Abstract: Over the past three decades China and India have experienced rapid growth and structural transformation. Underneath this similarity however is one significant difference: rural-urban wage gaps during this period declined in India, but widened in China. We formalize a two-sector-two-location model in which structural transformation and urbanization respond endogenously to productivity shocks. While the structural transformation effect widens the rural-urban wage gap, the urbanization effect reduces it. We attribute the contrasting wage gap dynamics in the two countries to the higher costs of urban relocation for workers in China.

Abstract: In the theory of dynamic programming, an optimal policy is a policy whose lifetime value dominates that of all other policies from every possible initial condition in the state space. This raises a natural question: when does optimality from a single state imply optimality from every state? Working in a general setting, we provide sufficient conditions for this property that relate to reachability and irreducibility. Our results have significant implications for modern policy-based algorithms used to solve large-scale dynamic programs. We illustrate our findings by applying them to an optimal savings problem via an algorithm that implements gradient ascent in a policy space constructed from neural networks.

要旨：This paper examines the optimal design of retirement policies that rely on private insurance markets while accounting for financial frictions within these markets. We analyze the impact of uninsurable aggregate interest rate shocks in a life-cycle model where the government screens productivity, longevity, and altruism. We show that observing retirees’ annuitization choices helps separate individual types. However, private annuity markets face supply-side inefficiencies due to interest rate risk. To improve market efficiency, the government can issue long-term bonds, supported by interest rate-contingent taxes. Therefore, full privatization can only be optimal without interest rate shocks; otherwise, Social Security remains necessary.

Abstract：This paper establishes the connection of exchange rates to macroeconomic fundamentals by estimating a small open-economy model for Canada. The model incorporates an endogenous interest rate spread on foreign bond holdings, so that the resulting modified uncovered interest rate parity condition can exhibit a negative relationship between expected exchange rate depreciation and interest rate differentials, as observed in the data. Because the model is susceptible to equilibrium indeterminacy, we estimate it using Bayesian methods that allow for both determinacy and indeterminacy of equilibrium. The results indicate that preference shocks to the household utility function are the primary source of exchange rate fluctuations, highlighting the connection between exchange rates and fundamentals. We demonstrate that both allowing for indeterminacy and selecting a specific equilibrium representation from the data are crucial for obtaining this result.

Abstract：The Asia and Pacific region has enjoyed rapid economic and human development gains in the past three decades. Though it has benefited from demographic tailwinds, investment and productivity growth are the key to these gains. The critical role of structural transformation, that is, workers moving out of agriculture into other, higher-productivity sectors in achieving productivity growth, is often underappreciated. Movement into manufacturing in particular, helped by rapid international trade integration, has been a hallmark of the structural transformation in the region. However, services have played a bigger role across the region in the past three decades. Looking ahead, enabling continued transformation will be critical. As per capita incomes have risen, the move into services will likely become even more prominent. Ensuring a shift toward more productive services will require investment in education and training to supply the needed skills, especially to allow workers to adapt to the wave of new technologies, including AI. Continued international integration in services would be key, with an eye on boosting tradability and competition in services. In many economies, enhancing agricultural productivity will still be important for promoting transformation and growth, along with lowering barriers to workers and resources moving across sectors. Policies to raise labor force participation, especially among elderly workers and women, will be critical for mitigating the impact of population aging and decline in much of the region.

Abstract：Exploiting variation across Swedish local labor markets between 1986 and 2018, I estimate that individuals are less likely to start new firms and switch employers in an older labor market. To account for these patterns, I propose an equilibrium theory of growth with frictional labor markets. On the one hand, workforce aging raises the level of output by increasing the share of people who have found a good match with existing production technologies. On the other hand, the higher opportunity cost of switching to new technologies discourages their introduction. The offsetting level and growth effects result in high growth through the 1990s, even though the rate at which new technologies are introduced declines monotonically since the 1970s. I estimate that it will be suppressed for the next 30 years. The lower growth rate in the older economy lowers welfare for labor market entrants, but raises the value of the high-productive jobs typically held by older individuals.