Research Working Papers: 1. Time Consistent Optimal Fiscal Policy over the Business Cycle, 2011. This paper examines a dynamic stochastic economy with a benevolent government that cannot commit to future policies. Following Phelan and Stacchetti (2001), we consider sequential sustainable equilibria (SSE). We numerically solve for the set of equilibrium payoffs, and investigate whether the time consistency problem of capital income tax is quantitatively important. For a realistically calibrated economy, we find that the optimal sustainable capital income tax rate is pro-cyclical and close to zero on average, while the labor income tax is counter-cyclical. Moreover, the welfare cost of no commitment is very small (0.22%) when compared with the Ramsey allocation. We also find that the best sustainable equilibrium outcome may achieve substantially higher social welfare than the Markov-perfect equilibrium as considered by Klein, Krusell and Rios-Rull (2008). 2. Consequences of Valuing Health: A Macroeconomic Perspective, 2011, with Pedro Gomis-Porqueras. In this paper we study the implications of valuing health in an otherwise standard real business cycle model. We contrast the model predictions over the business cycle with the corresponding data counterparts. We find that health can improve the predictions of the standard real business cycle model. In particular, the benchmark model with health improves the predictions in terms of the comovements between investment and market hours relative to output. Considering health in the environment also increases the volatility of consumption, investment and market hours while slightly reducing output volatility. In terms of health observables the benchmark model is able to account for practically all comovement between health outcomes and health expenditures as well as with output. 3. Tackling Indeterminacy in the Overlapping Generations Model, 2011. The overlapping generations economy may have a continuum of equilibria. Previous studies have been largely confined to the local analysis that linearizes the model around the steady state. However, what is true of the linearized system only applies for an unknown-sized open neighborhood of the steady state. In this paper we develop a method to diagnose the indeterminacy in overlapping generations models by computing the set of all equilibria. We also provide a procedure to simulate the economy with indeterminate equilibrium. 4. Numerical Simulation of Non-optimal Dynamic Equilibrium Models, with Jianjun Miao, Adrian Peralta-Alva, Manuel Santos, 2011. In this paper we present a recursive method for the numerical simulation of nonoptimal dynamic equilibrium models. This method builds upon a convergent operator over an expanded set of state variables. The fixed point of this operator defines the set of all Markovian equilibria. We study approximation properties of the operator as well as the convergence of the moments of simulated sample paths. We apply our numerical algorithm to various models with heterogeneous agents, incomplete financial markets, endogenous and exogenous borrowing constraints, taxes, and money. 5. Macroeconomic Consequences of Alternative Reforms to the Health Insurance System in the U.S., 2009. In this paper I employ a dynamic general equilibrium model to study macroeconomic effects and welfare implications of alternative reforms to the US health insurance system. In particular, I focus on expanding Medicare to the entire population, extending Medicaid, and having an individual mandate as well as other related medical reforms. All these reforms can be financed in several ways. I consider a stochastic OLG framework with heterogeneous agents facing uncertain health shocks. Individuals make optimal decisions on labor supply, health insurance, and medical services. As the amount of optimal medical consumption and hours worked are endogenous, this environment captures general equilibrium effects. The model is calibrated to the US data. Numerical simulations indicate that reforming the health insurance system has several important macroeconomic effects on health expenditures, hours worked, and welfare. 6. The Effect of Capital Taxation on Capital Accumulation, 2011, with Begona Dominguez. Work In Progress: 1. Indeterminacy and Asset Price Volatility in Stochastic OLG Model, with Felix Kubler. 2. Health insurance and portfolio choice, with Walter Pohl. |