Master Thesis - Humboldt-Universität zu Berlin

6.7 Capital tax shock
Responses of real variables to a capital tax shock are less persistent for most
variables. After a short decline, labor, return on capital, output, investment
and capital value return to the steady state. Consumption and real
wage reach a higher level after stabilization that suggests an increase of consumption
via a labor income channel. Given Calvo mechanism, inflation is
also more persistent and sustained by higher sustained costs of labor that
increases the marginal cost.
6.8 Labor tax shock
This shock produces a sharp decrease in the level of labor supply and employment
as it rises the costs afferent to the labor utilization. A fall in the
level of employment increases real wage and medium term return on capital
level, but decreases the real output, consumption, and investment.
6.9 ROW demand shock
In our setup, a shock in ROW demand implies a depreciation of the exchange
rate and consequently an increase in the current account. Exports diminish
relative to imports and the demand for domestic goods follow a slight decline.
The effect of the shock on nominal variables depends on the share of ROW
in the total imports and the degree of stickiness in the import prices.
6.10 Oil price shock
A shock in the oil price is highly persistent as we could notice from its
ARMA(1,1) representation. This increase falls directly in the production
cost, without any rigidity and produces a sharp decrease of output, together
with investment and consumption. On one hand, the monetary authority responds
with a one-time increase of the interest rate. On the other hand, the
depreciation of the terms of trade produces losses in wealth. The impact of
net current account is positive because of higher costs of imports. The negative
effect on trade balance can be explained as a loss in the competitiveness
of the domestic firms.
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