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Creator: Bryant, John B. and Wallace, Neil Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 189 Palavra-chave: Prohibition, Government debt, Rate of return dominance, and Private currency Sujeito: E40 - Money and Interest Rates: General and E52 - Monetary Policy
Creator: Aiyagari, S. Rao and McGrattan, Ellen R. Series: Staff Reports (Federal Reserve Bank of Minneapolis) Number: 203 Palavra-chave: Borrowing constraints, Precautionary saving, and Government debt Sujeito: H6 - National Budget, Deficit, and Debt and E60 - Macroeconomic policy, macroeconomic aspects of public finance, and general outlook - General
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 494 Abstract:
This paper investigates the macroeconomic and welfare effects of a particular public finance decision. That decision was to use debt rather than current taxation to finance deposit insurance payments related to the savings and loan debacle. We find that this decision could have significantly raised real interest rates and affected welfare. The analysis is conducted in a dynamic, open-economy, monetary general equilibrium model in which parameters are set based on empirical observations.
Palavra-chave: Savings and loan, Welfare, Real interest rates, Deposit insurance, Government debt, Public finance, Taxation, and S & L Sujeito: H63 - National Debt; Debt Management; Sovereign Debt and G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages
Creator: Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 692 Abstract:
A problem facing the United States and many other countries is how to finance retirement consumption as the number of their workers per retiree falls. The problem with a savings for retirement systems is that there is a shortage of good savings opportunities given the nature of most current tax systems and governments’ limited ability to honor the debt it issues. We find that eliminating capital income taxes will greatly increase saving opportunities and make a savings-for-retirement system feasible with only modest amount of government debt. The switch from a system close to the current U.S. retirement system, which relies heavily on taxing workers’ incomes and making lump-sum transfers to retirees, to one without income taxes will increase the welfare of all birth-year cohorts alive today and particularly the welfare of the yet unborn cohorts. The equilibrium paths for the current and alternative policies are computed.
Palavra-chave: Government debt, Tax systems, Efficient taxation, and Quantitative OLG Sujeito: G18 - General Financial Markets: Government Policy and Regulation, G00 - Financial Economics: General, E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), H21 - Taxation and Subsidies: Efficiency; Optimal Taxation, and H61 - National Budget; Budget Systems
Creator: Aiyagari, S. Rao and McGrattan, Ellen R. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 538 Abstract:
We describe a model for calculating the optimal quantity of debt and then apply it to the U.S. economy. The model consists of a large number of infinitely-lived households whose saving behavior is influenced by precautionary saving motives and borrowing constraints. This model incorporates a different role for government debt than the standard representative agent growth model and captures different trade-offs between the benefits and costs of varying its level. Government debt enhances the liquidity of households by providing additional assets for smoothing consumption (in addition to claims to capital) and effectively loosening borrowing constraints. By raising the interest rate, government debt makes assets less costly to hold and more effective in smoothing consumption. However, the implied taxes have wealth distribution, incentive, and insurance effects. Further, government debt crowds out capital (via higher interest rates) and lowers per capita consumption. Our quantitative analysis suggests that the crowding out effect is decisive for welfare. We also describe variations of the model which permit endogenous growth. It turns out that even with lump sum taxes and inelastic labor, government debt as well as government consumption have growth rate effects, thereby implying large welfare gains from reducing the level of debt.
Palavra-chave: Government debt, Borrowing constraints, and Precautionary saving Sujeito: E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General and H60 - National Budget, Deficit, and Debt: General
Creator: Mehra, Rajnish, Piguillem, Facundo, and Prescott, Edward C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 655 Abstract:
There is a large amount of intermediated borrowing and lending between households. Some of it is intergenerational, but most is between older households. The average difference in borrowing and lending rates is over 2 percent. In this paper, we develop a model economy that displays these facts and matches not only the returns on assets but also their quantities. The heterogeneity giving rise to borrowing and lending and differences in equity holdings depends on differences in the strength of the bequest motive. In equilibrium, the lenders are annuity holders and the borrowers are those who have equity holdings, who live off its income when retired, and who leave a bequest. The borrowing rate and return on equity are the same in the absence of aggregate uncertainty. The divergence between borrowing and lending rates can thus give rise to an equity premium, even in a world without aggregate uncertainty.
Palavra-chave: Government debt, Equity premium, Retirement, Aggregate intermediation, Life cycle savings, Borrowing, and Lending Sujeito: E44 - Financial Markets and the Macroeconomy, G23 - Pension Funds; Non-bank Financial Institutions; Financial Instruments; Institutional Investors, H62 - National Deficit; Surplus, G10 - General Financial Markets: General (includes Measurement and Data), E20 - Consumption, Saving, Production, Investment, Labor Markets, and Informal Economy: General (includes Measurement and Data), G11 - Portfolio Choice; Investment Decisions, D31 - Personal Income, Wealth, and Their Distributions, H00 - Public Economics: General, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, and E21 - Macroeconomics: Consumption; Saving; Wealth
Creator: Hur, Sewon, Kondo, Illenin O., and Perri, Fabrizio Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 574 Abstract:
This paper argues that the comovement between inflation and economic activity is an important determinant of real interest rates over time and across countries. First, we show that for advanced economies, periods with more procyclical inflation are associated with lower real rates, but only when there is no risk of default on government debt. Second, we present a model of nominal sovereign debt with domestic risk-averse lenders. With procyclical inflation, nominal bonds pay out more in bad times, making them a good hedge against aggregate risk. In the absence of default risk, procyclical inflation yields lower real rates. However, procyclicality implies that the government needs to make larger (real) payments when the economy deteriorates, which could increase default risk and trigger an increase in real rates. The patterns of real rates predicted by the model are quantitatively consistent with those documented in the data.
Palavra-chave: Inflation risk, Nominal bonds, Government debt, and Sovereign default Sujeito: H63 - National Debt; Debt Management; Sovereign Debt, F34 - International Lending and Debt Problems, G12 - Asset Pricing; Trading Volume; Bond Interest Rates, and E31 - Price Level; Inflation; Deflation