Creator: Livshits, Igor, MacGee, James C., and Tertilt, Michèle Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 617 Abstract:
American consumer bankruptcy provides for a Fresh Start through the discharge of a household’s debt. Until recently, many European countries specified a No Fresh Start policy of life-long liability for debt. The trade-off between these two policies is that while Fresh Start provides insurance across states, it drives up interest rates and thereby makes life-cycle smoothing more difficult. This paper quantitatively compares these bankruptcy rules using a life-cycle model with incomplete markets calibrated to the U.S. and Germany. A key innovation is that households face idiosyncratic uncertainty about their net asset holdings (expense shocks) and labor income. We find that expense uncertainty plays a key role in evaluating consumer bankruptcy laws.
Subject (JEL): K35 - Personal Bankruptcy Law, D91 - Micro-Based Behavioral Economics: Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making, and D14 - Household Saving; Personal Finance
Creator: Köppl, Thorsten V. and MacGee, James C. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 608 Abstract:
Banks have historically provided mutual insurance against asset risk, where the insurance arrangement itself was characterized by limited enforcement. This paper shows that a non-trivial interaction between asset and liquidity risk plays a crucial role in shaping optimal banking arrangements in the presence of limited enforcement. We find that liquidity shocks are essential for the provision of insurance against asset shocks, as they mitigate interbank enforcement problems. These enforcement problems generate endogenous aggregate uncertainty as investment allocations depend upon the joint distribution of shocks. Paradoxically, a negative correlation between liquidity and asset shocks ameliorates enforcement limitations and facilitates interbank cooperation.
Creator: Kehoe, Timothy Jerome, 1953- and Prescott, Edward C. Description:
The worldwide Great Depression of the 1930s was a watershed for both economic thought and economic policymaking. It led to the belief that market economies are inherently unstable and to the revolutionary work of John Maynard Keynes. Its impact on popular economic wisdom is still apparent today.
This book, which uses a common framework to study sixteen depressions, from the interwar period in Europe and America as well as from more recent times in Japan and Latin America, challenges the Keynesian theory of depressions. It develops and uses a methodology for studying depressions that relies on growth accounting and the general equilibrium growth model.
Each chapter of the book is accompanied by a data file that contains all of the data used in the analysis. These files can be found in the Great Depressions of the Twentieth Century: Supporting Data and Code collection.
Table of Contents
Great Depressions of the Twentieth Century by Timothy J. Kehoe and Edward C. Prescott
A Second Look at the U.S. Great Depression from a Neoclassical Perspective by Harold L. Cole and Lee E. Ohanian
The Great U.K. Depression: A Puzzle and Possible Resolution by Harold L. Cole and Lee E. Ohanian
The Great Depression in Canada and the United States: A Neoclassical Perspective by Pedro Amaral and James C. MacGee
The French Depression in the 1930s by Paul Beaudry and Franck Portier
The Role of Real Wages, Productivity, and Fiscal Policy in Germany's Great Depression, 1928-37 by Jonas D. M. Fisher and Andreas Hornstein
The Great Depression in Italy: Trade Restrictions and Real Wage Rigidities by Fabrizio Perri and Vincenzo Quadrini
Argentina's Lost Decade and the Subsequent Recover Puzzle by Finn E. Kydland and Carlos E. J. M. Zarazaga
A Decade Lost and Found: Mexico and Chile in the 1980s by Raphael Bergoeing, Patrick J. Kehoe, Timothy J. Kehoe, and Raimundo Soto
The 1990s in Japan: A Lost Decade by Fumio Hayashi and Edward C. Prescott
The Brazilian Depression in the 1980s and 1990s by Mirta S. Bugarin, Roberto Ellery Jr., Victor Gomes, and Arilton Teixeira
Tariffs and the Great Depression Revisited by Mario J. Crucini and James A. Kahn
Recent Great Depressions: Aggregate Growth in New Zealand and Switzerland by Timothy J. Kehoe and Kim J. Ruhl
What Can We Learn from the 1998-2002 Depression in Argentina? by Timothy J. Kehoe
Prosperity and Depression by Edward C. Prescott
Modeling Great Depressions: The Depression in Finland in the 1990s by Juan Carlos Conesa, Timothy J. Kehoe, and Kim J. Ruhl