Enrico D. Turri

This paper shows that the optimal monetary policy and exchange rate framework depend critically on the economy’s commodity exposure. We develop a flexible but tractable model economy with commodity exports and imports, in which international financial conditions may vary with the commodity cycle. Stabilizing domestic prices is optimal for commodity exporters, in line with standard open-economy policy prescriptions. But for economies that use commodities as inputs in production, optimal policy largely ‘looks through’ the direct and indirect effects of commodity shocks on domestic prices; this contrasts with some earlier findings and policy practice (which only ‘looks through’ the direct effect). Exchange-rate pegs or strict CPI inflation targeting perform better for commodity importers because they stabilize wages and employment, though neither policy is robustly optimal. In emerging and developing economies, where financial conditions are more tied to the commodity cycle, trade-offs are starker and implementing the optimal policy may be challenging, since it requires enough credibility to keep inflation expectations anchored amidst greater volatility in some nominal variables.

The secular declines in the labor share and labor supply suggest that imperfect labor markets matter for long-run growth. We show that, unlike rising markups, rising wage markdowns are consistent with balanced growth featuring a declining labor share and a constant capital-output ratio. We propose and solve a model that generates both trends. Our model embeds oligopsony and oligopoly in neoclassical growth, with superstar firms and an inferior sector providing workers’ outside option. Faster superstar-sector TFP growth delivers endogenously rising markdowns. Calibrating the model to post-2000 US data, where the labor share and hours per worker fall as measured markdowns rise, we find a consumption-equivalent loss of 12–15 percent relative to optimal growth. The markdown growth estimated in existing studies implies that rising monopsony accounts for approximately one third of the post-2000 decline in the US labor share and one half of the decline in hours per worker. An extension with hand-to-mouth workers and capitalists generates balanced growth with increasing inequality. In this economy a growing minimum wage can restore efficient growth, while transfers to workers cannot.

We develop a search-and-matching model in which firms can influence the flow of recruits by posting higher wages. Workers draw a privately observed match-specific amenity cost on contact, so the firm’s recruiting probability is increasing in its own wage, giving rise to monopsony power. The decentralized equilibrium is inefficient: a marginal wage increase raises aggregate welfare, and may increase employment. Assuming that the amenity distribution features constant elasticity, the model can be calibrated using aggregate data. Calibrated to United States data for 2022–2024, the model implies an inverse acceptance elasticity of 2.9, a wage markdown of 14 percent, and a welfare-maximising wage 10 percent above the decentralized level; accounting for the public budget lowers this to 9.5 percent.

AI has the potential to raise living standards dramatically while at the same time creating a risk of human extinction. This paper shows that if the value of life is increasing in consumption, under majority rule inequality increases society’s willingness to risk extinction. A calibration shows that the inequality level in the present-day US can lead to accepting a probability of extinction more than 16% higher compared to a counterfactual society with perfect equality, when gains from AI are evenly distributed. If instead AI increases inequality upon survival, voters become more conservative, as many of them are cut out of the gains from the technology. Redistribution can thus be an important tool in managing existential risk.

I develop a theory of government good provision and taxation under structural change. If the government supplies a good that is a gross complement to market consumption, slower productivity growth in the public sector increases the relative scarcity of government services as the economy develops. Complementarity strengthens labour supply incentives and expands the tax base, allowing income taxation to rise without eroding revenues. Under optimal policy the income tax rate converges to unity while hours worked converge to a positive constant. The framework provides a normative mechanism consistent with the long-run expansion of government documented by Wagner’s Law.

How do habits and interpersonal comparisons interact with economic growth? Under the standard macroeconomic utility specification, a Cobb-Douglas aggregator of absolute and relative consumption nested in CRRA utility, naive and sophisticated solutions deliver identical growth rates. This formulation, however, fails to capture that when absolute consumption increases, habits and comparisons become more salient. I propose a minimal generalization to a CES aggregator between absolute and relative consumption, able to capture this intuition. I show that generalized preferences imply inefficiently high growth, asymptotically positive hours worked, and rising inequality aversion along development.