by Anthony Savagar, discussion paper KDPE 1713, August 2017.
Traditionally macroeconomists assume that the number of firms in an economy adjusts instantaneously to arbitrage profits. This assumption ignores ‘slow’ fluctuations in firm entry and exit over the business cycle. This paper develops a model of firm dynamics in the macroeconomy with sunk costs that cause firms to respond slowly to economic shocks, hence entry and exit decisions are non-instantaneous. The resulting firm adjustment towards zero profit causes endogenous fluctuations in profits, competition and business allocation that helps to explain business cycle productivity dynamics.
Research by Christian Siegel from the School of Economics featured in an article in The Guardian on Sunday 20 August on the rise of robots and automation: ‘Robots will not lead to fewer jobs – but the hollowing out of the middle class’ by Larry Elliott.
Read the full article here.
A new discussion paper by Sylvain Barde and Sander van der Hoog, KDPE 1712, July 2017.
Despite recent advances in bringing agent-based models (ABMs) to the data, the estimation or calibration of model parameters remains a challenge, especially when it comes to large-scale agent-based macroeconomic models. Most methods, such as the method of simulated moments (MSM), require in-the-loop simulation of new data, which may not be feasible for models that are computationally heavy to simulate. Nevertheless, because ABMs are becoming an important tool for policy making it is a relevant issue to be able to validate them properly, so that they can be compared to other policy-related models.
A new discussion paper by Anirban Mitra, Shabana Mitra and Arnab Mukherji, KDPE 1711, June 2017.
Campaigning in elections is costly. In countries without public funding of election campaigns, such financing necessarily relies on donations by private corporations and individuals. If, furthermore, such donations are subject to restrictive legal limits – which is often the case in several developing nations – then it suggests that election campaigns must be frugal. However, in reality elections in such contexts are rarely low-key: there exists ample anecdotal evidence of voters being bribed with cash or actual consumption goods prior to elections.