Epstein–Zin Utility, Asset Prices, and the Business Cycle Revisited

Heiberger, Christopher; Ruf, Halvor

doi:10.1111/geer.12186

Cited by 5 publications

(2 citation statements)

References 53 publications

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“…Recursive non-expected utility can be used to separate risk aversion from intertemporal substitution (i.e. riskneutral preferences with respect to income fluctuations prevent counterfactual excess of young agents' savings; see Farmer, 1990;Heiberger and Ruf, 2019). Separating the co-efficient of intertemporal substitution, σ = 1/(1 − ρ), from risk aversion, as done in the utility function, helps to reproduce reasonable responses of consumption and savings to interest rate variations.…”

Section: Decision Problem Of Retirees and Workersmentioning

confidence: 99%

When old meets young? Germany's population ageing and the current account

Schön

Stähler

2020

Economic Modelling

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Research Question Germany has high and persistent current account surpluses since the start of the millennium. To many, (projected) population ageing in Germany is one of the most important drivers for these developments. In an ageing society, people want to prepare for increased longevity by augmenting savings. As these savings cannot all be invested domestically, net foreign assets and the current account surplus rise. Contribution We analyze the effects of population ageing in a three-region New Keynesian life-cycle model. Two of the regions form a monetary union. The model is calibrated to Germany, the rest of the Eurozone and the remaining OECD countries. In an additional analysis, we add China to the latter region. Results We find that population ageing in Germany is indeed a significant driver of net foreign asset developments. It has the potential of generating current account surpluses of up to 15% of GDP. However, this only happens when the demographic trends of the ageing region (Germany) and its trading partners are unsynchronized. Put differently, this happens when Germany ages while the demographic structure in the rest of the world remains constant. Assuming Germany's most important trading partners to be the other Euro area member states and the remaining OECD countries (and potentially China), we see that these regions face a similar, but delayed ageing process. Feeding these developments into our model reduces the average current account-to-GDP ratio from 2000 to 2018 in Germany to 2.8% (1.2% when taking into account China). It turns negative around 2035.

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Section: Decision Problem Of Retirees and Workersmentioning

confidence: 99%

When old meets young? Germany's population ageing and the current account

Schön

Stähler

2020

Economic Modelling

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“…As is extensively discussed in the literature (Gertler, 1999;Ferrero, 2010;Carvalho et al, 2016), this lifecycle model is analytically tractable because the transition probabilities to retirement and death are independent of age. Separating the elasticity of intertemporal substitution, σ ≡ (1 − ρ) −1 , from risk aversion in (2) allows for a reasonable response of consumption and savings to changes in interest rates (Farmer, 1990;Heiberger and Ruf, 2019).…”

Section: Decision Problem Of Retirees and Workersmentioning

confidence: 99%

Household Savings, Capital Investments and Public Policies: What Drives the German Current Account?

Ruppert

Stähler

2020

SSRN Journal

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Research QuestionWhat drives the high and persistent German current account surplus since the turn of the millennium? To many, the Agenda 2010 reforms (several structural labor market and tax reforms), population aging and pension reforms as well as a tight German fiscal stance are responsible for it. European and international institutions have repeatedly asked Germany to reduce their current account surplus. To do so, however, it is necessary to understand its driving forces. ContributionIn this paper, we present a model that can account for a large part of the changes in the German current account balance since the 2000s. The model is a three-region New Keynesian model with a search-and-matching labor market, a fiscal block that includes a wide range of taxes and disaggregated government spending, and a life-cycle structure. The latter gives rise to a savings motive, which affects the German net foreign asset position. ResultsOur simulation results suggest that the structural tax and labor market reforms of the Agenda 2010, population aging and pension reforms led to an increase in the household savings rate in Germany until about 2010. As domestic investment opportunities could not absorb these additional savings, they were partly invested abroad. The German current account-to-GDP ratio rose. Thereafter, however, household savings stayed high but did not increase further, both in the model simulations and in the data. Nevertheless, the observed German current account surplus still kept on rising. According to our simulations, a tight fiscal stance in Germany (combined with an expansionary stance in the rest of the world), a reduction in investment in the corporate sector and productivity gains in emerging economies after 2010, which increased demand for German goods and investment opportunities there, contributed to this. Nichttechnische ZusammenfassungFragestellung Was treibt den deutschen Leitungsbilanzüberschuss seit der Jahrtausendwende? Viele machen dafür die Agenda 2010-Reformen (strukturelle Arbeitsmarkt-und Steuerreformen), Bevölkerungsalterung und Rentenreformen sowie die sparsame deutsche Fiskalpolitik verantwortlich. Mehrere europäische und internationale Organisationen haben Deutschland wiederholt aufgefordert, den Leistungsbilanzüberschuss zu reduzieren. Um dies tun zu können, muss man jedoch erst verstehen, woher dieser kommt. BeitragWir präsentieren in diesem Papier ein Modell, das in der Lage ist, einen Großteil der Entwicklungen des deutschen Leistungsbilanzsaldos seit der Jahrtausendwende zu erklären. Es handelt sich um ein drei Weltregionen umfassendes neukeynesianisches Modell mit Suchfriktionen auf dem Arbeitsmarkt, einem Fiskalsektor mit differenzierter Steuerstruktur und disaggregierten Ausgabenkomponenten sowie einem Haushaltssektor mit Lebenszyklusstruktur. Diese Lebenszyklusstruktur erzeugt ein Sparmotiv, welches die deutsche Nettoauslandsvermögensposition, und damit die Leistungsbilanz, beeinflusst. ErgebnisseSimulationsergebnisse legen nahe, dass sich die Ersparnisbildung in Deutsc...

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The fiscal and intergenerational burdens of brakes and subsidies for energy prices

Huber,

Scharrer

2023

Int Tax Public Finance

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We study the effects of different financing rules for untargeted energy price brakes and subsidies on intergenerational welfare in a large-scale overlapping generations model. The results indicate that, in comparison with a laissez-faire solution without any government interventions, debt-financed implementations of such measures are very detrimental for young and future generations. However, the taxation of windfall profits can significantly contribute to reduce the economic burdens of these generations; whereas, the positive effects on older generations are much less pronounced.

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Epstein–Zin Utility, Asset Prices, and the Business Cycle Revisited

Cited by 5 publications

References 53 publications

When old meets young? Germany's population ageing and the current account

When old meets young? Germany's population ageing and the current account

Household Savings, Capital Investments and Public Policies: What Drives the German Current Account?

The fiscal and intergenerational burdens of brakes and subsidies for energy prices

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