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A tighter monetary policy is generally associated with higher real interest rates on deposits and loans, weaker performance of equities and real estate, and slower growth in employment and wages. How does a household's exposure to monetary policy vary with its age? The size and composition of both household income and asset portfolios exhibit large variation over the life cycle in Japanese data. We formulate an overlapping-generations model that reproduces these observations and use it to analyze how household responses to monetary policy shocks vary over the life cycle. Both the signs and the magnitudes of the responses of a household's net worth, disposable income, and consumption depend on its age.

Japan is in the midst of a protracted spell of depressed economic activity. Japan's economic stagnation has occurred against a background of rising earnings risk. Occupational stability is falling as routine occupations disappear and implicit lifetime employment guarantees are gradually disappearing. At the same time, earnings in some high-skilled occupations have continued to grow. The resulting polarization in earnings has been accompanied by an increase in wealth inequality. This paper develops a framework that relates these observations. In our model, an increase in uninsured earnings risk depresses output and increases wealth inequality. We then analyze the efficacy of alternative fiscal measures in terms of their ability to increase economic activity, reduce wealth inequality, and improve welfare. A reduction in the tax rate on capital achieves all of these objectives.

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian (NK) literature is that the answer to this question is yes. Evidence presented here suggests that the NK model’s implications for fiscal policy at the zero bound may not be all that different from its implications for policy away from it. For a range of empirically relevant parameterizations, employment increases when the labour tax rate is cut and the government purchase multiplier is less than 1.05.

本稿の目的は，日本においてプラスの技術的ショックが総労働時間を増加させるか，減少させるかを実証的に明らかにすることにある．近年のアメリカのデータを用いたいくつかの研究（例えば Gali（1999））は，技術水準の上昇が総労働時間を低下させると主張している．これに対する反論も多く提出されている．我々は既存の研究が用いてきた手法には重大な限界があると主張する．この限界を克服するため，Uhlig（2001）の提案した符号制約つき VAR を拡張した独自の手法を提案する．その結果，技術水準の上昇は総労働時間を増加させる，という結論のほうがよりもっともらしいことが示される．この結果は，景気循環の主因を技術的ショックに求める理論と整合的である．, This paper studies whether technology shocks raise or lower work hours in Japan. Influential studies of the US data, such as Gal Am (1999), find that, in response to a positive technology shock, work hours declines. We extend Uhlig (2001)'s VAR with sign restrictions and impose a restriction that is qualitatively similar to the one employed by Gal Am and others. Our method, however, has the advantage that it allows us to include any variable in the VAR in its levels or first differences. We find that work hours increase in response to a positive technology shock, when all the variables are entered in the VAR in their levels. Hence, compared to the previous studies, our results are more supportive of the view that technology shocks are an important driving force of business cycle fluctuations.

Japan is in the midst of a demographic transition that is both rapid and large by international standards. As recently as 1990, Japan had the youngest population among the Group of 6 large, developed countries. However, the combined effects of aging of the baby boomer generation and low fertility rates have produced very rapid aging. Japan now finds itself with the oldest population among the Group of 6, and its population will continue to age at a rapid pace in future years. Aging is already placing a burden on government finances, and Japan's ability to confront the negative fiscal implications of future aging is constrained by its very high debt-to-GDP ratio. We find that Japan faces a severe fiscal crisis if remedial action is not undertaken soon, and we analyze alternative strategies for correcting Japan's fiscal imbalances.

Poor heath, large acute and long-term care medical expenses, and spousal death are significant drivers of impoverishment among retirees. We document these facts and build a rich, overlapping generations model that reproduces them. We use the model to assess the incentive and welfare effects of Social Security and means-tested social insurance programs such as Medicaid and food stamp programs, for the aged. We find that U.S. means-tested social insurance programs for retirees provide significant welfare benefits for all newborn. Moreover, when means-tested social insurance benefits are of the scale in the United States, all individuals would prefer to be born into an economy with no Social Security. Finally, we find that the benefits of increasing means-tested social insurance are small or negative, if we hold fixed Social Security contributions and benefits at their current levels.

Does fiscal policy have large and qualitatively different effects on the economy when the nominal interest rate is zero? An emerging consensus in the New Keynesian literature is that the answer is yes. New evidence provided here suggests that the answer is often no. For a broad range of empirically relevant parameterizations of the Rotemberg model of costly price adjustment, the government purchase multiplier is about one or less, and the response of hours to a tax cut is either negative or close to zero.

We provide two ways to reconcile small values of the intertemporal elasticity of substitution (IES) that range between 0.35 and 0.5 with empirical evidence that the IES is large. We do this reconciliation using a model in which all agents have identical preferences and the same access to asset markets. We also conduct an encompassing test, which indicates that specifications of the model with small values of the IES are more plausible than specifications with a large IES.

Does fiscal policy have qualitatively different effects on the economy in a liquidity trap? We analyze a nonlinear stochastic New Keynesian model and compare the true and loglinearized equilibria. Using the loglinearized equilibrium conditions, the answer to the above question is yes. However, for the true nonlinear model, the answer is no. For a broad range of empirically relevant parameterizations, labor falls in response to a tax cut in the loglinearized economy but rises in the true economy. While the government purchase multiplier is above two in the loglinearized economy it is about one in the true economy.

We compare the dynamics of inflation and bond yields leading up to a sovereign debt crisis in settings where asset markets are frictionless to other settings with financial frictions. As compared with the case with frictionless asset markets, an asset market structure with financial frictions generates a significant delay in the response of prices to news about a future debt crisis. With complete markets, prices jump in response to news about the possibility of a future debt crisis. However, when short selling of government bonds is restricted, some agents can't act on their beliefs, and prices don't respond to the news. Instead, prices only move in periods immediately prior the crisis.

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This paper poses the following question: Is it possible to improve welfare by increasing taxes and throwing away the revenues? This paper demonstrates that the answer to this question is “yes.” We show that there may be welfare gains from taxing capital income even when the additional capital income tax revenues are wasted or consumed by a selfish government. Previous literature has assumed that government expenditures are exogenous or productive, or allowed for redistribution of tax revenue either via lump-sum transfers, unemployment compensation or other redistributive schemes. In our model a selfish government taxes capital above a given threshold and then consumes the proceeds. This raises the before-tax real return on capital and and thereby enhances the ability of agents to self-insure when they are long-term unemployed and have low savings. Since all agents have positive probability of finding themselves in that state there are cases where all agents prefer a selfish government to no government at all.

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