the effect of imf lending on the probability of sovereign debt crises abstract this paper explores empirically how the adoption of imf programs affects sovereign risk over the medium term we find that imf programs significantly increase the probability of subsequent sovereign defaults by approximately 1 5 2 percentage points these results cannot be attributed to endogeneity bias as they are supported by specifications that explain sovereign defaults and program participation simultaneously furthermore imf programs turn out to be especially detrimental to fiscal solvency when the fund distributes its resources to countries whose economic fundamentals are already weak our evidence is therefore consistent with the hypothesis that debtor moral hazard is most likely to occur in these circumstances other explanations that point to the effects of debt dilution and the possibility of imf triggered debt runs however are also possible

debt regimes and the effectiveness of monetary policy abstract this paper develops a medium scale non linear model of the us economy our proposed model a threshold vector autoregression with stochastic volatility assumes that changes in government debt to gdp ratios drive the transition between regimes capturing low and high debt regimes the introduction of hierarchical priors enables us to flexibly shrink the empirical model towards the moments implied by a dynamic stochastic general equilibrium model in the empirical application we analyze regime specific monetary policy shocks our findings indicate that the effect of monetary policy is less pronounced in high debt regimes pointing towards differences in the underlying monetary policy transmission mechanisms forecast error variance decompositions enable us to shed further light on the relative importance of monetary policy shocks within different debt regimes in terms of explaining the variance of forecast errors

does one soros make a difference a theory of currency crises with large and small traders do large investors increase the vulnerability of a country to speculative attacks in the foreign exchange markets to address this issue we build a model of currency crises where a single large investor and a continuum of small investors independently decide whether to attack a currency based on their private information about fundamentals even abstracting from signaling the presence of the large investor does make all other traders more aggressive in their selling relative to the case in which there is no large investors small investors attach the currency when fundamentals are stronger yet the difference can be small or null depending on the relative precision of private information of the small and large investors adding signaling makes the influence of the large trader on small traders behaviour much stronger

a microsimulation model of swedish housing demand abstract this paper presents a microsimulation model of housing demand aimed at analyzing effects of changes in tax schedules like many other countries sweden s income tax laws treat homeowners and renters asymmetrically therefore most changes in tax laws will affect housing demand and tenure choice we develop a microsimulation model which generates consistent estimates of the mean and variance of total housing demand and show that commonly used measures like analytic elasticities evaluated at mean values of the exogenous variables can yield very misleading predictions our model can be used to simulate almost any change in the tax system here we report results of three simple experiments one of which is a change in the rate at which imputed income from owner occupied housing is taxed

adoption of an imf programme and debt rescheduling an empirical analysis the existence of an empirical relationship between the adoption of an imf programme and the concession of a debt rescheduling by commercial and official creditors is tested using a bivariate probit model if countries who have arrangements with the imf are more likely than others to obtain a rescheduling of their external debt we could conclude that the adoption of an imf programme could work as a sort of signal of a country s good willingness which is thus rewarded with the debt relief the results confirm the existence of a significant effect of the adoption of an imf programme on the subsequent concession of a debt rescheduling by creditors

current energy scenario and future prospect of renewable energy in bangladesh abstract energy is the building block of modern civilization and a prerequisite for sustainable development global energy consumption will increase by 36 with an annual growth of 1 6 from year 2011 to 2030 comprising 88 fossil fuel share bangladesh is a developing country in the southeast asia which is one of the lowest per capital energy consuming nation the power crisis has become a major constraint to continued economic growth and energy sector of the country is currently facing serious challenge due to depleting nature and mono fuel dependent energy policy finding alternative energy source has become imperative for the country this study examined the current energy mix present energy crisis and its way to overcome such scenario by utilizing alternative energy sources such as biomass solar wind and small scale hydropower energy in the context of bangladesh among the renewable energy sources biomass is found to be the most effective and utilizable potential electricity generation from biomass is 312 608 terawatt hour twh where only 44 52 twh is utilized on the other hand solar home system shs has shown positive impact on socio economic development in the rural areas by alleviating poverty and creating jobs to assure national energy security and aiming to provide constant and quality power supply to all citizens of bangladesh government of people s republic of bangladesh gob must strive to double its effort towards attaining greater renewable energy share by conversion utilization and dissemination

the imf a bird s eye view of its role and operations the international monetary fund imf is the world s premier international financial institution with 184 member countries and active programmes in a significant number of them at any one time the fund attracts a great deal of attention much of it critical but the discussion is often polemic in style strongly held but frequently opposing views are expressed this survey attempts to examine in an objective way the theory and evidence relating to the fund s operations many aspects of the empirical research are relatively recent and a universal consensus is yet to emerge as a consequence there is scope for disagreement to persist however the research is also gradually clarifying many important issues the format for the survey is to examine the life cycle of imf arrangements what makes a country turn to the fund for assistance should the imf be lending what influences the outcome of negotiations and the design of programmes are imf programmes effective and why do some countries make prolonged use of imf resources for completeness there is also some discussion of the history of the imf the extent to which fund policies have been influenced by advances in economic theory and the fund s systemic role important organisational and governance issues are also covered briefly although primarily adopting an economist s perspective the survey reflects the growing recognition that in order to understand the imf s operations economics has to be combined with politics examining the imf is an exercise in applied political economy copyright 2007 the author journal compilation 2007 blackwell publishing ltd

the dynamics of sovereign debt crises and bailouts abstract motivated by the recent european debt crisis this paper investigates the scope for a bailout guarantee in a sovereign debt crisis defaults may arise from negative income shocks government impatience or a sunspot coordinated buyers strike we introduce a bailout agency and characterize the strategy with the minimal actuarially fair intervention which guarantees the no buyers strike fundamental equilibrium relying on the market for residual financing the intervention makes it cheaper for governments to borrow inducing them borrow more leaving default probabilities possibly rather unchanged the maximal backstop will be pulled precisely when fundamentals worsen

the dire effects of the lack of monetary and fiscal coordination abstract if the government s willingness to stabilize debt is waning while the central bank is adamant about keeping inflation low the economy enters a vicious spiral of higher inflation monetary tightening recession and further debt accumulation the mere possibility of this conflict represents a drag on the economy a commitment to inflate away the debt accumulated during a large recession leads to welfare improvements and lower uncertainty by separating long run fiscal sustainability from the short run fiscal stimulus this strategy can be used to avoid the zero lower bound as a technical contribution we explain how to build shock specific policy rules

a probability based stress test of federal reserve assets and income to support the economy the federal reserve amassed a large portfolio of long term bonds we assess the fed s associated interest rate risk including potential losses to its treasury securities holdings and declines in remittances to the treasury unlike past examinations of this interest rate risk we attach probabilities to alternative interest rate scenarios these probabilities are obtained from a dynamic term structure model that respects the zero lower bound on yields the resulting probability based stress test finds that the fed s losses are unlikely to be large and remittances are unlikely to exhibit more than a brief cessation

equilibrium selection in static and dynamic entry games abstract we experimentally assess the predictive power of two equilibrium selection principles for binary n player entry games with strategic complementarities in static entry games we test the theory of global games which posits that players play games of complete information as if they were playing a related global game of incomplete information by contrast in dynamic n period entry games the efficient subgame perfect equilibrium prediction is for all to enter whenever the payoff relevant state variable exceeds a certain threshold the subgame perfect entry threshold of the dynamic game will generally differ from the global game threshold of the static version of the same game nevertheless our experimental findings suggest that entry thresholds are similar between static and dynamic versions of the same game an implication is that the modeling of entry games with strategic complementarities as static one shot games ignoring the dynamic element of such interactions may not be unreasonable

lack of confidence the zero lower bound and the virtue of fiscal rules abstract in the presence of the zero lower bound standard business cycle models with a taylor type monetary policy rule are prone to equilibrium multiplicity a drop in private sector confidence can drive the economy into a liquidity trap without any change in fundamentals i show in the context of a standard new keynesian model that it is possible to design ricardian fiscal spending rules that insulate the economy from such expectations driven liquidity traps in the case of price adjustment costs desirable fiscal rules ensure that a drop in confidence does not lead to a decline in real marginal costs in the case of nominal wage adjustment costs desirable fiscal spending rules ensure that a drop in confidence does not lead to a decline in the ratio of the marginal rate of substitution between private consumption and hours worked relative to the real wage rate

determinacy and identification with taylor rules the new keynesian taylor rule theory of inflation determination relies on explosive dynamics by raising interest rates in response to inflation the fed induces ever larger inflation unless inflation jumps to one particular value on each date however economics does not rule out explosive inflation so inflation remains indeterminate attempts to fix this problem assume that the government will choose to blow up the economy if alternative equilibria emerge by following policies we usually consider impossible the taylor rule is not identified without unrealistic assumptions thus taylor rule regressions do not show that the fed moved from passive to active policy in 1980

financial innovation and the transactions demand for cash we document cash management patterns for households that are at odds with the predictions of deterministic inventory models that abstract from precautionary motives we extend the baumol tobin cash inventory model to a dynamic environment that allows for the possibility of withdrawing cash at random times at a low cost this modification introduces a precautionary motive for holding cash and naturally captures developments in withdrawal technology such as the increasing diffusion of bank branches and atm terminals we characterize the solution of the model which qualitatively reproduces several empirical patterns we estimate the structural parameters using micro data and show that quantitatively the model captures important economic patterns the estimates are used to quantify the expenditure and interest rate elasticity of money demand the impact of financial innovation on money demand the welfare cost of inflation and the benefit of atm ownership

when does a central bank s balance sheet require fiscal support abstract using a simple general equilibrium model we argue that it would be appropriate for a central bank with a large balance sheet composed of long duration nominal assets to have access to and be willing to ask for support for its balance sheet by the fiscal authority otherwise its ability to control inflation may be at risk this need for balance sheet support a within government transaction is distinct from the need for fiscal backing of inflation policy that arises even in models where the central bank s balance sheet is merged with that of the rest of the government

carbon abatement and international spillovers carbon abatement policies in large open economies affect both the allocation of domestic resources and international market prices a change in international prices implies an indirect secondary burden or benefit for all trading countries based on simulations with a large scale computable general equilibrium model of global trade and energy use we show that international spillovers have important welfare implications for carbon abatement policies designed to meet exogenous emission reduction targets we present a decomposition of the total welfare effect of carbon abatement policies into a primary domestic market effect at constant international prices and a secondary international spillover impact as a result of changes in international prices this decomposition reveals the extent to which domestic abatement costs are increased or decreased as a result of the impact of carbon abatement on international prices

housing prices and tenure choice with asymmetric taxes and progressivity abstract this paper studies the effects of tax schedule changes on prices and tenure choice in the housing market it is shown that given the present asymmetric treatment of owner occupants vs renters an increase in the degree of progressivity is likely to lead to an increasein the prices of both owner occupied and rental housing a numerical example indicates that the effects may be quite large equilibrium prices are calculated based on the actual swedish income tax schedules for 1971 and 1979 according to these simulations the tax changes that took place between these years caused the price of owner occupied houses to increase by around 30 percent and the rent level to increase by 2 or 3 percent

the imf and the mobilisation of foreign aid abstract particularly in the context of the millennium development goals there has been much discussion of the association between the international monetary fund and bilateral aid flows what role should the fund be playing in helping to achieve the mdgs some observers have suggested that the fund should seek to reduce its role in poor countries and should be minimising its own lending they see aid donors taking on a larger role and present the imf and aid donors as substitutes others envisage a much bigger lending role for the fund this may hint at complementarities although this discussion raises important policy issues there are very few studies that examine the relationship empirically this paper attempts to help fill this gap it explores the extent to which the imf has had a catalytic effect on official development assistance and the potential channels through which catalysis might work it finds strong evidence of a positive association and suggests that this may have more to do with condit

unique equilibrium in a model of self fulfilling currency attacks even though self fulfilling currency attacks lead to multiple equilibria when fundamentals are common knowledge we demonstrate the uniqueness of equilibrium when speculators face a small amount of noise in their signals about the fundamentals this unique equilibrium depends not only on the fundamentals but also on financial variables such as the quantity of hot money in circulation and the costs of speculative trading in contrast to multiple equilibrium models our model allows analysis of policy proposals directed at curtailing currency attacks

entrepreneurship social mobility and income redistribution in south india development economists have been preoccupied with the problem of increasing the size of the gnp pie to the relative neglect of its distribution despite the recent disenchantment with the viewpoint that all classes share in the benefits of industrial growth empirical data on the distribution of income business opportunity and economic power are in short supply many of the studies on entrepreneurship and economic development when they are not apologetics for ruthless capitalist exploitation as paul baran suggests extol the achievements of the capitalist entrepreneur without examining class origins and monopoly advantage joseph schumpeter sees entrepreneurs irrespective of class origin as heroic figures with the dream and will to found a private kingdom to conquer adversity to achieve success for its own sake and to experience the joy of creation for gustav papanek 1967 the private entrepreneur who is frugal diligent far sighted remarkably able and willing to take political risks is in large part responsible for the success of pakistan in achieving rapid industrialization

the effect of income taxation on the labor supply of married men in sweden abstract this paper presents labor supply functions estimated on a sample of prime age swedish males the model used takes account of the nonlinear character of individuals budget sets caused by the progressive income tax it also allows preferences to vary between individuals calculations with the estimated functions using a partial equilibrium framework indicate a sizeable effect of the income tax on hours of work the average expected deadweight loss of the income tax is found to be approximately 20 percent of tax revenue

who matters in coordination problems we consider a common investment project that is vulnerable to a self fullling coordination failure and hence is strategically risky based on their private information agents who have heterogeneous investment incentives form expectations or sentiments about the project s outcome we nd that the sum of these sentiments is constant across dierent strategy proles and it is independent of the distribution of incentives as a result we can think of sentiment as a scarce resource divided up among the dierent payo types applying this nding we show that agents who benet little from the project s success have a large impact on the coordination process the agents with small benets invest only if their sentiment towards the project is large per unit investment cost as the average sentiment is constant a subsidy decreasing the investment costs of these agents will free up a large amount of sentiment provoking a large impact on the whole economy intuitively these agents insensitive to the project s outcome and hence to the actions of others are inuential because they modify their

do high interest rates defend currencies during speculative attacks new evidence kraay kraay a 2003 do high interest rates defend currencies during speculative attacks journal of international economics 59 297 321 documents the lack of any systematic association between monetary policy and the outcome of a speculative attack this paper revisits kraay s work and modifies it by introducing an improved measure of monetary policy and an additional country specific fundamental short term corporate debt to capture balance sheet vulnerabilities emphasized by the recent currency crises literature the results show that for low levels of short term corporate debt raising interest rates lowers the probability of a successful attack this effect decreases and eventually reverses for higher levels of debt these findings contrast earlier empirical evidence and imply a fundamental reconsideration of the role of monetary policy during currency crises

the forgotten history of domestic debt there is a rich scholarly literature on sovereign default on external debt comparatively little is known about sovereign default on domestic debt even today cross country data on domestic public debt remains curiously exotic particularly prior to the 1980s we have filled this gap in the literature by compiling a database on central government public debt external and domestic the data span 1914 to 2010 for most countries reaching back into the nineteenth century and earlier for many our findings here on debt sustainability sovereign defaults the temptation to inflate and the hierarchy of creditors only scratch the surface of what the domestic public debt data can reveal first domestic debt is big for the 64 countries for which we have long time series domestic debt accounts for almost two thirds of total public debt for most of the sample this debt carries a market determined interest rate except for the financial repression era between wwii and financial liberalization second the data go a long way toward explaining the puzzle of why countries so often default on their external debts at seemingly low debt thresholds third domestic debt has largely been ignored in the vast empirical work on inflation in fact domestic debt a significant portion of which is long term and nonindexed is often much larger than the monetary base in the run up to high inflation episodes last the widely held view that domestic residents are strictly junior to external creditors does not find broad support

forward guidance communication commitment or both abstract forward guidance has been suggested as a form of commitment odyssean by the policymaker or as a way of conveying information delphic i analyze the interaction between households and the central bank as a game in which the central bank sends messages without private information the set of equilibrium payoffs is independent of any announcements pure odyssean forward guidance is redundant with private information communication can have social value forward guidance is well suited to leverage preexisting credibility to communicate a central bank s private information about its own preferences or beliefs

international passenger transport and climate change a sector analysis in car demand and associated co2 emissions from 2000 to 2050 abstract the paper provides global regionalized projections of passenger car demand use and associated co 2 emissions from 11 world regions the study is based on empirical data that have been originally collated from international sources for the purpose of modeling region specific car stock demand derived demands serve as indicator of car related fuel consumption and associated co 2 emissions which are calculated on the basis of behavioral and technological scenarios the obtained co 2 emission paths are sectoral baseline scenarios that identify region specific potentials of growth in car induced co 2 emissions assuming that current trends continue to prevail the study adopts a multi model approach to car demand by applying two methodologies rooted in the economics of consumption utility maximization and single equation models the utility maximization method for modeling car demand is driven by the preferences of the representative consumers of each world region subject to exogenous price and income trajectories the latter is adopted from an optimal growth model this is a novel approach to projecting global regionalized sectoral car demands the study is complemented by the application of single equation income consumption models based on logistical gompertz functions and non linear regression techniques to compare model results

self fulfilling debt crises what can monetary policy do this paper examines the potential for monetary policy to avoid self fulfilling sovereign debt crises we combine a version of the slow moving debt crisis model proposed by lorenzoni and werning 2014 with a standard new keynesian model monetary policy could preclude a debt crisis through raising inflation and output and lowering the real interest rate these reduce the real value of outstanding debt and the cost of new borrowing and increase tax revenues and seigniorage we determine the optimal path of inflation required to avoid a self fulfilling debt crisis stronger price rigidity implies more sustained inflation

comment on when does a central bank s balance sheet require fiscal support by marco del negro and christopher a sims abstract a central bank is insolvent if its plans imply a ponzi scheme on reserves so the price level becomes infinity if the central bank enjoys fiscal support in the form of a dividend rule that pays out net income every period including when it is negative it can never become insolvent independently of the fiscal authority otherwise this note distinguishes between intertemporal insolvency rule insolvency and period insolvency while period and rule solvency depend on analyzing dividend rules and sources of risk to net income evaluating intertemporal solvency requires overcoming the difficult challenge of measuring the present value of seignorage

ecb policy and eurozone fragility was de grauwe right paul de grauwe s eurozone fragility hypothesis states that sovereign debt markets in a monetary union without a lender of last resort are vulnerable to self fulfilling dynamics fuelled by pessimistic investor sentiment that can trigger default we test this contention by applying an eclectic methodology to a two year window around mario draghi s whatever it takes pledge that can be understood as the implicit announcement of the outright monetary transactions omt program a principal components analysis reveals that the perceived commonality in default risk among peripheral and core eurozone sovereigns increased after the announcement an event study reveals significant pre announcement news transmission from spain to italy france belgium and austria that clearly dissipates post announcement country specific regressions of cds spreads on systematic risk factors reveal frequent days of large adverse shocks affecting simultaneously those five eurozone countries but only during the pre announcement period altogether these findings support the fragility hypothesis and endorse the omt program

sovereign debt migration pressure and government survival as soon as the sovereign debt crisis began it was widely understood that germany s response would dictate its ultimate resolution whereas the initial round of bailouts stabilized markets and pres

sovereign default the role of expectations we study a variation of the standard model of sovereign default as in aguiar and gopinath 2006 or arellano 2008 and show that this variation is consistent with multiple interest rate equilibria some of those equilibria correspond to the ones identi ed by calvo 1988 where default is likely because rates are high and rates are high because default is likely the model is used to simulate equilibrium movements in sovereign bond spreads that resemble sovereign debt crises it is also used to discuss lending policies similar to the ones announced by the european central bank in 2012

catalysing private capital flows do imf programmes work as commitment devices in this article we examine whether imf programmes influence the ability of developing country issuers to tap international bond markets and if they improve spreads paid on the bonds issued we find that fund programmes do not provide a uniformly favourable signalling effect instead the evidence is most consistent with a positive effect of imf programmes when they are viewed as likely to lead to policy reform and when undertaken before economic fundamentals have deteriorated significantly the size of the fund s programme matters but the credibility of a joint commitment by the country and the imf appears to be critical enhancing its members access to international capital markets is widely regarded as an important objective of the international monetary fund imf or fund though the objective is not an explicitly stated purpose in the fund s articles of agreements the flow of international capital is essential to such stated purposes as the stability of the international monetary system efficient trade and productive resource use and to providing confidence when a member country experiences difficulties with its balance of payments 1 the fund s interest in private international capital flows has moreover increased over the last decade reflecting this evolution the fund s former managing

sovereign default private sector creditors and the ifis abstract the data reveal that emerging market sovereign borrowing from international financial institutions ifis is small intermittent and countercyclical compared to that from private sector creditors the ifi loan contracts offered to sovereigns differ from the private ones in that they are more enforceable and have conditionality arrangements attached to them taking these contractual differences as given this paper builds a quantitative model of a sovereign borrower and argues that better enforceability of ifi loan contracts is the main institutional feature that explains the size and cyclicality while conditionality accounts for the intermittency of borrowing from the ifis

a primer on global games applied to macroeconomics and finance this paper shows how to solve global games applied to macroeconomics and finance we ascertain the roles of public and private information for the determination of a unique equilibrium and discuss the informative role of market prices we examine the impact of public information on social welfare comparing models with and without complementarities at the aggregate level

sovereign default exit and contagion in a monetary union abstract the european sovereign debt crisis is characterized by the simultaneous surge in borrowing costs in the gips countries after 2008 we present a theory which can account for the behavior of sovereign bond spreads in southern europe between 1998 and 2012 our key theoretical argument is related to the bail out guarantee provided by a monetary union which endogenously varies with the number of member countries in sovereign debt trouble we incorporate this theoretical foundation in an otherwise standard small open economy dsge model and explain i the convergence of interest rates on sovereign bonds following the european monetary integration in late 1990s and ii following the heightened default risk of greece the sudden surge in interest rates in countries with relatively sound economic and financial fundamentals we calibrate the model to match the behavior of the portuguese economy over the period of 1998 to 2012

comment on a probability based stress test of federal reserve assets and income by jens h e christensen jose a lopez and glenn d rudebusch

taxing residential housing capital this paper discusses the main aspects of the taxation of housing drawing on general principles of optimal taxation it focuses on the role of the property tax in achieving neutrality between rental and owner occupied housing assuming that landlords are taxed according to a neutral profits tax it follows that the property tax should be based on the rate of interest the paper discusses how the tax rate could be adjusted to account for the lack of effective taxation of capital gains the double taxation of dividends and the differences in the cost of labour between rental and owner occupied housing in most oecd countries the combined effect of the different housing taxes amounts to a tax subsidy to owner occupied housing it is demonstrated how this subsidy has been reduced in sweden as in many other countries in the past decade as a result of tax reforms and a lower rate of inflation the subsidy has effects on consumption patterns saving capital accumulation the distribution of welfare across gener

scenarios for regional passenger car fleets and their co2 emissions passenger car traffic is among the main contributors to anthropogenic greenhouse gas ghg emissions which are responsible for climate change it is also an important indicator used to forecast these emissions in integrated climate economic models this paper develops scenarios for global passenger car stock until 2050 the study adopts a global regionalized approach encompassing 11 world regions car stock projections are obtained using a multi model approach which includes a consumer demand model based on utility maximization a non linear gompertz model and a panel estimate of the income elasticity of demand for cars the main hypothesis underlying these projections is that preferences for purchasing cars are similar across cultures and nations and that the demand for cars is largely determined by disposable income we apply scenarios for the average traffic volume and fuel efficiency developed in previous work together with the average carbon content of fuels to obtain the co2 emissions

inflationary finance under discrepion and rules inflationary finance involves first the tax on cash balances from expected inflation and second a capital levy from unexpected inflation from the standpoint of minimizing distortions these capital levies are attractive ex post to the policymaker in a full equilibrium two conditions hold 1 the monetary authority optimizes subject to people s expectations mechanisms and 2 people form expectations rationally given their knowledge of the policymaker s objectives the outcomes under discretionary policy are contrasted with those generated under rules in a purely discretionary regime the monetary authority can make no meaningful commitments about the future behavior of money and prices under an enforced rule it becomes possible to make some guarantees hence the links between monetary actions and inflationary expectations can be internalized there is a distinction between fully contingent rules and rules of simple form a simple rule allows the internalization of some connections between policy act ion and inflationary expectations but discretion permits some desirable flexibility of monetary growth this abstract was borrowed from another version of this item

extensive margins and the demand for money at low interest rates we argue that the relevant monetary decision for the majority of u s households is not the fraction of assets to be held in interest bearing form but whether to hold any such assets at all we call this the decision to adopt the financial technology we show that the key variable governing the adoption decision is the product of the interest rate times the total amount of assets this implies that the interest elasticity of household money demand at low interest rates can be estimated from the variation in asset holdings in a cross section of households rather than historical interest rate variations we do so with the 1989 survey of consumer finances we find that a the elasticity of money demand is very small when the interest rate is small b the probability that a household holds any amount of interest bearing assets is positively related to the level of financial assets and c the cost of adopting financial technologies is negatively related to participation in a pension program at intere

the mystique surrounding the central bank s balance sheet applied to the european crisis abstract a central bank s resource constraint bounds the dividends it can distribute by the present value of seignorage which is a modest share of gdp this is in spite of the mystique behind a central bank s balance sheet moreover the statutes of the federal reserve or the ecb make it difficult for it to redistribute resources across regions in a simple model of sovereign default where multiple equilibria arise if debt repudiation lowers fiscal surpluses the central bank may help to select one equilibrium the central bank s main lever over fundamentals is to raise inflation but otherwise the balance sheet gives it little leeway

fiscal requirements for price stability maintaining price stability requires not only commitment to an appropriate monetary policy rule but an appropriate scal policy rule as well ricardian equivalence does not imply that scal policy is irrelevant except in the case of a certain class of policies ricardian policies the role of scal developments in inflation determination under a non ricardian regime is illustrated through an analysis of the bond price support regime of the 1940s a monetary scal regime with attractive properties would combine a taylor rule for monetary policy with nominal decit targeting as a scal policy commitment

exit strategies for monetary policy abstract in response to the financial crisis of 2007 08 all major central banks decreased interest rates to historically low levels and created large excess reserves central bankers and academics currently discuss how to implement monetary policy going forward we find that paying interest on reserves ior is optimal if the central bank has full fiscal support if the central bank has no fiscal support reducing reserves is optimal this can be achieved by reserve absorbing operations which hold the size of the balance sheet constant or by selling assets which reduces the size of the balance sheet

the mystery of the printing press monetary policy and self fulfilling debt crises we study the mechanism by which unconventional balance sheet monetary policy can rule out self fulfilling sovereign default in a model with optimizing but discretionary fiscal and monetary policymakers by purchasing sovereign debt the central bank e ectively swaps risky government paper for monetary liabilities only exposed to inflation risk thus yielding a lower interest rate we characterize a critical threshold for central bank purchases beyond which absent fundamental fiscal stress the government strictly prefers primary surplus adjustment to default since default may still occur for fundamental reasons however the central bank faces the risk of losses on sovereign debt holdings which may generate ine cient inflation this risk does not undermine the credibility of a backstop nor the ability of a central bank to pursue its inflation objectives when the latter enjoys fiscal backing or fiscal authorities are su ciently averse to inflation

tax reform and housing demand the distribution of welfare gains and losses abstract we study distributional effects of a recent reform of the swedish system of income taxation which affects the price of owner occupied housing in calculating the welfare effects we account both for the non linearities of the income tax schedule and the dichotomous choice aspect of housing demand to own or to rent small and rosen 1981 have shown how the standard harberger type approximation formulae can be adapted to handle discrete choices and we modify their analysis for a non linear budget constraint

the ecb s omts a tale of governments investors and the central bank this paper analyses official financial assistance via esm programmes with and without the ecb s omts as long as macroeconomic imbalances are small esm stand alone programmes galvanize creditors into rolling over their loans alleviate the liquidity crisis and help the country to implement adjustment policies yet the impact of fiscal consolidation and structural reforms is likely to be recessionary in the short run since these reforms take a long time to pay off recessionary effects raise strategic uncertainty in the roll over decisions of creditors thus reducing the effectiveness of esm liquidity assistance with large imbalances liquidity problems can only be overcome with credible and sizable official assistance adding omts to an esm programme mitigates the policy dilemma but does not fully restore investor confidence when macroeconomic imbalances are too large

cooperative monetary and fiscal policies in the euro area this article discusses the interaction of fiscal and monetary policy in the euro area though many observers suggest a fiscal union as the next step of euro area constitutional reform a federal fiscal union does not appear politically feasible in the short run we suggest moving forward with cooperative monetary and fiscal institutions and policies that allow for decentralized fiscal decisions while taking federal stabilization policies into account this approach will increase the probability of survival of the euro area compared with the current fiscal arrangements using a dynamic macro model counterfactual simulation paths of our cooperative solution are contrasted with time series data for the euro area

the perils of taylor rules abstract since john taylor s 1993 carnegie rochester conf ser publ policy39 195 214 seminal paper a large literature has argued that active interest rate feedback rules that is rules that respond to increases in inflation with a more than one for one increase in the nominal interest rate are stabilizing in this paper we argue that once the zero bound on nominal interest rates is taken into account active interest rate feedback rules can easily lead to unexpected consequences specifically we show that even if the steady state at which monetary policy is active is locally the unique equilibrium typically there exist an infinite number of equilibrium trajectories originating arbitrarily close to that steady state that converge to a liquidity trap that is a steady state in which the nominal interest rate is near zero and inflation is possibly negative journal of economic literature classification numbers e52 e31 e63

historical research on international lending and debt the parallels between debt crises past and present have attracted a large number of social scientists to the history of foreign lending and default in this article i describe the findings of the recent literature on the subject the questions posed have obvious relevance to the current policy debate over the debt of less developed countries what features of international capital markets have long rendered them vulnerable to generalized crisis what events tend to spawn debt servicing difficulties and to provoke default what have been the consequences of default for lenders and borrowers what approaches historically have proven most effective at clearing away the residue of debt crises i concentrate on 20th century experience on the lending of the 1920s on the debt crisis of the 1930s and on the recovery of capital markets after world war ii

currency composition of foreign exchange reserves abstract this paper analyses the factors that govern the choice of the currency composition of official foreign exchange reserves first we introduce a new panel dataset on the key currencies in foreign exchange reserves of about 60 economies in the 1999 2017 period second we show that the currency composition of reserves relates strongly to the co movement of the domestic currency with key currencies and the currency invoicing of trade these factors represent attributes of the dollar or the euro rather than of the united states or the euro area they exert about equal effects on the currency composition of foreign exchange reserves we demonstrate that these findings are robust to a host of other possible factors

sovereign debt with heterogeneous creditors we develop a sovereign debt model with heterogeneous creditors private and official where the probability of default depends on both the level and the composition of debt higher exposure to official lenders improves incentives to repay due to more severe sanctions but it is also costly because it lowers the value of the sovereign s default option the model can account for the co existence of private and official lending the time variation in their shares in total debt as well as the low rates charged on both it also produces intertwined default and debt composition choices

is the pragmatic response to international monetary fund quotas and credit limits favourable under the international monetary fund imf s recently developed pragmatic response the amount a member can borrow is not determined by its quota we consider two pragmatic responses that produce a pareto improvement compared with the imf rule one mandated by the imf and the other related to the trade of the additional credit limit in the market both these responses indicate that the additional credit limit on top of the imf rule should be positive negative for a country whose investment return is larger smaller than the average investment return across all imf member developing countries the rule for the imf credit limit does not reflect the demand for credit which induces inefficiency the first pragmatic response which has an appropriately small negotiation and distribution cost per unit incurred by the imf may dominate the second one

revisiting imf expenditure conditionality we study the long run relationship between expenditure conditionality in imf programmes and the composition of public spending we compile a granular dataset on government expenditure conditions in

the short run comparative statics of a rental housing market abstract this paper examines the short run effects of changes in exogenous variables including several government policies on the schedule relating market equilibrium rent to quality level the basic model differs from sweeney econometrica 42 147 167 1974 by use of a bid rent closed city approach rather than a supply and demand partially open city approach the mathematics changes completely the analytics simplify and the results change somewhat housing is treated as a durable quality differentiated good but frictional forces and the multidimensionality of the housing package are ignored the exception is an extension to a monocentric city context so that housing units vary in both quality and location

sovereign default risk and commitment for fiscal adjustment abstract this paper studies fiscal policy in a model of sovereign debt and default a time inconsistency problem arises since the price of past debt cannot be affected by current fiscal policy and governments cannot credibly commit to a certain path of tax rates debtor countries choose suboptimally low fiscal adjustments an international organization capable of designing a contract that coaxes debtors into a tougher fiscal stance via the provision of cheap senior lending in times of crisis can work as a commitment device and improve social welfare

how can imf policy eliminate country moral hazard and account for externalities abstract costly crisis prevention has positive external effects which leads to free riding of governments on each other s efforts ordinary imf loans aggravate existing externalities reinforcing the under investment problem we consider the reform proposals of the meltzer commission in both loan and insurance models and show how the imf can eliminate country moral the efficiency ensuring loan policy accounts for given externalities and involves effort contingent discounts on interests or the extension of credit volume similar results hold for the insurance framework ex ante participation requires that smaller countries be subsidized by large ones or that imf policy consider distributional aspects in addition to efficiency

revealed and stated preferences for co2 emissions reduction the missing link abstract in this paper we combine data collected from two strands of literature dealing with revealed preferences expressed by conventional vehicle drivers for fuel price variation and stated preferences expressed by consumers for alternative fuel vehicles we employ a meta analysis approach drawing data on 30 primary studies reflecting two important policy interventions which are fuel price taxation and subsidies for alternative fuel vehicles this is a new contribution in environmental and energy economics in that we rescale all primary information into a unique index which captures consumers economic attitude towards carbon dioxide co2 emission reduction in monetary terms focusing on the transport sector we compute the implicit price for the avoidance of a kilogram of co2 emissions named pco2 explaining the existing heterogeneity from several points of view the results of the meta analysis show that contextual and individual characteristics influence the implicit price for co2 emissions avoidance this implicit price is on average positive in the case of revealed preferences studies whereas it is negative in the stated preferences studies although there are some important geographical differences our results show that fuel taxes could be an important additional instrument for environmental policy

an experimental investigation of moral hazard in costly investments frequently parties make sequential decisions regarding investments for which the probability of success or failure is dependent on the amount of total investment this paper reports a series of experiments involving a costly investment game that is derived from the catalytic finance model of morris and shin global games theory and applications in advances in economics and econometrics proceedings of the eighth world congress of the econometric society edited by m dewatripont l hansen and s turnovsky cambridge ma cambridge university press pp 56 114 the sequential nature of investments is such that the second investment could function as a complement to the initial investment or simply serve as a substitute to it thereby creating moral hazard the features of this game are similar to those of the ultimatum game however there are several key differences between the games that may account for the high frequency of materially self interested behavior that we observe particularly among second movers

banking crises and the lender of last resort how crucial is the role of information this article develops a model of bank runs and crises and analyses how the presence of a lender of last resort lolr affects the solvency of the banking system we obtain a one to one mapping from the depositors equilibrium strategy to an optimal contract prevailing in the economy the study finds that the difference between a perfectly informed and an imperfectly informed lolr can be crucial our results indicate that a perfectly informed lolr is a pareto improvement however if the supervisory process of the lolr is subject to noise then the gains from ex post efficiency may be outweighed by ex ante inefficiency induced by moral hazard which is conducive to lower lending rates in the economy

effects of the swedish 1983 85 tax reform on the demand for owner occupied housing a microsimulation approach the effects of the swedish 1983 85 tax reform are analyzed with respect to the housing market a microsimulation model is used which takes into account the household s tenure choice owning vs renting as well as the quantity demanded conditional on the tenure choice the reform consists of a reduction in marginal tax rates and limitations on the deductibility of mortgage interest the simulations show that this will cause a general reduction in demand for owner occupied houses on a disaggregated level there will be an increase in the demand for small and medium sized houses while the demand for large units will fall sharply

transport and energy demand in mexico the personal income shock abstract the paper examines the impact on gasoline demand in mexico that may arise from the identified surge in number of private vehicles that occurs in developing countries when a certain income per capita is reached insofar as the country s gdp capita in the year 2000 is extremely close to the threshold value rapid automobile growth scenarios corresponding to different economic growth rates are compared with a business as usual one to exhibit the corresponding surge in gasoline demand to be expected from this personal income shock its occurrence requires to reassess not only the current energy supply policies but also the environmental ones

inflation default and sovereign debt the role of denomination and ownership abstract emerging market governments hold mixed debt portfolios they borrow at home and abroad in both nominal and real terms this paper incorporates such a mixed debt structure into a theory of sovereign debt default and inflation the government optimally uses both default and inflation to balance its budget the portfolio structure affects the relative benefits of inflation default and incentives to accumulate debt a calibrated version of the model can account for key features of the mexican economy we use the model to study if portfolio shifts away from purely real and external debt contributed to emerging market disinflation in the mid 1990s we find that the answer depends on the distinction between ownership and denomination increasingly nominal debt is inflationary if held abroad but lowers inflation if held at home

a quantitative model of international lending of last resort abstract we analyze banking crises and lending of last resort lolr in a quantitative model of financial frictions with bank defaults lolr policies generate a tradeoff between financial fragility due to more highly leveraged banks and milder crises since the policies are effective once in a crisis in the calibrated model the crisis mitigation effect dominates the moral hazard problem and the economy is better off having access to a lender of last resort we characterize the conditions under which pools of small economies can be sustainable lolrs in addition we assess the ability of china a country with ample reserves to be a sustainable international lolr

coordination failures and the lender of last resort was bagehot right after all the classical doctrine of the lender of last resort lolr elaborated by bagehot 1873 asserts that the central bank should lend to illiquid but solvent banks under certain conditions several authors have argued that this view is now obsolete in modern interbank markets a solvent bank cannot be illiquid this paper provides a possible theoretical foundation for rescuing bagehot s view our theory does not rely on the multiplicity of equilibria that arises in classical models of bank runs we built a model of banks liquidity crises that possesses a unique bayesian equilibrium in this equilibrium there is a positive probability that a solvent bank cannot find liquidity assistance in the market we derive policy implications about banking regulation solvency and liquidity ratios and interventions of the lender of last resort furthermore we find that public bailout and private bail in involvement are complementary in implementing the incentive efficient solution and that bagehot s lender of last resort facility must work together with institutions providing prompt corrective action and orderly failure resolution finally we derive similar implications for an international lender of last resort ilolr jel g21 g28

optimal bank transparency increasing transparency is recurrently offered as a centerpiece of bank regulation we study a competitive banking sector whose illiquid assets are funded by short term debt that must be refinanced we show that welfare is a nonmonotonic function of the level of transparency increasing transparency fosters efficient liquidation but has an adverse effect on rollover risk given the level of risk banks may compensate this adverse effect by taking more risk these offsetting effects render an intermediate level of transparency optimal moreover the existence of negative social externalities of bank failures calls for making banks more opaque rather than more transparent

reverse speculative attacks abstract in january 2015 in the face of sustained capital inflows the swiss national bank abandoned the floor for the swiss franc against the euro a decision which led to the appreciation of the swiss franc the objective of this paper is to present a simple numerical framework that helps to better understand the timing of this episode which we label a reverse speculative attack we model a central bank which wishes to maintain a peg and responds to increases in demand for domestic currency by expanding its balance sheet in contrast to the classic speculative attacks which are triggered by the depletion of foreign assets reverse attacks are triggered by the concern of future balance sheet losses our key result is that the interaction between the desire to maintain the peg and the concern about future losses can lead the central bank to first accumulate a large amount of reserves and then to abandon the peg just as we have observed in the swiss case

the effectiveness of the ecb s unconventional monetary policy comparative evidence from crisis and non crisis euro area countries abstract during the european financial crisis the european central bank implemented a series of unconventional monetary policy measures we argue that these programs lowered the bond yield spreads of euro area countries this hypothesis is tested using pooled ols estimations and two different datasets monetary policy event dummies and the purchase volumes of the securities markets programme smp overall we find significantly negative effects on bond yield spreads for both datasets leading us to accept the hypothesis while the omt reduces the spreads of both crisis and non crisis countries ltros and the lowering of the deposit rate to 0 percent are mainly effective in non crisis countries the smp lowers the spreads of crisis countries but it has the opposite effect on non crisis countries this converse effect is explained by the risk that increasingly accumulates on the ecb s balance sheet through the smp and that way constitutes a fiscal risk for non crisis countries the results are confirmed by pooled ols estimations that measure the effect of unconventional monetary policy on central government debt

perils of unconventional monetary policy abstract unconventional monetary policy by relaxing restrictions on the composition of the balance sheet of the central bank compromises control over the stochastic path of inflation or in open economies over the stochastic path of exchange rates if the composition of the balance sheet is unrestricted then the path of inflation is indeterminate this is the case under pure quantitative easing where the target is the size of real money balances in contrast credit easing policies restrict the composition of the portfolio by targeting a specific expansion in the maturity profile of bonds bought and thus can implement a determinate path of inflation the composition of the portfolios traded by monetary fiscal authorities also determines premia in asset and currency markets

speculative runs on interest rate pegs abstract we analyze a new class of equilibria that emerges when a central bank conducts monetary policy by setting an interest rate as an arbitrary function of its available information and letting the private sector set the quantity traded these equilibria involve a run on the central bank s interest target whereby money grows fast private agents borrow as much as possible against the central bank and the shadow interest rate is different from the policy target we argue that these equilibria represent a particular danger when banks hold large excess reserves such as is the case following periods of quantitative easing our analysis suggests that successfully managing the exit strategy requires additional tools beyond setting interest rate targets and paying interest on reserves in particular freezing excess reserves or fiscal policy intervention may be needed to fend off adverse expectations

on the fit of new keynesian models this article provides new tools for the evaluation of dynamic stochastic general equilibrium dsge models and applies them to a large scale new keynesian model we approximate the dsge model by a vector autoregression and then systematically relax the implied cross equation restrictions and document how the model fit changes we also compare the dsge model s impulse responses to structural shocks with those obtained after relaxing its restrictions we find that the degree of misspecification in this large scale dsge model is no longer so large as to prevent its use in day to day policy analysis yet is not small enough to be ignored

tenure issues in higher education the system of tenure that dominates american higher education has long been a source of controversy the institution of tenure has been attacked for entrenching a lazy professoriate more interested in attending faraway conferences and producing unreadable research than in teaching or developing practical insights while on the other hand it has long been defended as an absolute necessity for the defense of open intellectual inquiry the tenure controversy has been sharpened in recent years by several events the end of mandatory retirement which was abolished by federal law effective january 1 1994 has heightened concerns about the productivity and commitment of professors who received tenure long ago and who no longer have the same incentives to invest in long term reputation there is also ongoing concern over the steadily rising cost of higher education which raises the question of what students as well as the taxpayers who support public institutions of higher education are getting for their money 1 the idea that tenure is a wasteful institution for universities runs up against the puzzling fact that the commitment to tenure is one that academic institutions impose on themselves although the american association of university professors aaup provides a powerful lobby in favor of tenure generally colleges and universities most notably private ones are under no legal requirement to observe tenure constraints although as administrators we certainly feel the weight of those constraints our view is that a tenure system in fact provides important benefits to society and to colleges and universities we argue here that the role of tenure is

coordination risk and the price of debt abstract creditors of a distressed borrower face a coordination problem even if the fundamentals are sound fear of premature foreclosure by others may lead to pre emptive action undermining the project recognition of this problem lies behind corporate bankruptcy provisions across the world and it has been identified as a culprit in international financial crises but has received scant attention from the literature on debt pricing without common knowledge of fundamentals the incidence of failure is uniquely determined provided that private information is precise enough this affords a way to price the coordination failure comparative statics on the unique equilibrium provides several insights on the role of information and the incidence of inefficient liquidation

country solidarity in sovereign crises when will solidarity which emerges spontaneously from the fear of spillovers be reinforced through contracting the optimal pact between countries that differ substantially in their probability of distress is a simple debt contract with market financing a borrowing cap but no joint liability while joint liability augments total surplus the borrowing country cannot compensate the deep pocket guarantor by contrast the optimal pact between two countries symmetrically exposed to shocks with an arbitrary correlation is a simple debt contract with joint liability provided that shocks are sufficiently independent spillovers sufficiently large liquidity needs moderate and available sanctions sufficiently tough

catalytic finance when does it work in a model of debt crisis caused partly by creditor coordination failure we show that bailouts that reduce ex post inefficiency will sometimes enhance the incentives for governments to take costly adjustment effort this model helps us understand a debate about the role of the imf in catalyzing lending to developing countries

risk endogeneity at the lender investor of last resort abstract to what extent can a central bank influence its own balance sheet credit risks during a financial crisis through unconventional monetary policy operations to study this question we develop a risk measurement framework to infer the time variation in portfolio credit risks at a high weekly frequency focusing on the eurosystem s experience during the euro area sovereign debt crisis between 2010 and 2012 we find that the announcement and implementation of unconventional monetary policy operations generated beneficial risk spill overs across policy portfolios this caused overall risk to be nonlinear in exposures in some instances the eurosystem reduced its overall balance sheet credit risk by doing more in line with bagehot s well known assertion that occasionally only the brave plan is the safe plan

credit rating and debt crises we develop an equilibrium theory of credit rating in the presence of rollover risk by influencing rational creditors ratings affect sovereigns probability of default which in turn affects ratings our analysis reveals a pro cyclical impact of credit rating in equilibrium the presence of a rating agency increases default risk when it is high and decreases default risk when it is low