Per Krusell

• Stockholm University

The recent experience of a Great Recession has brought the effectiveness of fiscal policy back into focus. Fiscal multipliers do, however, vary greatly over time and place. Running VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. To explain this finding, we dev...

This paper considers an asset market where investors have private information not only about asset payoffs, but also about their own exposure to an aggregate risk factor. In equilibrium, rational investors disagree about asset payoffs: Those with higher exposure to the risk factor are (endogenously) more optimistic about claims on the risk factor....

Fiscal multipliers appear to vary greatly overtime and space. Based on VARs for a large number of countries, we document a strong correlation between wealth inequality and the magnitude of fiscal multipliers. In an attempt to account for this finding, we develop a life-cycle, overlapping generations economy with uninsurable labor market risk. We ca...

This paper explores asset pricing in economies where there is no direct insurance against idiosyncratic risks but other assets can be used for self-insurance, subject to exogenously-imposed borrowing limits. We analyze an endowment economy, based on Huggett (1993) [11], both with and without aggregate risk. Our main innovation is that we obtain ful...

We develop a quantitative dynamic general-equilibrium model where agents have preferences featuring temptation and self-control problems, and we apply it in order to understand to what extent standard investment/savings subsidies can improve welfare. The dynamic model of preferences builds on the Gul-Pesendorfer setting and uses a “quasi-geometric”...

The present paper reviews recent research aimed at constructing a theoretical model of the macroeconomy with five key elements: (i) it is based on rational decision-making by consumers and firms using standard microeconomic theory beginning with assumptions on preferences and technology; (ii) it is dynamic, so that savings and investment decisions...

We investigate the welfare effects of eliminating business cycles in a model with substantial consumer heterogeneity. The heterogeneity arises from uninsurable and idiosyncratic uncertainty in preferences and employment status. We calibrate the model to match the distribution of wealth in U.S. data and features of transitions between employment and...

We build a model that incorporates both labor supply and frictions and use it to assess the effects of various tax and transfer programs on aggregate employment and unemployment. In particular, we assess the debate between Prescott and Ljungqvist and Sargent about the relative importance of taxes versus benefits in understanding the large differenc...

Who gains from stimulating output? We explore a dynamic model with production subsidies where the population is heterogeneous in one dimension: wealth. There are two channels through which production subsidies redistribute resources across the population. First, poorer agents gain from a rise in wages, since--to the extent there is an operative wea...

We discuss economic aggregation and political aggregation in the context of a simple dynamic version of the canonical political-economy model--the Meltzer-Richard model. Consumers differ both in labor productivity and initial asset wealth and there is no physical capital. Under commitment over future tax policy, and for economic preferences that im...

Two approaches taken to the embodiment question are compared and discussed: quantitative theory and traditional growth accounting. The two approaches give very different estimates for the contribution of investment-specific technological advance to economic growth. Therefore, the approach taken matters. It is argued that the measures used in tradit...

We explore a political-economy model of labor subsidies, extending Meltzer and Richard's median-voter model to a dynamic setting. We explore only one source of heterogeneity: initial wealth. As a consequence, given an operative wealth effect, poorer agents work harder, and if the agent with median wealth is poorer than average, a politico-economic...

We study a dynamic version of Meltzer and Richard's median-voter model where agents differ in wealth. Taxes are proportional to income and are redistributed as equal lump-sum transfers. Voting occurs every period and each consumer votes for the tax that maximizes his welfare. We characterize time-consistent Markov-perfect equilibria twofold. First,...

We study optimal taxation when consumers have temptation and self-control problems. Embedding the class of preferences developed by Gul and Pesendorfer into a standard macroeconomic setting, we first prove, in a two-period model, that the optimal policy is to subsidize savings when consumers are tempted by “excessive” impatience. The savings subsidy...

We derive asset-pricing and portfolio-choice implicationsof a dynamic incomplete-markets model in which consumers areheterogeneous in several respects: labor income, asset wealth, andpreferences. In contrast to earlier papers, we insist on at leastroughly matching the model s implications forheterogeneity notably, the equilibrium distributions of i...

We study a dynamic version of Meltzer and Richard's median-voter model where agents differ in initial wealth. Taxes are proportional to total income, and they are redistributed as equal lump-sum transfers. Voting takes place every period and each consumer votes for the tax rate that maximizes his or her welfare. We define and characterize time-cons...

We consider a representative-agent equilibrium model where the consumer has quasi geometric discounting and cannot commit to future actions. We restrict attention to a parametric class for preferences and technology and solve for time-consistent competitive equilibria globally and explicitly. We then characterize the welfare properties of competiti...

We study the consumption-savings problem of an infinitely-lived, rational consumer who has time-inconsistent preferences in the form of quasi-geometric discounting. The consumer operates a weakly concave production function and must simply divide current resources into current consumption and savings. There is no uncertainty. A solution to the cons...

The role that investment-specific technological change played in generating postwar U.S. growth is investigated here. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentangle its effects from the more traditional Hicks-neutral form of technological...

We study the effects of tazation in a model with a representative agent with time Inconsistent preferences: discounting is quasi-geometric. Utility is derived from Consumption and leisure, and tazation can be based on consumption and investmentc Spending as well as on capital and labor income. The model allows for closed form Solutions, and welfare...

How do individuals with time-inconsistent preferences make consumption -savings decisions? We try to answer this question by considering the simplest possible form of consumption-savings problem, assuming that discounting is quasi-geometric. A solution to the decision problem is then a subgame-perfect equilibrium of a dynamic game between the indiv...

(Copyright: Elsevier)

This is a quantitative investigation of the importance of technological change specific to new investment goods for postwar US aggregate fluctuations. A growth model that incorporates this form of technological change is calibrated to US data and simulated, using the relative price of new equipment to identify the process driving investment-specifi...

How do movements in the distribution of income and wealth affect the macroeconomy? We analyze this question using a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity. Our main finding is that, in the stationary stochastic equilibrium, the behavior of the macroecon...

The relative price of capital has declined at a rapid rate in the postwar period. This article provides a candidate explanation for this relative price decline--research and development that are embodied in new, more efficient investment goods. The model mimics the secular aspects of the data, and it has the property that the long-run growth rate o...

We investigate the robustness of the general equilibrium stochastic growth model to the introduction of small costs of behavioral sophistication. Consumers choose amongst savings rules which vary in sophistication and effort cost. In our model, a given consumer's gain from using a sophisticated rule is higher when other consumers use simple rules....

How do movements in the distribution of income and wealth affect the macroeconomy? We analyze this question theoretically, using numerical methods, in the context of a calibrated version of the stochastic growth model with partially uninsurable idiosyncratic risk and movements in aggregate productivity.

A quantitative investigation of investment-specific technological change for the U.S. postwar period is undertaken, analyzing both long-term growth and business cycles within the same framework. The premise is that the introduction of new, more efficient capital goods is an important source of productivity change, and an attempt is made to disentan...

Abstract Some economic,policies and regulations seem to have only one purpose: to prevent technological development,and economic,growth from occurring. In this paper, we attempt to rationalize such policies as outcomes of voting equilibria. In our environment, some agents will be worse off if the econ- omy grows, since their skills are complementar...

This paper analyzes a business cycle model with labor market frictions as well as an extensive labor supply margin. There are exogenous aggregate shocks to productivity, the job finding rate, and the separation rate. Workers also face idiosyncratic productivity (wage) shocks that they cannot insure against directly. The calibrated model reproduces...

Thesis (Ph. D.)--University of Minnesota, 1992. Includes bibliographical references.