Public debt consolidation and inflation in a monetary union
Professor Xiaoshan Chen (Durham University Business School)

Abstract: We study how common monetary accommodation interacts with national fiscal consolidation in a monetary union. We develop a two-country heterogeneous-agent New Keynesian model calibrated to euro-area Core–Periphery differences in public debt, external positions, income and wealth distributions, and consumption patterns. The model features tradable and non-tradable production, imperfect sectoral labour mobility, and non-homothetic Stone–Geary preferences that make consumption baskets vary with household resources. The distributional incidence of consolidation differs sharply across countries: consolidation is progressive in the Core and regressive in the high-debt Periphery. Government consumption consolidation is nevertheless substantially less costly than labour-tax consolidation. When monetary accommodation is introduced through a temporary increase in the common inflation target, its welfare effects depend on the fiscal instrument. Under government-consumption consolidation, accommodation reduces welfare losses in the Periphery but lowers average welfare in the Core, creating a Core–Periphery conflict. Under labour-tax consolidation, accommodation is more broadly beneficial, reducing the required tax increase, supporting disposable income, and lowering welfare losses in both countries.

Does it matter who immigrates? Skills, immigration, and wealth inequality
Mariana Cardoso Santos, PhD candidate (Iscte)

Abstract: Aiming to better understand observed wealth inequality, we developed a Bewley-Aiyagari model with heterogeneous agents with respect to origin and skills. The modelled economy comprises natives and immigrants, which can be low-skilled and high-skilled. The model was calibrated for the United States economy in the 1990s. Preliminary results show that the calibrated economy can match some measures of wealth inequality in the United States, namely the overall wealth Gini coefficient and the overall Top 1% of wealth distribution, considering the entire population. According to the Survey of Consumer Finances of 1992, the overall wealth Gini coefficient was approximately 0.78, and the Top 1% held 29% of total wealth.

Session Chair: Alexandra Ferreira Lopes