O geniuszu, który dokonał rewolucji w makroekonomii – zmarłego noblistę Edwarda Prescotta wspomina zespół GRAPE.
The team grows, Sylwia Radomska joined us as a research assistant.
Niższe emerytury, wyższe podatki, a do tego słabszy wzrost gospodarczy - takie skutki według ekonomistów przyniesie obniżenie wieku emerytalnego w Polsce.
Rozmowa z Krzysztofem Makarskim.
Chcesz pracować krócej? Pogódź się z tym, że twoja emerytura będzie niższa, niezależnie od tego do jakiej grupy społecznej należysz i jaka jest twoja produktywność.
Opublikowane | Published
We study the evolution of income and wealth inequality in an economy undergoing endogenous structural change with imperfect labor mobility. Our economy features two sectors: services and manufacturing. With faster TFP growth in manufacturing, labor reallocates from manufacturing to services. This reallocation is slower due to labor mobility frictions, which in turn, raises relative wages in services. As a result, income inequality is higher. Moreover, we study the impact of structural change on wealth inequality. Its economic intuition is more ambiguous. On the one hand, increased income dispersion implies increased dispersion in the ability to accumulate wealth across individuals. On the other hand, younger workers who hold the least assets are the most mobile across sectors. Their incomes are improved, which boosts their savings, which works towards equalizing wealth distribution. The consequence of these changes can by only verified with a computational model. To this end we construct and an overlapping generations model with two sectors: manufacturing and services. Our model also features heterogeneous individuals. With our model we are able to show how structural change affected the evolution of income and wealth inequality in Poland as of 1990.%Furthermore, we argue that the effects of structural change are stronger in economies undergoing a demographic transition.
Thorough structural change occurs periodically across world economies. In a parsimonious overlapping generation setup with political economy, we present a novel result: structural change not only exacerbates the rise in inequality but also strengthens the preference for redistribution. Labor mobility frictions are instrumental in this mechanism.
Financing consumption of the elderly in the face of the projected increase in life expectancy is a key challenge for economic policy. Moreover, standard structural models with fully rational agents suggest that about 50-60 percent of old-age consumption is financed with voluntary savings, even in the presence of a fairly generous public pension system. This is clearly inconsistent with either the data, or the alarming simulations of old-age poverty in the years to come. Old-age saving (OAS) schemes are widely used policy instruments to address this challenge, but structural evaluations of such instruments remain rare. We develop a framework with incompletely rational agents: lacking financial literacy and experiencing commitment difficulties. We study a broad selection of OAS schemes and find that they raise welfare of financially illiterate agents and to a lesser extent improve welfare of agents with a high degree of time inconsistency. They also reduce the incidence of poverty at old age. Unfortunately, these instruments are fiscally costly, induce considerable crowd-out and direct fiscal transfers mostly to those agents, who need it the least.
We analyze the political stability social security reforms which introduce a funded pillar (a.k.a. privatizations). We consider an economy populated by overlapping generations and intra-cohort heterogeneity, which introduces a funded pillar. This reform is efficient in Kaldor-Hicks sense and has political support. Subsequently, agents vote on abolishing the funded system, capturing the accumulated pension wealth, and replacing it with the pay-as-you-go scheme, i.e. “unprivatizing” the pension system. We show that even if such reform reduces welfare in the long run, the distribution of benefits across cohorts along the transition path implies that “unprivatizing” social security is always politically favored. We conclude that property rights definition over retirement savings may be of crucial importance for determining the stability of retirement systems with a funded pillar.
Some ideas underlying this paper were originally started as a part of MODELLING project, but with the time, it evolved in terms of research question. Now, it has a new theoretical setup, and it features heterogeneous agents framework.
The full replication package may be found in this GitHub repository.
In the context of the second demographic transition, many countries consider rising fertility through pro-family polices as a potentially viable solution to the fiscal pressure stemming from longevity. However, an increased number of births implies private and immediate costs, whereas the gains are not likely to surface until later and appear via internalizing the public benefits of younger and larger population. Hence, quantification of the net effects remains a challenge. We propose using an overlapping generations model with a rich family structure to quantify the effects of increased birth rates. We analyze the overall macroeconomic and welfare effects as well as the distribution of these effects across cohorts and study the sensitivity of the final effects to the assumed target value and path of increased fertility. We find that fiscal effects are positive but, even in the case of relatively large fertility increase, they are small. The sign and the size of both welfare and fiscal effects depend substantially on the patterns of increased fertility: if increased fertility occurs via lower childlessness, the fiscal effects are smaller and welfare effects are more likely to be negative than in the case of the intensive margin adjustments.
We develop an OLG model with realistic assumptions about longevity to analyze the welfare effects of raising the retirement age. We look at a scenario where an economy has a pay-as-you-go defined benefit scheme and compare it to a scenario with defined contribution schemes (funded or notional). We show that, initially, in both types of pension system schemes the majority of welfare effects comes from adjustments in taxes and/or prices. After the transition period, welfare effects are predominantly generated by the preference for smoothing inherent in many widely used models. We also show that although incentives differ between defined benefit and defined contribution systems, the welfare effects are of comparable magnitude under both schemes. We provide an explanation for this counter-intuitive result.
An earlier version of this text was circulated under a title "Does social security reform reduce gains from increasing the retirement age?". This earlier version was coauthored by Karolina Goraus.
With compulsory funded public social security systems, pension savings constitute a large stock of assets. In this paper we consider an economy populated by overlapping generations, which may decide about abolishing the funded system and replacing it with the pay-as-you-go scheme (i.e. unprivatizing the pension system). We compare politically stable as well as politically unstable reforms and show that even if the funded system is overall welfare enhancing, the cohort distribution of benefits along the transition path may turn privatizing social security politically unsustainable.
While the inequalities of endowments are widely recognized as areas of policy intervention, the dispersion in preferences may also imply inequalities of outcomes. In this paper, we analyze the inequalities in an OLG model with obligatory pension systems. We model both policy relevant pension systems (a defined benefit system — DB — and a transition from a DB to a defined contribution system, DC). We introduce within cohort heterogeneity of endowments (individual productivities) and heterogeneity of preferences (preference for leisure and time preference). We introduce two policy instruments, which are widely used: a contribution cap and a minimum pension. In theory these instruments affect both the incentives to work and the incentives to save for the retirement with different strength and via different channels, but the actual effect attributable to these policy instruments cannot be judged in an environment with a single representative agent. We show four main results. First, longevity increases aggregate consumption inequalities substantially in both pension systems, whereas the effect of a pension system reform works to reinforce the consumption inequalities and reduce the wealth inequalities. Second, the contribution cap has negligible effect on inequalities, but the role for minimum pension benefit guarantee is more pronounced. Third, the reduction in inequalities due to minimum pension benefit guarantee is achieved with virtually no effect on capital accumulation. Finally, the minimum pension benefit guarantee addresses mostly the inequalities which stem from differentiated endowments and not those that stem from differentiated preferences.
Our data are shared here.
Pension system reforms involve fiscal consequences. In practice, a variety of fiscal closures may be implemented, while not all of them involve the same extent of distortions. This paper develops an overlapping generations model to analyze the case of a shift from pay-as-you-go defined benefit system to a partly funded defined contribution system. We calibrate the system to mimic the economy of Poland, which actually implemented such reform in 1999. We analyze the efficiency of the reform with two main closure types: public debt and taxes. Regardless of the fiscal closure scenario this particular reform seems to be efficient in terms of welfare and enhances economic performance. Comparing the welfare of various closures we find that while labor taxation yields relatively higher welfare gain, public debt closure involves least need for the redistribution if capital pillar is to be implemented.
This paper was awarded Joseph A. Schumpeter Prize from Deutsche Bundesbank.
We analyze the effects of increasing the retirement age in two economies with overlapping generations and within cohort ex ante heterogeneity. The first economy has a defined benefit system and the second economy is in transition from a defined benefit to a defined contribution. We find that if increase in the retirement age is phased in a way that allows agents to adjust, welfare is not reduced and welfare effects have a similar magnitude and between cohort distribution in both types of the pension systems.
Empirical evidence suggests that contractionary monetary and macroprudential policies have stronger effects than expansionary ones. We introduce this feature into a structural DSGE model with financial frictions. The asymmetry results from the assumption of occasionally binding credit constraints which we introduce via a penalty function. Our simulations show that a large loan-to-value ratio (our macroprudential tool) tightening can have a much stronger impact on the economy than a loosening of the same size. In contrast, small policy innovations, whether expansionary or contractionary, have effects of almost equal magnitude. Our approach provides an interesting way of modeling asymmetric effects of financial frictions for policy purposes.
Since its creation the euro area suffered from imbalances between its core and peripheral members. This paper checks whether macroprudential policy applied to the peripheral countries could contribute to providing more macroeconomic stability in this region. To this end we build a two economy macrofinancial DSGE model and simulate the effects of macroprudential policies under the assumption of asymmetric shocks hitting the core and the periphery. We find that macroprudential policy is able to partly make up for the loss of independent monetary policy in the periphery. Moreover, LTV policy seems more efficient than regulating capital adequacy ratios. However, for the policies to be effective, they must be set individually for each region. Area-wide policy is almost ineffective in this respect.
In many countries, the fiscal tension associated with the global financial crisis brings about the discussion about unprivatizing the social security system. This article employs an Overlapping Generations model to assess ex ante the effects of such changes to the pension reform in Poland from 1999 as implemented in 2011 and in 2013. We simulate the behaviour of the economy without the implemented/proposed changes and compare it to a status quo defined by the reform from 1999. We find that the changes implemented in 2011 and in 2013 are detrimental to welfare. The effects on capital and output are small and depend on the selected fiscal closure. Implied effective replacement rates are lower. These findings are robust to time inconsistency. The shortsightedness of the governments imposes welfare costs.
The objective of this paper is to inquire the consequences of some simplifying assumptions typically made in the overlapping generations (OLG) models of pension systems and pension system reforms. This literature is largely driven by policy motivations. Consequently, the majority of the papers is extremely detailed in the dimension under scrutiny. On the other hand, complexity of general equilibrium OLG modeling necessitates some simplifications in the model. We run a series of experiments in which the same reform in the same economy is modeled with six different sets of assumptions concerning the shape of the utility function, time inconsistency, bequests? redistribution, labor supply decisions and internalizing the linkage between social security contributions and benefits in these decisions as well as public spending. We find that these assumptions significantly affect both the size and the sign of the macroeconomic and welfare measures of policy effects with the order of magnitude comparable to the reform itself.
The recent global financial crisis has increased interest in macroeconomic models that incorporate financial linkages. Here, we compare the simulation properties of five mediumsized general equilibrium models used in Eurosystem central banks which incorporate such linkages. The financial frictions typically considered are the financial accelerator mechanism (convex \spread costs related to firms' leverage ratios) and collateral constraints (based on asset values). The harmonized shocks we consider illustrate the workings and mechanisms underlying the financial-macro linkages embodied in the models. We also look at historical shock decompositions of real GDP growth across the models since 2005 in order to shed light on the common driving factors underlying the recent financial crisis. In these exercises, the models share qualitatively similar and interpretable features. This gives us confidence that we have some broad understanding of the mechanisms involved. In addition, we also survey the current and developing trends in the literature on financial frictions.
We compare two standard extensions to the New Keynesian framework that feature financial frictions. The first model, originating from Kiyotaki and Moore (1997), is based on collateral constraints. The second, developed by Carlstrom and Fuerst (1997) and Bernanke et al. (1999), accentuates the role of external finance premia. We tweak the models and calibrate them in a way that allows for both qualitative and quantitative comparisons. Next, we thoroughly analyze the two variants using moment matching, impulse response analysis and business cycle accounting. Overall, we find that the business cycle properties of the external finance premium framework are more in line with empirical evidence. In particular, the collateral constraint model fails to produce hump-shaped impulse responses and generates volatilities of the price of capital and rate of return on capital that are inconsistent with the data by a large margin.
This article analyses the macroeconomic impact of the loss of autonomous monetary policy after the euro adoption in Poland. Using a two-country Dynamic Stochastic General Equilibrium (DSGE) model with sticky prices and wages, we find that the euro adoption will have a noticeable impact on the magnitude of economic fluctuations. In particular, the volatility of output, interest rate, consumption and employment is expected to increase while the volatility of inflation should decrease. Also, in order to quantify the effect of the euro adoption, we compute the welfare effect of this monetary policy change. Our findings suggest that the welfare cost is not large.
It is well known that central bank policies affect not only macroeconomic aggregates, but also their distribution across economic agents. Similarly, a number of papers demonstrated that heterogeneity of agents may matter for the transmission of monetary policy to macro variables. Despite this, the mainstream monetary economics literature has so far been dominated by dynamic stochastic general equilibrium models with representative agents. This paper aims to tilt this imbalance towards heterogeneous agents setups by surveying the main positive and normative findings of this line of the literature, and suggesting areas in which these models could be implemented. In particular, we review studies that analyse the heterogeneity of (i) households’ income, (ii) households’ preferences, (iii) consumers’ age, (iv) expectations and (v) firms’ productivity and financial position. We highlight the results on issues that, by construction, cannot be investigated in a representative agent framework and discuss important papers modifying the findings from the representative agent literature.
We construct an open-economy DSGE model with a banking sector to analyze the impact of the recent credit crunch on a small open economy. In our model the banking sector operates under monopolistic competition, collects deposits and grants collateralized loans. Collateral effects amplify monetary policy actions, interest rate stickiness dampens the transmission of interest rates, and financial shocks generate non-negligible real and nominal effects. As an application we estimate the model for Poland–a typical small open economy. According to the results, financial shocks had a substantial, though not overwhelming, impact on the Polish economy during the 2008/09 crisis, lowering GDP by approximately 1.5 percent.
W toku | Work in progress
The European Unemployment Puzzle: implications from population aging Przeczytaj streszczenie | Read abstract
We study the link between the evolving age structure of the working population and unemployment. We build a large New Keynesian OLG model with a realistic age structure, labor market frictions, sticky prices and aggregate shocks. Once calibrated to the European economies, we use this model to provide comparative statics across past and contemporaneous age structures of the working population. Thus, we quantify the extent to which the response of labor markets to adverse TFP shocks and monetary policy shocks becomes muted with the aging of the working population. Our findings have important policy implications for European labor markets and beyond. For example, the working population is expected to further age in Europe, whereas the share of young workers will remain robust in the US. Our results suggest a partial reversal of the European-US unemployment puzzle.
Rising longevity and US wealth inequality Przeczytaj streszczenie | Read abstract
While US wealth inequality has been rising, research and policy debates have paid little attention to the fact that wealth inequality contains two dimensions - inequality among individuals of the same birth-cohort and inequality between birth-cohorts. We disentangle these dimensions and show that increasing wealth inequality is to a considerable extent driven by between-cohort inequality. We further show that a significant part of this between-cohort inequality may be linked to optimizing saving behavior of individuals over their life cycle, thus not necessarily pointing to a need for government intervention.
Structural change and inequality in general equilibrium Przeczytaj streszczenie | Read abstract
We study the evolution of wealth inequality in an economy undergoing structural change. Economic intuition hints that structural change should imply increased income inequality, at least transiently. Economic intuition is more ambiguous for the effects on wealth inequality. On the one hand, increased dispersion in incomes implies increased dispersion in the ability to accumulate wealth across individuals. On the other hand, workers experience greater uncertainty, which may push them to more precautionary savings, which works towards equalizing wealth distribution. The net effect of these two opposing forces is essentially an empirical question. We build an overlapping generations model which features heterogeneous sectors and workers. Using this model, we quantify the role of demographics and the structural change in the evolution of wealth inequality in Poland as of 1990.
Progressing towards efficiency: the role for labor tax progression in reforming social security Przeczytaj streszczenie | Read abstract
We study interactions between the progressive labor tax and the social security reform. Increasing longevity necessitates reforming social security due to raising the fiscal strain on the current systems. The current systems are redistributive, which provides (at least partial) insurance against idiosyncratic income shocks, but at the expense of labor supply distortions. Analogously, linking pensions to individual incomes reduces distortions associated with social security contributions, but ushers insurance loss. The existing view in the literature is that net outcome of such reform is negative. Contrary to this view, we show that progressive labor tax can partially substitute for the insurance loss when social security becomes less redistributive.
What shapes the US wealth distribution? Longevity vs income inequality Przeczytaj streszczenie | Read abstract
We study the role of longevity and rising income inequality in growth of wealth inequality in the U.S. during the past several decades. A rich body of literature documents a rise in income inequality and attributes growing wealth inequality in the United States to rising income inequality, including capital incomes. However, during the post-war period, the U.S. has experienced a colossal rise in life expectancy, especially the rise in probability to survive to old ages, the longevity. Through the lens of any standard overlapping generational model model, this rise in longevity would translate to a rise in wealth inequality due to two mechanisms. A permanent mechanism involves higher wealth accumulation at the peak for each subsequent birth cohort. A transitory mechanism stems from a rising share of individuals close to the peak of wealth accumulation (the so-called baby boomers generation).
Welfare effects of fiscal policy in reforming the pension system Przeczytaj streszczenie | Read abstract
Pension system reforms imply substantial redistribution between cohorts and within cohorts. They also implicitly affect the scope of risk sharing in societies. Linking pensions to individual incomes increases efficiency but reduces the insurance motive implicit in Beveridgean systems. The existing view in the literature argues that the insurance motive dominates the efficiency gains when evaluating the welfare effects. We show that this result is not universal: there exist ways to increase efficiency or compensate the loss of insurance, assuring welfare gains from pension system reform even in economies with uninsurable idiosyncratic income shocks. The fiscal closure, which necessarily accompanies the changes in the pension system, may boost efficiency and/or make up for lower insurance in the pension system. Indeed, fiscal closures inherently interact with the effects of pension system reform, counteracting or reinforcing the original effects. By analyzing a variety of fiscal closures, we reconcile our result with the earlier literature. We also study the political economy context and show that political support is feasible depending on the fiscal closure.
Ekonomia Sektora Publicznego
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[Metoda 3 kroków] [Uber-elastyczność] [ Esther Duflo: eksperymentalne podejście do łagodzenia światowego ubóstwa ] [Koszty alternatywne, Koszty utopione] [Konkurencja i superfirmy 1, 2][Nadwyżka 1, 2] [Podatki 1 2, strata pusta 2] [Zasoby wspólne] [Samokontrola, Pokusa nadużycia, Racjonalność]
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Skrypt do Zaawansowanej Makroekonomii
Public Sector Economics
Link to P. Kopiec's website
- Solow Model
- [OLG] || [Excel code] || [Stylized growth facts]
- [Value Function]
- [Business Cycles]
- [RBC extensions]
- Price Rigidity: Microeconomic Evidence and Macroeconomic Implications. Annual Review of Economics, 5, 133-163, 2013.
Advanced Macroeconomics II
This data summarizes the evolution of consumption and wealth inequality over the forthcoming decades of longevity. In a defined contribution system, with extending life span on retirement, pension benefits are bound to decline (at least, if the retirement age is not raised). These declining pension benefits will encourage agents to increase voluntary savings in other to smooth consumption over lifetime. This is likely to affect wealth and consumption inequality, despite unchanged institutional arrangement and stable productivity heterogeneity within cohorts.
Aplikacja szacująca skutki reformy emerytalnej z 1999 oraz późniejszych zmian w systemie emerytalnym (2011 i 2013). Możesz samodzielnie dowolnie modyfikować założenia demograficzne i makroekonomiczne.
87% of us are not Homo Oeconomicus. But we are not doomed to poverty at retirement!
Many people think that they are cautious and taking proper care of their future. But the truth is that we do not. The scope of old-age poverty in six Central European countries is simply scary.
Ustawodawca (nieumyślnie) skonstruował system emerytalny tak, że jest on stale niezbilansowany. To znaczy, że w budżecie Zakładu Ubezpieczeń Społecznych jest i będzie zawsze za mało pieniędzy na wypłaty należnych emerytur. Brakujące środki musi finansować budżet państwa. Co jest problemem w ustawie o emeryturach i rentach wypłacanych z FUS, na podstawie której działa system emerytalny?
Około 70% roczników urodzonych na przełomie lat 1970-tych i 1980-tych otrzyma świadczenie na poziomie emerytury minimalnej. Sfinansowanie tych (niskich!) emerytur i ich waloryzacja będzie wymagało np. podniesienia VAT o ok. 2pp.
Udostępniamy aplikację pozwalającą na samodzielne zreplikowanie (i udoskonalenie) badań GRAPE.
Spadną emerytury i dobrobyt. Ograniczenie OFE pozwoli na ograniczenie długu publicznego teraz, obciążając jednocześnie przyszłe pokolenia.