Aimed at pandemic preparedness, we construct a framework for integrated epi-econ assessment that we believe would be useful for policymakers, especially at the early stages of a pandemic outbreak. We offer theory, calibration to micro-, macro-, and epi-data, and numerical methods for quantitative policy evaluation. The model has an explicit microeconomic, market-based structure. It highlights trade-offs, within period and over time, associated with activities that involve both valuable social interaction and harmful disease transmission. We compare market solutions with socially optimal allocations. Our calibration to Covid-19 implies that households shift their leisure and work activities away from social interactions. This is especially true for older individuals, who are more vulnerable to disease. The optimal allocation may or may not involve lockdown and changes the time allocations significantly across age groups. In this trade-off, people's social leisure time becomes an important factor, aside from deaths and GDP. We finally compare optimal responses to different viruses (SARS, seasonal flu) and argue that, going forward, economic analysis ought to be an integral element behind epidemiological policy.

We develop a quantitative macroeconomic theory of input-saving technical change to analyze how markets economize on scarce natural resources, with an application to fossil fuel. We find that aggregate US data call for a very low short-run substitution elasticity between energy and the capital/labor inputs. Our estimates imply that energy-saving technical change took off when the oil shocks hit in the 1970s. This response implies significant substitutability with the other inputs in the long run: even under ever-rising energy prices, long-run consumption growth is still possible, along with a modest factor share of energy.

We adapt the wage contracting structure in Chari (1983) to a dynamic, balanced-growth settingwith re-contracting à la Calvo (1983). The resulting wage-rigidity framework delivers a model verysimilar to that in Jaimovich and Rebelo (2009), with their habit parameter replaced by ourprobability of wage-contract resetting. That is, if wage contracts can be reset very frequently, laborsupply behaves in accordance with King et al. (1988) preferences, whereas if they are sticky for along time, we obtain the setting in Greenwood et al. (1988), thus allowing significant responses ofhours to wage changes.

There is a scientific consensus that human activities, in the form of emissions of carbon dioxide intothe atmosphere, cause global warming. These emissions mostly occur in the marketplace, that is,they are undertaken by private individuals and firms. Governments seeking to curb emissions thusneed to design policies that influence market behavior in the direction of their goals. Economistsrefer to Pigou taxation as “the” solution here, since the case of global warming can be seen as apure (negative) externality. We agree. However, given the reluctance of policymakers to agree withus, there is an urgent need to consider, and compare, suboptimal policies. In this paper, we look atone such instance: setting a global tax on carbon at the wrong level. How costly are different errors?Since there is much uncertainty about how much climate change there will be, and how damagingit is when it occurs, ex-post errors will most likely be made. We compare different kinds of errorsqualitatively and quantitatively and find that policy errors based on over-pessimistic views on climatechange are much less costly than those made based on over-optimism. This finding is an inherentfeature of standard integrated assessment models, even though these models do not feature tippingpoints or strong linearities.

The absence of a trend in hours worked in the postwar United States is an exception: across countries and historically, hours fall steadily by a little below 0.5% per year. Are steadily falling hours consistent with a stable utility function over consumption and leisure under balanced growth of the macroeconomic aggregates? Yes. We fully characterize the class of such functions and thus generalize the well-known “balanced-growth preferences” that demand constant (as opposed to falling) long-run hours. Key to falling hours is an income effect (of steady productivity growth on hours) that slightly outweighs the substitution effect.

Climate policy is a complex area that requires input from many different perspectives. The sns Economic Policy Council 2020 comprises nine researchers from a range of disciplines, with different backgrounds and with varied opinions on the debate surrounding climate policy. They analyse Swedish climate policy in a global context, describing the causes and consequences of climate change and focusing on how policy can achieve the desired reductions in carbon emissions. The report also provides answers to questions that are frequently discussed in the Swedish debate, such as the effectiveness of climate aid and whether Sweden should generate a larger surplus of fossil-free electricity for export.

This paper employs a benchmark heterogeneous-agent macroeconomic model to examine a numberof plausible drivers of the rise in wealth inequality in the U.S. over the last forty years. We find thatthe significant drop in tax progressivity starting in the late 1970s is the most important driver of theincrease in wealth inequality since then. The sharp observed increases in earnings inequality and thefalling labor share over the recent decades fall far short of accounting for the data. The model can alsoaccount for the dynamics of wealth inequality over the period—in particular the observed U-shape—and here the observed variations in asset returns are key. Returns on assets matter because portfoliosof households differ systematically both across and within wealth groups, a feature in our model thatalso helps us to match, quantitatively, a key long-run feature of wealth and earnings distributions: theformer is much more highly concentrated than the latter. 

We present a tractable heterogeneous-agent version of the New Keynesian model that allows us to study the interaction between inequality and monetary policy. Though formulated as a precautionary-saving model à la Huggett–Aiyagari, its reduced form is a two-agent model with a highly concentrated wealth distribution. When prices are sticky and wages flexible, as in the textbook representative-agent model, monetary policy affects the distribution of consumption, but has no effect on output as workers choose not to change their hours worked in response to wage movements. This highlights a transmission mechanism of the textbook model that we find implausible: in response to a monetary stimulus, the representative worker’s labor supply is greatly affected by the profits she receives. First, the lower profits induced by higher wages raise labor supply through a wealth effect and, secondly, the mere presence of profits reduces the negative income effect of a wage rise. When wages are rigid, in contrast, our model exhibits plausible responses of output and hours worked to monetary policy shocks.