How Institutions Shape the Distributive Impact of Macroeconomic Shocks: A DSGE Analysis

51 Pages Posted: 10 Aug 2012

See all articles by Rudiger Ahrend

Rudiger Ahrend

Centre for Entrepreneurship, SMEs, Regions and Cities

Charlotte Moeser

OECD

Tommaso Monacelli

Bocconi University - Department of Economics

Date Written: July 1, 2012

Abstract

This paper examines how the the distributive impact of macroeconomic shocks is shaped by selected institutions. It uses a dynamic stochastic general equilibrium (DSGE) framework with heterogeneous agents and an endogenous collateral constraint. The model is based on the “credit view” of business cycles, where shocks affect the real economy also via their impact on the borrowing capacity of economic agents. In this framework a positive shock to credit spreads, as seen in the recent crisis, redistributes from capital to labour as well as from from equity to bond holders. In contrast, both productivity and inflation shocks redistribute towards capital or equity holders. Distributive impacts are shown to be shaped by institutions. More sophisticated financial markets are found to amplify the redistributive impact of shocks, whereas more flexible wages, a more elastic labour supply, and a more reactive central bank are found to dampen it.

Keywords: DSGE, heterogeneous agents, credit frictions, shocks, income distribution, institutions

JEL Classification: D31, D58, E21, E44

Suggested Citation

Ahrend, Rudiger and Moeser, Charlotte and Monacelli, Tommaso, How Institutions Shape the Distributive Impact of Macroeconomic Shocks: A DSGE Analysis (July 1, 2012). Available at SSRN: https://ssrn.com/abstract=2127215 or http://dx.doi.org/10.2139/ssrn.2127215

Rudiger Ahrend

Centre for Entrepreneurship, SMEs, Regions and Cities ( email )

2 rue Andre Pascal
Paris, 75016
France
75016 (Fax)

Charlotte Moeser (Contact Author)

OECD ( email )

2 rue Andre Pascal
Paris Cedex 16, 75775
France

Tommaso Monacelli

Bocconi University - Department of Economics ( email )

Via Gobbi 5
Milan, 20136
Italy

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