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Creator: Bergoeing, Raphael, Kehoe, Patrick J., Kehoe, Timothy Jerome, 1953-, and Soto, Raimundo Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 292 Abstract:
Chile and Mexico experienced severe economic crises in the early 1980s. This paper analyzes four possible explanations for why Chile recovered much faster than did Mexico. Comparing data from the two countries allows us to rule out a monetarist explanation, an explanation based on falls in real wages and real exchange rates, and a debt overhang explanation. Using growth accounting, a calibrated growth model, and economic theory, we conclude that the crucial difference between the two countries was the earlier policy reforms in Chile that generated faster productivity growth. The most crucial of these reforms were in banking and bankruptcy procedures.
Palabra clave: Depression, Growth accounting, Mexico, Chile, and Total factor productivity Tema: E32 - Business Fluctuations; Cycles, O40 - Economic Growth and Aggregate Productivity: General, and N16 - Economic History: Macroeconomics and Monetary Economics; Industrial Structure; Growth; Fluctuations: Latin America; Caribbean
Creator: Bassetto, Marco Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 612 Abstract:
The goal of this paper is to probe the validity of the fiscal theory of the price level by modeling explicitly the market structure in which households and the governments make their decisions. I describe the economy as a game, and I am thus able to state precisely the consequences of actions that are out of the equilibrium path. I show that there exist government strategies that lead to a version of the fiscal theory, in which the price level is determined by fiscal variables alone. However, these strategies are more complex than the simple budgetary rules usually associated with the fiscal theory, and the government budget constraint cannot be merely viewed as an equilibrium condition.
Palabra clave: Government strategy, Fiscal theory of the price level, Intertemporal budget constraint, Equilibrium determinacy, Commitment, and Policy rule
Creator: Arce, Fernando, Bengui, Julien, and Bianchi, Javier Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 761 Abstract:
This paper proposes a theory of foreign reserves as macroprudential policy. We study an open economy model of financial crises, in which pecuniary externalities lead to over-borrowing, and show that by accumulating international reserves, the government can achieve the constrained-efficient allocation. The optimal reserve accumulation policy leans against the wind and significantly reduces the exposure to financial crises. The theory is consistent with the joint dynamics of private and official capital flows, both over time and in the cross section, and can quantitatively account for the recent upward trend in international reserves.
Palabra clave: Macroprudential policy, Financial crises, and International reserves Tema: E00 - Macroeconomics and Monetary Economics: General, F00 - International Economics: General, and G00 - Financial Economics: General
Creator: Ales, Laurence, Carapella, Francesca, Maziero, Pricila, and Weber, Warren E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 641 Abstract:
Prior to 1863, state-chartered banks in the United States issued notes–dollar-denominated promises to pay specie to the bearer on demand. Although these notes circulated at par locally, they usually were quoted at a discount outside the local area. These discounts varied by both the location of the bank and the location where the discount was being quoted. Further, these discounts were asymmetric across locations, meaning that the discounts quoted in location A on the notes of banks in location B generally differed from the discounts quoted in location B on the notes of banks in location A. Also, discounts generally increased when banks suspended payments on their notes. In this paper we construct a random matching model to qualitatively match these facts about banknote discounts. To attempt to account for locational differences, the model has agents that come from two distinct locations. Each location also has bankers that can issue notes. Banknotes are accepted in exchange because banks are required to produce when a banknote is presented for redemption and their past actions are public information. Overall, the model delivers predictions consistent with the behavior of discounts.
Palabra clave: Banknotes, Random matching, and Banks Tema: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages, N21 - Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913, and E50 - Monetary Policy, Central Banking, and the Supply of Money and Credit: General
Creator: Velde, François R. and Weber, Warren E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 588 Abstract:
Bimetallism has been the subject of considerable debate: Was it a viable monetary system? Was it a desirable system? In our model, the (exogenous and stochastic) amount of each metal can be split between monetary uses to satisfy a cash-in-advance constraint, and nonmonetary uses in which the stock of uncoined metal yields utility. The ratio of the monies in the cash-in-advance constraint is endogenous. Bimetallism is feasible: we find a continuum of steady states (in the certainty case) indexed by the constant exchange rate of the monies; we also prove existence for a range of fixed exchange rates in the stochastic version. Bimetallism does not appear desirable on a welfare basis: among steady states, we prove that welfare under monometallism is higher than under any bimetallic equilibrium. We compute welfare and the variance of the price level under a variety of regimes (bimetallism, monometallism with and without trade money) and find that bimetallism can significantly stabilize the price level, depending on the covariance between the shocks to the supplies of metals.
Creator: Townsend, Robert M. and Wallace, Neil Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 083 Abstract:
We study the possible specialness of circulating as opposed to noncirculating private securities using models whose equilibria imply the existence of both. The models are pure exchange setups with spatial separation and with the potential for a variety of intertemporal trades. We find a sense in which unregulated circulating private securities are troublesome. It can happen that in order for an equilibrium to exist, the amounts of circulating debts issued at the same time in spatially and informationally separated markets have to satisfy restrictions not implied by individual maximization and market clearing in each market separately.
Creator: Sargent, Thomas J. and Wallace, Neil Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 085 Abstract:
Commodity money is modeled as one or two of the capital goods in a one-consumption good and one or two capital-good, overlapping generations model. Among the topics addressed using versions of the model are (i) the nature of the inefficiency of commodity money; (ii) the validity of quantity-theory predictions for commodity money systems; (iii) the circumstances under which one commodity emerges naturally as the commodity money; (iv) the role of inside money (money backed by private debt) in commodity money systems; and (v) the circumstances under which a government can choose the commodity to serve as the commodity money.
Creator: Bryant, John B. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 126 Abstract:
A model is presented in which demand deposits backed by fractional currency reserves and public insurance can be beneficial. The model uses Samuelson's pure consumption-loans model. The case for demand deposits, reserves, and deposit insurance rests on costs of illiquidity and incomplete information. The effect of deposit insurance depends upon how, and at what cost, the government meets its insurer's obligation--something which is not specified in practice. It remains possible that demand deposits and deposit insurance are a distortion, and reserve requirements serve only to limit the size of this distortion.
Palabra clave: Bank panic, Reserve requirements, Insolvency, Banks, and Bond reserve Tema: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and E58 - Central Banks and Their Policies