2022-07-21-IMF-Sudden_Stops_and_Optimal_Policy_in_a_Two-agent_Economy_54页_1mb

Summary

• Introduction
  • Provides context on sudden stops and their role in financial crises.
  • Highlights a novel contribution: introducing heterogeneity between workers and entrepreneurs in a Fisherian model to study optimal policy in sudden stop episodes.

Model Economy

• Two Agent Types
  • Entrepreneurs: Manage production, investment, and borrow against capital; own firms.
  • Workers: Supply labor; receive wages.
• Fisherian Deflation Setup
  • Occasional binding collateral constraints amplify crises.
  • Prices adjust externally, creating pecuniary externalities.

Optimal Policy

• Policy Tools
  • Distortionary Borrowing Tax: Address pecuniary externality from collateral.
  • Distortionary Payroll Tax: Tackle distributive externality via redistribution.
• Policy Roles
  • Ex Ante (Tranquil Times): Borrowing tax disincentivizes credit growth.
  • Ex Post (Crisis Times): Payroll tax redirects resources to entrepreneurs to stabilize asset prices.

Key Findings

1. Distributive Externality

   • Heterogeneity introduces a redistribution motive absent in representative-agent models.
   • Marginal utilities differ, and crisis dynamics amplify the need to support entrepreneurs.

2. Payroll Tax Role

   • Useful for redistribution and indirectly stabilizing asset prices.
   • Can be positive or negative depending on the redistributive goal.

3. Quantitative Outcomes

   • Heterogeneity slightly reduces crisis probability and severity.
   • Welfare gains are substantially higher with redistribution tools.
   • Labor supply shocks propagate differently, affecting redistribution timing.

Conclusion

• Policy Implications

  • Optimal policy must use both macroprudential borrowing taxes (ex ante) and payroll taxes (ex post).
  • Allowing redistribution during crises mitigates Fisherian deflation and improves welfare.

• Key Insight
  Even minimal heterogeneity (workers vs. entrepreneurs) enriches policy design, addressing aggregate proxies for agent distribution in more comprehensive models.