety of countries but work in a common labor market. We document that returns to potential experience among U.S. immigrants are higher on average for workers coming from rich countries than for those coming from poor countries. To understand this fact we build a model of life-cycle human capital accumulation that features three potential theories, working respectively through cross-country differences in: selection, skill loss, and human capital accumulation. To distinguish between theories, we use new data on the characteristics of immigrants and non-migrants from a large set of countries. We conclude that the most likely theory is that immigrants from poor countries accumulate relatively less human capital in their birth countries before migrating. Our findings imply that life cycle human capital stocks are on average much larger in rich countries than poor countries.

Zonder onderwerpscode: economie