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New Deal Policies and the Persistence of the Great Depression: A General Equilibrium Analysis
 Journal of Political Economy
, 2004
"... There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We e ..."
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Cited by 157 (12 self)
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There are two striking aspects of the recovery from the Great Depression in the United States: the recovery was very weak and real wages in several sectors rose significantly above trend. These data contrast sharply with neoclassical theory, which predicts a strong recovery with low real wages. We evaluate the contribution of New Deal cartelization policies designed to limit competition and increase labor bargaining power to the persistence of the Depression. We develop a model of the bargaining process between labor and firms that occurred with these policies, and embed that model within a multisector dynamic general equilibrium model. We find that New Deal cartelization policies are an important factor in accounting for the post1933 Depression. We also find that the key depressing element of New Deal policies was not collusion per se, but rather the link between paying high wages and collusion. � Both, U.C.L.A. and Federal Reserve Bank of Minneapolis. We thank Andrew Atkeson, Tom Holmes, Narayana Kocherlakota, Tom Sargent, Nancy Stokey, seminar participants, and in particular, Ed Prescott for comments. Ohanian thanks the Sloan Foundation and the National Science Foundation for support. The views expressed herein are those of the authors and not necessarily those of the Federal Reserve Bank of Minneapolis or the Federal Reserve System. 1.
Zero Expected Wealth Taxes: A Mirrlees Approach to Dynamic Optimal Taxation
 Econometrica
, 2005
"... In this paper, I consider a dynamic economy in which a government needs to finance a stochastic process of purchases. The agents in the economy are privately informed about their skills, which evolve stochastically over time; I impose no restriction on the stochastic evolution of skills. I construct ..."
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Cited by 135 (9 self)
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In this paper, I consider a dynamic economy in which a government needs to finance a stochastic process of purchases. The agents in the economy are privately informed about their skills, which evolve stochastically over time; I impose no restriction on the stochastic evolution of skills. I construct a tax system that implements a symmetric constrained Pareto optimal allocation. The tax system is constrained to be linear in an agent’s wealth, but can be arbitrarily nonlinear in his current and past labor incomes. I find that wealth taxes in a given period depend on the individual’s labor income in that period and previous ones. However, in any period, the expectation of an agent’s wealth tax rate in the following period is zero. As well, the government never collects any net revenue from wealth taxes.
Estimating macroeconomic models: a likelihood approach
, 2006
"... This paper shows how particle filtering facilitates likelihoodbased inference in dynamic macroeconomic models. The economies can be nonlinear and/or nonnormal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing prefer ..."
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Cited by 99 (26 self)
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This paper shows how particle filtering facilitates likelihoodbased inference in dynamic macroeconomic models. The economies can be nonlinear and/or nonnormal. We describe how to use the output from the particle filter to estimate the structural parameters of the model, those characterizing preferences and technology, and to compare different economies. Both tasks can be implemented from either a classical or a Bayesian perspective. We illustrate the technique by estimating a business cycle model with investmentspecific technological change, preference shocks, and stochastic volatility.
Optimal Taxation in LifeCycle Economies
 JOURNAL OF ECONOMIC THEORY
, 1998
"... This paper studies optimal taxation in an overlapping generations economy. We characterize the optimal path of fiscal policy, both in the long run and in the transition to the steady state. The implications of this study are in sharp contrast with the prescription offered by infinitelylived agent m ..."
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Cited by 77 (2 self)
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This paper studies optimal taxation in an overlapping generations economy. We characterize the optimal path of fiscal policy, both in the long run and in the transition to the steady state. The implications of this study are in sharp contrast with the prescription offered by infinitelylived agent models. First, the government's desire to tax initial holdings of capital at confiscatory rates is endogenously curtailed by intergenerational redistributional considerations. Second, because of lifecycle elements, capital income taxes are in general different from zero even in the steady state. The tax rate on capital income should only be zero if it is optimal to tax consumption goods uniformly over the lifetime of individuals. The conditions for uniform taxation of consumption depend, in turn, on preferences, the agepro le of labor productivity, and the set of taxes available to the government.
Risk Matters: The Real Effects of Volatility Shocks
, 2009
"... This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of ti ..."
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Cited by 63 (6 self)
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This paper shows how changes in the volatility of the real interest rate at which small open emerging economies borrow have a quantitatively important effect on real variables like output, consumption, investment, and hours worked. To motivate our investigation, we document the strong evidence of timevarying volatility in the real interest rates faced by a sample of four emerging small open
Has fiscal policy helped stabilize the postwar U.S. economy
 Journal of Monetary Economics
, 2002
"... In this paper, I consider whether postwar fiscal policy has helped stabilize the U.S. economy. I do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data. These rules allow fiscal policies to respond to current and lagged output and labor hours. I use ..."
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Cited by 58 (3 self)
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In this paper, I consider whether postwar fiscal policy has helped stabilize the U.S. economy. I do this by adding to the stochastic growth model fiscal policy feedback rules estimated from postwar data. These rules allow fiscal policies to respond to current and lagged output and labor hours. I use the estimated policy rules to see if postwar fiscal policy reduces output volatility and/or lengthens expansions and shortens recessions. I find that fiscal policy in general provides little stability on either count. I also find that the endogenous feedback links, by themselves, can provide some stabilization.
term debt and optimal policy in the fiscal theory of the price level
 Econometrica
, 2001
"... The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze longterm debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of ..."
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Cited by 52 (4 self)
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The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze longterm debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When longterm debt is present, the government can trade current inflation for future inflation by debt operations; this tradeoff is not present if the government rolls over shortterm debt. The maturity structure of outstanding debt acts as a ‘‘budget constraint’’ determining which periods ’ price levels the government can affect by debt variation alone. In addition, debt policy�the expected pattern of future statecontingent debt sales, repurchases and redemptions�matters crucially for the effects of a debt operation. I solve for optimal debt policies to minimize the variance of inflation. I find cases in which longterm debt helps to stabilize inflation. I also find that the optimal policy produces time series that are similar to U.S. surplus and debt time series. To understand the data, I must assume that debt policy offsets the inflationary impact of cyclical surplus shocks, rather than causing price level disturbances by policyinduced shocks. Shifting the objective from price level variance to inflation variance, the optimal policy produces much less volatile inflation at the cost of a unit root in the price level; this is consistent with the stabilization of U.S. inflation after the gold standard was abandoned.