Research

Was the Gold Standard a major determinant of the onset and protracted character of the Great Depression of the 1930s in the USA and worldwide? In this paper, we model the “Gold Standard hypothesis” in an open-economy, dynamic general equilibrium framework. We show that encompassing the international and monetary dimensions of the Great Depression is important to understand the turmoil of the 1930s. In particular, the Gold Standard turns out to be a strong transmission mechanism of monetary shocks from the USA to the rest of the world. Our results also suggest that the waves of successive nominal exchange rate devaluations coupled with the monetary policy implemented in the USA might not have enhanced the recovery.

This paper investigates the relation between intergenerational coresidence and mortality from Covid-19 in 2020. Using a cross-section of U.S. counties, we show that this association is positive, sizeable, significant, and robust to the inclusion of several demographic and socio-economic controls. Furthermore, using evidence from past, pre-pandemic years, we argue that this positive, sizeable and significant association is somewhat specific to the Covid-19 pandemic.

This paper studies the interplay between left-handedness and economic development, thereby contributing to our understanding of the relationship between evolutionary forces, human diversity and growth. We propose a novel theoretical framework in which economic development influences the prevalence of left-handedness through structural change and a genetic mechanism driven by differential fertility. In particular, the emergence of the industrial sector puts left-handers at a reproductive disadvantage, because of their lower manual ability and wages. This fertility differential changes sign as soon as the income- fertility relationship is reversed, and eventually fades away when the rise of human capital makes manual skills irrelevant. Our model thus explains the decline and subsequent recovery of left-handedness observed over the last few centuries in the Western world. We further explore the possibility that left-handedness in turn influences growth: despite their lower productivity in manual tasks, left-handers may enhance technological progress through cognitive skills that are conducive to innovation, and through their contribution to the diversity of the workforce. This implies that the link between handedness and economic performance varies across stages of development. We present empirical evidence that lends credence to the core differential-fertility mechanism of our model and suggests that left-handedness can positively contribute to growth, once the economy has reached a sufficiently high level of human capital.

We show that the structural change of the economy from agriculture to industry was a major determinant of the observed shift in intergenerational coresidence. We build a one-good, two-sector overlapping generation model of the structural change out of agriculture, in which the coresidence choice is endogenous. We calibrate the model on U.S. data and simulate it. The model can match the decline in U.S. intergenerational coresidence both qualitatively and quantitatively.

We develop a two-good, three-sector model of a small open economy with illegal immigration and both formal and informal production. In this framework, we explore the consequences of fiscal policy and trade openness for illegal immigration and the shadow economy. We find that (i) the effect of trade openness on illegal immigration crucially depends on the degree of substitutability between native and illegal labor in the informal sector, (ii) the reach of fiscal policy goes beyond its traditional domain: fiscal instruments can be effectively used as immigration policy tools.

Ce numéro de Regards économiques analyse deux critiques souvent avancées contre l’état actuel de la science économique, qu’elle manque de pluralisme, étant dominée par l’approche néoclassique, et qu’elle est biaisée idéologiquement en faveur du néolibéralisme. Le résultat de notre investigation est que ces deux vues ne résistent pas à un examen critique.

We build a model in which both illegal immigration and the size of the informal sector are endogenously determined. In this framework, we show that indirect policy measures such as tax reduction and detection of informal activities can be used as substitutes for border enforcement, in order to counteract illegal immigration. We also find that a welfare-maximizing government will set the tax rate to a lower value, if it includes illegal immigration in its objective function, instead of focusing on the well-being of native workers only.

We provide a theory of the interaction between intergenerational living arrangements and economic development. We show that, when technical progress is fast enough, the economy experiences a shift from stagnation to growth, there is a transition from coresidence to non-coresidence, and the social status of the elderly tends to deteriorate.

We build a two-country dynamic general equilibrium model to study whether European citizens would benefit from the eventual accession of Turkey to the European Union (EU). The results of the simulations show that Turkey’s accession is welfare enhancing for Europeans, provided that Turkish total factor productivity (TFP) increases sufficiently after enlargement. In the benchmark model with no capital mobility, the Europeans are better off if the Turkish TFP increase bridges more than 21% of the initial TFP gap between Turkey and the EU. This figure increases to 33% when capital mobility is introduced.

This article casts the Belgian Great Depression of the 1930s within a dynamic stochastic general equilibrium (DSGE) framework. The results show that a DSGE model with total factor productivity and monetary shocks, coupled with sticky nominal wages à la Taylor is able to account reasonably well for most of the data on the Depression, but it overestimates real wages.

The Great Depression of the 1930s is again on the frontier of research in macroeconomics. Researchers working in the real business cycle (RBC) tradition have recently started to apply their theoretical apparatus to the event. This paper discusses the result of their work and assesses the role of history and macroeconomics in analysing the Great Depression. I argue that the breaking of the depression taboo in macroeconomics has been a desirable completion of the cliometric revolution: no historical event should be exempt from a dispassionate quantitative analysis. On the other hand, the substantive contribution of RBC models is not yet sufficient to establish a new historiography of the Great Depression.

Recent years have witnessed a revival of interest in the Great Depression of the 1930s. Among the differing new interpretations, the real business cycle (RBC) approach is particularly significant. It represents an outstanding methodological innovation in trying to cast the Great Depression within an ‘equilibrium’ framework. This paper critically reviews the RBC interpretation of the Great Depression, clarifying its theoretical and methodological foundations, and paving the way for future assessments of its validity.

Is the Great Depression amenable to real business cycle theory? In the 1970s and 1980s Lucas and Prescott took an abstentionist stance. They maintained that, because of its exceptional character, an explanation of the Great Depression was beyond the grasp of the equilibrium approach to the business cycle. However, while Lucas stuck to this view, Prescott changed his mind at the end of the 1990s, breaking his earlier self-imposed restraint. In this paper we document this evolution of opinion and produce a first assessment of real business cycle models of the Great Depression. We claim that the fact of having constructed an equilibrium model of the Great Depression constitutes a methodological breakthrough. However, as far as substance is concerned, we argue that the contribution of real business cycle literature on the Great Depression is slim, and does not gain the upper hand over the work of economic historians.

We provide a historical decomposition of fertility in the United States by family type. We find that intergenerational coresidence was systematically associated with lower fertility than nuclear families, with the difference shrinking over time. This pattern is robust to controlling for several demographic and socioeconomic confounders. We build a simple, analytical model and show that a theory featuring both endogenous fertility and endogenous coresidence can rationalise the observed cross-family fertility difference. Simulations from a calibrated dynamic general equilibrium version of the model show that the model has the right qualitative behaviour, and is quantitatively meaningful. Using individual data, we discuss (and dismiss) several potential alternative explanations.

We introduce adaptive learning – a parsimonious, convenient way to model uncertainty – in a dynamic general equilibrium model of the U.S. Great Depression. We show that even the smallest departure from rational expectations increases significantly the data mimicking ability of the model, in particular for what concerns the lack of recovery in detrended GDP after 1933. We conclude that in the case of big, traumatic events like the Great Depression, uncertainty is particularly unfavourable to the recovery phase.

In this paper, we introduce a new understanding of the mainstream notion in economics. Its distinct character is based on a set of methodological standards deemed compulsory in the theoretical or empirical practice of the discipline. We contend that a theoretical mainstream arose around the 1980s, when the prevailing methodological standards in microeconomics and game theory – mathematical language, equilibrium discipline, and ‘explicit micro-foundations’ – came to be adopted in theoretical papers across a wide range of fields and specializations. We further argue that the 1990 period witnessed the surge of a distinct empirical mainstream and the emergence of a joint mainstream, the result of the rise of experimental economics and a renewal of applied economics centered on the notion of causal inference. An examination of the contents of the articles published in top journals in selected years from 1970 to 2018 confirms our contention.

This paper studies the Great Depression in Belgium within the open-economy dynamic general equilibrium model. Results from the simulations show that productivity shocks, trade restrictions and nominal exchange rate shocks can account for 64% of the observed drop in output between 1929 and 1934. That value becomes 74% if we include a calibrated shock to the demand from the rest of the world. However, the lacklustre recovery after the 1935 devaluation of the Belgian franc remains largely unexplained, suggesting that additional shocks are needed to fully account for the data.