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Selected Publications

"Optimal Climate Policies in a Dynamic Multi-Country Equilibrium Model"
  • Author(s): Marten Hillebrand, Elmar Hillebrand
  • Journal of Economic Theory, 2019, Volume 179 (1), Pages 200-239
  • This paper develops a dynamic general equilibrium model with an arbitrary number of different regions to study the economic consequences of climate change under alternative climate policies. Regions differ with respect to their state of economic development, factor endowments, and climate damages and trade on global markets for capital, output, and exhaustible resources. Our main result derives an optimal climate policy consisting of an emissions tax and a transfer policy. The optimal tax can be determined explicitly in our framework and is independent of any weights attached to the interests of different countries. Such weights only determine optimal transfers which distribute tax revenues across countries. We infer that the real political issue is not the tax policy required to reduce global warming but rather how the burden of climate change should be shared via transfer payments between different countries. We propose a simple transfer policy which induces a Pareto improvement relative to the Laissez faire solution. A calibrated example quantifies Pareto-improving transfers between rich and poor countries.
"Bubbly Markov Equilibria"
  • Author(s): Marten Hillebrand, Martin Barbie
  • Economic Theory, 2018, Volume 66, Issue 3, pages 627-679
  • Bubbly Markov Equilibria (BME) are recursive equilibria on the natural state space which admit a non-trivial bubble. The present paper studies the existence and properties of BME in a general class of overlapping generations (OLG) economies with capital accumulation and stochastic production shocks. Using monotone methods, we develop a general approach to construct Markov equilibria and provide necessary and sufficient conditions for these equilibria to be bubbly. Our main result shows that a BME exists whenever the bubbleless equilibrium is Pareto inefficient either due to overaccumulation of capital or inefficient risksharing between generations.
"Bubbles and Crowding-in of Capital via a Savings Glut"
  • Author(s): Marten Hillebrand, Tomoo Kikuchi, Masaya Sakuragawa
  • Macroeconomic Dynamics, 2018, Vol.22, Pages 1238-1266
  • This paper uncovers a mechanism by which bubbles crowd in capital investment. If capital formation is initially depressed by a binding credit constraint, a bubble triggers a savings glut. Higher returns in a new bubbly equilibrium attract additional savings, which are channeled to expand investment at the extensive margin, leading to permanently higher capital, output, and wages. We demonstrate that crowding-in through this channel is a robust phenomenon that occurs along the entire time path.
"A Mechanism for Booms and Busts in Housing Prices"
  • Author(s): Marten Hillebrand, Tomoo Kikuchi
  • Journal of Economic Dynamics and Control, 2015, Vol.51, Pages 204–217
  • The paper studies the dynamics of housing prices in a pure exchange overlapping generations framework a la Samuelson (1958) and Gale (1973), which is extended to include housing as a utility-yielding durable good and a credit sector. We completely characterize the equilibrium dynamics, which alternates between an expansive regime where leveraged borrowing increases housing prices, and a contractive regime where these variables decrease. Regime switches occur due to small but persistent income changes giving rise to boom-bust cycles in housing prices. Price deviations from fundamentals are caused by leveraged borrowing, and turn out to be fully welfare-neutral.
"Uniqueness of Markov Equilibrium in Stochastic OLG Models with Nonclassical Production",
  • Author(s): Marten Hillebrand
  • Economics Letters, 2014, Volume 123, Issue 2, Pages 171–176
  • A large class of stochastic OLG economies with nonclassical production is shown to possess a unique Markov Equilibrium (ME) which is also the unique sequential equilibrium. Additional properties such as monotonicity, continuity, and smoothness of the ME are also discussed.
“On the Optimal Size of Social Security in the Presence of a Stock Market“
  • Author(s): Marten Hillebrand
  • Journal of Mathematical Economics, 2012, Volume 48, Pages 26-38
  • The paper develops a stylized overlapping generations economy with random production and a stock market. The impact of a Social Security system on production, asset markets, and consumer welfare is analyzed.  It is shown that any reduction in the contribution rate fosters capital accumulation and increases asset prices, wages, and production output. Different welfare criteria are applied to determine the optimal size of Social Security.  It is shown that there exists a unique contribution rate which is long-run optimal, socially optimal, and time-consistent in the sense that no generation has an incentive to change it.
“On the Role of Labor Supply for the Optimal Size of Social Security“
  • Author(s): Marten Hillebrand 
  • Journal of Economic Dynamics and Control, 2011, Volume 35, Pages 1091-1105
  • The paper studies the welfare effects of a Social Security system in a stylized overlapping generations economy with random production and capital accumulation. Different welfare concepts including long run optimality, social optimality, and time consistency are employed to determine the optimal size of the system. When labor supply is exogenous, a unique contribution level can be identified which is optimal according to all three concepts. When labor supply is endogenous, however, this result generically fails to hold and the long-run optimal solution is only constrained socially optimal while the time-consistent policy may even lead to an inefficient equilibrium.
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