The Wobbly Economy

 

Time：4:00pm- 5:30pm, Feb 22, 2019

Venue：Room 359S, Overseas Exchange Center, Peking University

Speaker：Tomohiro Hirano

(Graduate School of Economics, University of Tokyo)

 

Abstract

This paper explores the standard life-cycle model, showing that under not implausible conditions, multiplicity of momentary equilibria can arise. Multiplicity of momentary equilibria can generate an infinity of rational expectation equilibria, leading to “wobbly” macro-dynamics; this may occur even when under myopic expectations, there is a unique dynamic path. Nonetheless, one can provide a full characterization of the possible patterns of economic dynamics. In particular, we identify four possible patterns, providing a characterization of the parameter values under which each may occur. Most interestingly, under some configurations of the parameter values, bubble-like macro dynamics occur. That is, a productivity increase may generate a fragile economic boom that is followed by a stagnation trap. We show under what conditions hysteresis can occur after the collapse of economic booms. Finally, we show how government policy can affect the equilibrium path, demonstrating that an appropriately chosen government policy mix can ensure that the rational expectations equilibrium is unique, preventing wobbly macro-dynamics and improving social welfare.

 

 

Speaker

Tomohiro Hirano is an Assistant Professor of Department of Economics at University of Tokyo. His major research areas include Financial Frictions and Macroeconomics, especially focus on Asset Price Bubbles, Liquidity and Financial Regulations. He has published papers in top economic journals, including The Reviewof Economic Studies and Journal of Monetary Economics. He was Research Fellow in The Mitsubishi Economic Research Institute between 2016 and 2017, and also served at Financial Services Agency of The Japanese Government during 2008 to 2011. He received Ph.D. degree in Economics from the University of Tokyo in 2010.