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Frictions in asset pricing and macroeconomics

Creator:: Aiyagari, S. Rao.
Series:: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Number:: 518
Abstract:: This paper is about a useful way of taking account of frictions in asset pricing and macroeconomics. I start by noting that complete frictionless markets models have a number of empirical deficiencies. Then I suggest an alternative class of models with incomplete markets and heterogenous agents which can also accommodate a variety of other frictions. These models are quantitatively attractive and computationally feasible and have the potential to overcome many or all of the empirical deficiencies of complete frictionless markets models. The incomplete markets model can also differ significantly from the complete frictionless markets model on some important policy questions.
Keyword:: Friction, Frictionless market model, Asset pricing, Macroeconomics, and Incomplete markets
Subject:: E13 - General aggregative models - Neoclassical and G12 - General financial markets - Asset pricing ; Trading volume ; Bond interest rates

Margin calls, trading costs, and asset prices in emerging markets : the financial mechanics of the 'sudden stop' phenomenon

Creator:: Mendoza, Enrique G., 1963- and Smith, Katherine A.
Series:: Advances in dynamic economics
Abstract:: "Sudden Stops " experienced during emerging markets crises are characterized by large reversals of capital inflows and the current account, deep recessions, and collapses in asset prices. This paper proposes an open-economy equilibrium asset pricing model in which financial frictions cause Sudden Stops. Margin requirements impose a collateral constraint on foreign borrowing by domestic agents and trading costs distort asset trading by foreign securities firms. At equilibrium, margin constraints may or may not bind depending on portfolio decisions and equilibrium asset prices. If margin constraints do not bind, productivity shocks cause a moderate fall in consumption and a widening current account deficit. If debt is high relative to asset holdings, the same productivity shocks trigger margin calls forcing domestic agents to fire-sell equity to foreign traders. This sets off a Fisherian asset-price deflation and subsequent rounds of margin calls. A current account reversal and a collapse in consumption occur when equity sales cannot prevent a sharp rise in net foreign assets.
Keyword:: Collateral constraints, Fisherian deflation, Emerging markets, Margin calls, Open economy asset pricing, Asset pricing, Sudden stops, Nonlinear dynamics, and Trading costs
Subject:: F32 - International finance - Current account adjustment ; Short-term capital movements, D52 - General equilibrium and disequilibrium - Incomplete markets, E44 - Money and interest rates - Financial markets and the macroeconomy, and F41 - Macroeconomic aspects of international trade and finance - Open economy macroeconomics

Present value procedures for capital investment decision making at Federal Reserve Banks

Creator:: Kaatz, Ronald and Nelson, Clarence W. (Clarence Walford), 1924-
Series:: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Keyword:: Investments, Expenditures, Asset pricing, and Capital spending
Subject:: E22 - Macroeconomics : Consumption, saving, production, employment, and investment - Capital ; Investment ; Capacity, E58 - Monetary policy, central banking, and the supply of money and credit - Central banks and their policies, and G31 - Corporate finance and governance - Capital budgeting ; Fixed investment and inventory studies

Report on present-value procedures for capital investment decision making at the Federal Reserve Bank of Minneapolis, a

Creator:: Kaatz, Ronald and Nelson, Clarence W. (Clarence Walford), 1924-
Series:: Working paper (Federal Reserve Bank of Minneapolis. Research Dept.)
Keyword:: Investments, Expenditures, Asset pricing, and Capital spending
Subject:: E22 - Macroeconomics : Consumption, saving, production, employment, and investment - Capital ; Investment ; Capacity, E58 - Monetary policy, central banking, and the supply of money and credit - Central banks and their policies, and G31 - Corporate finance and governance - Capital budgeting ; Fixed investment and inventory studies

Frictions in asset pricing and macroeconomics

Margin calls, trading costs, and asset prices in emerging markets : the financial mechanics of the 'sudden stop' phenomenon

Present value procedures for capital investment decision making at Federal Reserve Banks

Report on present-value procedures for capital investment decision making at the Federal Reserve Bank of Minneapolis, a

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Frictions in asset pricing and macroeconomics

Margin calls, trading costs, and asset prices in emerging markets : the financial mechanics of the 'sudden stop' phenomenon

Present value procedures for capital investment decision making at Federal Reserve Banks

Report on present-value procedures for capital investment decision making at the Federal Reserve Bank of Minneapolis, a

Limit your search

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