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This exercise and solutions manual accompanies Foundations of Modern Macroeconomics, Second Edition Foundations of Modern Macroeconomics deals with all the major topics, summarizes the important approaches, and gives students a coherent angle on all aspects of macroeconomic thought. Each chapter of the manual contains short answer questions followed by longer intermediate and advanced exercises. Hints and tips as well as full solutions are provided making this an invaluable aid to the main text

SUMMARYBased on narrative identification, we construct a novel comprehensive dataset of pension reform measures in OECD countries from 1970 to 2017. We then study the timing of these measures. Our main and new result is that business cycle indicators are important for their timing: a worsening makes contractionary measures more likely and expansionary measures less likely. The demography matters only in the sense that the OECD-wide demography explains the general reform trend for a country. We find no evidence that country-specific or short-run demographic developments matter. We discuss a conceptual framework with adjustment costs of changing pension generosity that can account for both the reform responsiveness to the business cycle and the lack of responsiveness to changes in demographic forecasts. We also discuss potential policy implications of our findings.

We explore the benefits of intergenerational risk-sharing through both private funded pensions and via the public debt. We use a multi-period overlapping generations model with a PAYG pension pillar, a funded pension pillar and a government. Shocks are smoothed via the public debt and variations in the indexation of pension entitlements and the pension contribution rate, which both respond to funding ratio of the pension fund. The intensity of these adjustments increases when the funding ratio or the public debt ratio get closer to their boundaries. The best-performing pension arrangement is a hybrid funded scheme in which both contributions and entitlement indexation are deployed as stabilisation instruments. We find trade-offs between the optimal use of these instruments. We also find that entitlement indexation and the response of the tax rate to public debt movements are complements. We compare different taxation regimes and conclude that a regime in which pension benefits are taxed, while contributions are paid before taxes, is preferred to a regime in which contributions are paid after taxes, while benefits are untaxed.

We explore the benefits of intergenerational risk-sharing through both private funded pensions and via the public debt. We use a multi-period overlapping generations model with a PAYG pension pillar, a funded pension pillar and a government. Shocks are smoothed via the public debt and variations in the indexation of pension entitlements and the pension contribution rate, which both respond to funding ratio of the pension fund. The intensity of these adjustments increases when the funding ratio or the public debt ratio get closer to their boundaries. The best-performing pension arrangement is a hybrid funded scheme in which both contributions and entitlement indexation are deployed as stabilisation instruments. We find trade-offs between the optimal use of these instruments. We also find that entitlement indexation and the response of the tax rate to public debt movements are complements. We compare different taxation regimes and conclude that a regime in which pension benefits are taxed, while contributions are paid before taxes, is preferred to a regime in which contributions are paid after taxes, while benefits are untaxed.