1887

OECD Economics Department Working Papers

Working papers from the Economics Department of the OECD that cover the full range of the Department’s work including the economic situation, policy analysis and projections; fiscal policy, public expenditure and taxation; and structural issues including ageing, growth and productivity, migration, environment, human capital, housing, trade and investment, labour markets, regulatory reform, competition, health, and other issues.

The views expressed in these papers are those of the author(s) and do not necessarily reflect those of the OECD or of the governments of its member countries.

English, French

How Institutions Shape the Distributive Impact of Macroeconomic Shocks

A DSGE Analysis

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.

English

Keywords: shocks, DSGE, income distribution, heterogeneous agents, credit frictions, institutions
JEL: E44: Macroeconomics and Monetary Economics / Money and Interest Rates / Financial Markets and the Macroeconomy; D31: Microeconomics / Distribution / Personal Income, Wealth, and Their Distributions; E21: Macroeconomics and Monetary Economics / Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy / Macroeconomics: Consumption; Saving; Wealth; D58: Microeconomics / General Equilibrium and Disequilibrium / Computable and Other Applied General Equilibrium Models
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