**February 2022.**

We analyze global dynamics in the standard life-cycle model with production, showing that there can be a plethora of rational expectations dynamics, including “wobbly macro-dynamics”. Depending on people’s beliefs, the macroeconomy can bounce around infinitely, without converging, without regular periodicity. The economy can be plagued by repeated periods of inefficiencies and unemployment. In phase transitions, the economy endogenously changes from a state with a unique momentary equilibrium into one with multiple equilibria, or vice versa. Phase transitions determine the patterns of dynamics. We identify all possible patterns of dynamics, providing a complete characterization of the parameter values under which each may occur, showing how a change in some key parameter (e.g. labor productivity) induces a “state transition,” an abrupt change in the set of feasible global dynamics: a boom can become unstable. Global dynamics exhibits strong hysteresis effects; a temporary positive productivity shock can have long run adverse effects.]]>

**February 2022.**

This paper examines the global macro-dynamics of an OLG model with capital and land with rational expectations. Through the interactions between capital accumulation and land prices, the economy experiences phase transitions, endogenously moving back and forth from situations with unique and multiple momentary equilibria. Consequently, there can be a plethora of rational expectation equilibria trajectories, without any smooth convergence properties, neither converging to a steady state or even to a limit cycle—what we call “wobbly” macro-dynamics. The price of land and other key macro variables (wages, interest rates, output, consumption, wealth, capital stock) endogenously fluctuate within a well-identified range with repeated boom-bust cycles. The key disturbance to the economy is endogenous; even with rational expectations, there can be real estate booms, with increasing land prices increasingly crowding out productive investments; but such unsustainable land price booms inevitably are followed by a crash. We analyze the set of parameter values for which wobbly fluctuations occur, show that with some parameter values, the only r.e. trajectories involve such wobbly dynamics, demonstrate how changes in parameters affect global macro-dynamics, and show how policy interventions can affect stability and social welfare.]]>

**December 2021.**

We develop a machine-learning solution algorithm to solve for optimal portfolio choice in a detailed and quantitatively-accurate lifecycle model that includes many features of reality modelled only separately in previous work. We use the quantitative model to evaluate the consumption-equivalent welfare losses from using simple rules for portfolio allocation across stocks, bonds, and liquid accounts instead of the optimal portfolio choices. We find that the consumption-equivalent losses from using an age-dependent rule as embedded in current target-date/lifecycle funds (TDFs) are substantial, around 2 to 3 percent of consumption, despite the fact that TDF rules mimic average optimal behavior by age closely until shortly before retirement. Our model recommends higher average equity shares in the second half of life than the portfolio of the typical TDF, so that the typical TDF portfolio does not improve on investing an age-independent 2/3 share in equity. Finally, optimal equity shares have substantial heterogeneity, particularly by wealth level, state of the business cycle, and dividend-price ratio, implying substantial gains to further customization of advice or TDFs in these dimensions.]]>

**December 2021.**

The distributions of wealth in the US and many other countries are strikingly concentrated on the top and skewed to the right. To explain the income and wealth inequality, we provide a tractable heterogeneous-agent model with incomplete markets in continuous time. We separate illiquid capital assets from liquid bond assets and introduce capital return jump risks. Under recursive utility, we derive optimal consumption and wealth in closed form and show that the stationary wealth distribution has an exponential right tail. Our calibrated model can match the income and wealth distributions in the US data including the extreme right tail. We also study the effect of taxes on the distribution of wealth.]]>

**September 2021.**

We study dynamic task allocation when providers' expertise evolves endogenously through training. We characterize optimal assignment protocols and compare them to discretionary procedures, where it is the clients who select their service providers. Our results indicate that welfare gains from centralization are greater when tasks arrive more rapidly, and when training technologies improve. Monitoring seniors' backlog of clients always increases welfare but may decrease training. Methodologically, we explore a matching setting with endogenous types, and illustrate useful adaptations of queueing theory techniques for such environments.]]>

**September 2021.**

We study the effects of fiscal policy in response to the COVID-19 pandemic at the firm, sector, country and global level. First, we estimate the impact of COVID-19 and policy responses on small and medium sized enterprise (SME) business failures. We combine firm-level financial data from 50 sectors in 27 countries, a detailed I-O network, real-time data on lockdown policies and mobility patterns, and a rich model of firm behavior that allows for several dimensions of heterogeneity. We find: (a) Absent government support, the failure rate of SMEs would have increased by 9 percentage points, significantly more so in emerging market economies (EMs). With policy support it only increased by 4.3 percentage points, and even decreased in advanced economies (AEs). (b) Fiscal policy was poorly targeted: most of the funds disbursed went to firms who did not need it. (c) Nevertheless, we find little evidence of the policy merely postponing mass business failures or creating many ‘zombie’ firms: failure rates rise only slightly in 2021 once policy support is removed. Next, we build a tractable global intertemporal general equilibrium I-O model with fiscal policy. We calibrate the model to 64 countries and 36 sectors. We find that: (d) a sizable share of the global economy is demand-constrained under COVID-19, especially so in EMs. (e) Globally, fiscal policy helped offset about 8% of the downturn in COVID, with a low ‘traditional’ fiscal multiplier. Yet it significantly reduced the share of demand- constrained sectors, preserving employment in these sectors. (f) Fiscal policy exerted small and negative spillovers to output in other countries but positive spillovers on employment. (g) A two-speed recovery would put significant upwards pressure on global interest rates which imposes an additional headwind on the EM recovery. (h) Corporate and sovereign spreads rise when global rates increase, suggesting that EM may face challenging external funding conditions as AEs economies normalize.]]>