Paul Levine's research while affiliated with University of Surrey and other places

Publications (16)

Article
Full-text available
We present a model in which banks and other financial intermediaries face both occasionally binding borrowing constraints, and costs of equity issuance. Near the steady state, these intermediaries can raise equity finance at no cost through retained earnings. However, even moderately large shocks cause their borrowing constraints to bind, leading t...
Article
We present a New Keynesian model in which a fraction n of agents are fully rational, and a fraction 1−n of agents are bounded rational. After deriving a simple reduced form, we demonstrate that the Taylor condition is sufficient for determinacy and stability, both when the proportion of fully rational agents is held fixed, and when it is allowed to...
Article
Full-text available
This paper is concerned with the saddle-path stability of monetary growth rules in a two-country two-sector dynamic stochastic general equilibrium model. Alongside standard features of emerging economies, such as a combination of producer and local currency pricing for exports, fiscal dominance and oil exports, this model also incorporates informal...
Article
This paper provides a bird's eye view of the behavioural New Keynesian literature. We discuss three key empirical regularities in macroeconomic data which are not accounted for by the standard New Keynesian model, namely, excess kurtosis, stochastic volatility, and departures from rational expectations. We then present a simple behavioural New Keyn...
Article
Agent‐based computational economics (ACE) has been used for tackling major research questions in macroeconomics for at least two decades. This growing field positions itself as an alternative to dynamic stochastic general equilibrium (DSGE) models. In this paper, we provide a much needed review and synthesis of this literature and recent attempts t...
Article
This note studies a form of a utility function of consumption with habit and leisure that (a) is compatible with long-run balanced growth, (b) hits a steady state observed target for hours worked and (c) is consistent with micro-econometric evidence for the inter-temporal elasticity of substitution and the Frisch elasticity of labor supply. Employi...
Chapter
We develop an open economy DSGE model of the Indian economy and estimate it by Bayesian Maximum Likelihood methods. We build up in stages to a model with a number of features important for emerging economies in general and the Indian economy in particular: a large proportion of credit-constrained consumers, a financial accelerator facing domestic f...
Article
We contribute to an emerging literature that brings the constant elasticity of substitution (CES) specification of the production function into the analysis of business cycle fluctuations. Using US data, we estimate by Bayesian-Maximum-Likelihood methods a standard medium-sized DSGE model with a CES rather than Cobb-Douglas (CD) technology. We esti...
Article
This paper builds a dynamic stochastic general equilibrium (DSGE) model of endogenous growth that generates large medium-frequency cycles while robustly matching the near trend-stationary path of observed output. This requires a model in which standard business cycle shocks lead to highly persistent movements around trend, without significantly alt...
Article
The arguments of Rawls (1971) are used to derive optimal policy from behind a 'veil of ignorance' that prevents policymakers from knowing the time period in which policy will be implemented. With no knowledge of time, there is no conflict between policymakers existing at different points in time, and none of the time-inconsistency problems that typ...

Citations

... Because it incorporates all of the company's decision-making processes for cost minimisation and profit maximisation, this study believes that the neoclassical method is the best method for estimating the domestic investment function. This method was also used by Calvert Jump et al. (2019). By approximating capital stock or by assessing investment and then deriving capital stock, the link between deal and capital cost can be grasped Calvert Jump et al. (2019). ...
... New Keynesian economics focuses on providing a reason for disequilibrium in the labor market based on rational choices (Froyen 2013). These "rational" bases include menu costs, insider/outsider issues, producer gains from paying more than the wage paid by other firms (efficiency wages), market power in output markets, positive costs of forming expectations, heterogeneous expectation formation, etc. (Froyen 2013;Jump and Levine 2019;Gabaix 2020). Equation (11) above provides another "rational" reason for a model that would have many of the characteristics and predictions of Keynesian and New Keynesian models. ...
... The analysis of behavioral macroeconomic models has become prominent over the last decade; see Franke and Westerhoff (2017); Dilaver et al. (2018); Hommes (2021) for excellent overviews. A subclass of these behavioral frameworks can be identified as heuristic switching models. ...
... In this paper I study JR preferences with internal consumption habits. JR preferences with habits are studied in Schmitt-Groh and Uribe (2012) in the context of news shocks and business cycles, and more recently by Holden et al. (2017) in the context of reconciling these preferences with estimates of the Frisch elasticity of labour supply. In this paper I show that in the presence of internal consumption habits there are two income effect channels induced under these general JR preferences. ...
... Under normal circumstances, banks rely on debt finance whereas under financial stress borrowing constraints can bind and banks must eventually raise additional equity finance at a higher cost. This results in occasional episodes with sharp increases in spreads and deeper downturns, helping explain observed macroeconomic asymmetries such as negatively skewed aggregate investment (Holden et al., 2019). A similar approach has been used to analyze the effectiveness of policy: pre-crisis capital requirements in the United States were found to be close to optimal in terms of the aggregate welfare of savers and borrowers where default and occasionally binding borrowing constraints in both the non-financial and financial sectors are present (Elenev et al., 2021); while capital buffers are found to be more effective in restricting bank equity payouts, rather than bank lending over financial cycles, in examining the implementation of the capital conservation buffer and the countercyclical capital buffer (Schroth, 2021). ...
... The model is based on eight observable variables (see Table 1). . We take the three month treasury bill rate as a proxy of the nominal interest rate (e.g., Patnaik et al., 2011, Anand et al., 2014and Gabriel et al., 2016. ...
... Macroeconomic research and multivariate time series modeling became critically interlinked after the publication [32,33] by Sims (1980). In the public sector budgeting revenue forecasting is very vital. ...
... Arrow et al. (1961) estimated σ for the USA for 1909-1949 and found it to be 0.6. Later studies using US data seem to support gross complementarity between US labour and capital data (Berndt, 1976;Antras, 2004;Chirinko, 2008;Leon-Ledesma et al., 2010;Klump et al., 2007;Klump et al., 2012;Cantore et al., 2015). ...
... A number of authors, e.g. [4,5], have noted that a plot of the logarithm of the US GDP as a function of (linear) time over the last one hundred years looks remarkably linear, as shown by the continuous line and its dashed linear fitted line in figure 1: the inflation adjusted GDP per capita exhibits a long term average growth of 1.9-2% per year [5]. The occurrence of such a near trend-stationary long run growth covering a period with two world wars, the cold war and its associated proxy wars, the collapse of the Bretton Woods System in 1973, several large bubbles, crashes and recessions and strong changes in interest rate policies, is truly remarkable. ...