non-Ricardian Households Research Articles

Assessing the Impacts of Non-Ricardian Households in an Estimated New Keynesian DSGE Model

SummaryA New Keynesian DSGE model with non-Ricardian households is estimated for the Portuguese economy and the stability of the model’s prediction (posterior distributions, impulse responses, and sources of fluctuations in endogenous variables) tested under different assumptions on non-Ricardian households. Their share is estimated to be relatively high (58 %). Furthermore, estimates of several parameters as well as the magnitude and persistence of shocks are particularly sensitive to the share of non-Ricardian households. Impulse responses to consumption preference and productivity shocks are amplified for lower shares; for greater proportions, the model predicts more noticeable responses to price markup and government spending shocks. Fluctuations in output growth are mainly driven by productivity shocks for a lower share and by price markup shocks in the opposite scenario. A high proportion of these households together with a high degree of price stickiness lead the Taylor-type interest rate rule solution to be locally indeterminate.

Fiscal Policy in a Small Open Economy with Oil Sector and non-Ricardian Agents

In this paper we develop a dynamic stochastic general equilibrium fiscal model for the Colombian economy. The model has three main components: the existence of non-Ricardian households, price and wage rigidities, and a fiscal authority that finances government spending partly with public debt. The model is calibrated to capture the empirical evidence on the macroeconomic effects of government spending and it is used to study the effect of an oil price shock under different fiscal policy rules. Our results show that fiscal multipliers in Colombia are positive in a way consistent with the evidence. Our analysis also shows that a structural fiscal rule delivers a better outcome in terms of macroeconomic volatility relative to a balanced budget rule or a countercyclical fiscal rule.

Money Targeting, Heterogeneous Agents and Dynamic Instability

Following a seminal contribution by Bilbiie (2008), the Limited Asset Market Participation hypothesis has triggered a debate on DSGE models determinacy when the central bank implements a standard Taylor rule. We reconsider the issue here in the context of an exogenous money supply rule, documenting the role of nominal and real frictions in determining these results. A general conclusion is that frictions matter for stability insofar as they redistribute income between Ricardian and non-Ricardian households when shocks hit the economy. Finally, we extend the model to allow for the possibility that consumers who do not participate to the market for interest bearing securities hold money. In this case endogenous monetary transfers between the two groups allow to smooth consumption di¤erences and the model is determinate provided that the nonnegativity constraint on individual money holdings is satis ed.

Government Spending and Consumption-Hours Preferences

In this paper we present two extensions that have been largely omitted in the recent literature on Bayesian estimation of DSGE models. First, we pay special attention to different forms of complementarity between consumption and hours affecting the households preferences. Second, we allow for the presence of a fraction of non-Ricardian households - i.e. that have limited access to financial markets. We show that exogenous changes in government transfers are crucial to distinguish between the two sources of comovements of consumption and hours in response to government spending shocks. The main conclusion from the estimated models is that private consumption increases after a government spending shock, when either nonseparability, non-Ricardian behavior, or both, are introduced in the model. In addition, allowing for consumption-hours complementarity leads to a small, and stable over time, estimated fraction of non-Ricardian households.

Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area*

AbstractIn this paper, we revisit the effects of government spending shocks on private consumption which have been at centre stage of the macroeconomic policy debate for quite a long time. We conduct our analysis in an estimated model of the euro area, which is representative of a new generation of dynamic stochastic general equilibrium (DSGE) models usable for quantitative policy analysis. We show that the inclusion of non‐Ricardian households, which simply consume their current disposable income, is in general conducive to raising the level of consumption in response to government spending shocks when compared with a benchmark specification without non‐Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non‐Ricardian households is relatively low, but also because of the large negative wealth effect induced by the highly persistent nature of government spending shocks.

Does Government Spending Crowd in Private Consumption?: Theory and Empirical Evidence for the Euro Area

In this paper, we revisit the effects of government spending shocks on private consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households. Employing Bayesian inference methods, we show that the presence of non-Ricardian households is in general conducive to raising the level of consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also because of the large negative wealth effect induced by the highly persistent nature of government spending shocks.

Does Government Spending Crowd in Private Consumption? Theory and Empirical Evidence for the Euro Area

In this paper, we revisit the effects of government spending shocks on private consumption within an estimated New-Keynesian DSGE model of the euro area featuring non-Ricardian households. Employing Bayesian inference methods, we show that the presence of non-Ricardian households is in general conducive to raising the level of consumption in response to government spending shocks when compared with the benchmark specification without non-Ricardian households. However, we find that there is only a fairly small chance that government spending shocks crowd in consumption, mainly because the estimated share of non-Ricardian households is relatively low, but also due to the large negative wealth effect induced by the highly persistent nature of government spending shocks. JEL Classification: E32, E62