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Creator: Kahn, James A. (James Allan) and Lim, Jong-Soo. Series: Conference on economics and politics Abstract:
This paper analyzes the political economy of growth as an issue of intergenerational distribution. The first part of the paper develops a model of endogenous growth via human capital accumulation in an overlapping generations setting. Equilibrium growth is inefficient due to the presence of an intergenerational externality. We characterize the set of Pareto efficient paths for physical and human capital accumulation, and find that there is a continuum of efficient growth rate-interest rate combinations. The preferred combination for an infinitely-lived planner will depend on the social discount rate. Competitive equilibrium with subsidized or mandated human capital accumulation may give rise to a Pareto efficient steady state, though for some parameters efficiency requires some intergenerational redistribution. We then argue that a social planner or government with an infinite horizon is incongruous in an OG model when the agents all have finite horizons. Hence the second part of the paper addresses the question of how a government whose decisionmakers reflect the finite horizons of their constituents would choose policies that affect physical and human capital accumulation. Specifically we assume that each government maximizes a weighted sum of utilities of those currently alive. Each period the government selects a policy that takes into account the effect (through state variables) on subsequent policy decisions (and hence on the welfare of the current young generation). Numerical methods involving polynomial approximations are used to compute equilibria under specific parametric assumptions. Equilibrium growth rates turn out to be substantially below efficient rates.
Mot-clé: Growth, Political economy, Education, Political instability, and Markov equilibrium Assujettir: D91 - Intertemporal choice and growth - Intertemporal consumer choice ; Life cycle models and saving, O41 - One, Two, and Multisector Growth Models, and D72 - Analysis of collective decision-making - Models of political processes : Rent-seeking, elections, legislatures, and voting behavior
Creator: Faust, Jon. Series: Conference on economics and politics Abstract:
The Federal Reserve Act erected a unique structure of government decisionmaking, independent with elaborate rules balancing internal power. Historical evidence suggests that this outcome was a response to public conflict over inflation's redistributive powers. This paper documents and formalizes this argument: in the face of conflict over redistributive inflation, policy by majority can lead to policy that is worse, even fo the majority, than obvious alternatives. The bargaining solution of an independent board with properly balanced interests leads to a better outcome. Technically, this paper extends earlier work in making policy preferences endogenous and in extending the notion of equilibirum policy to such a world. Substantively, this work provides a simple grounding of policy preferences-largely missing heretofore-linking game theoretic models of policy to historical evidence about the formation of an independent monetary authority.
Assujettir: E58 - Monetary policy, central banking, and the supply of money and credit - Central banks and their policies, N12 - Macroeconomics and monetary economics ; Growth and fluctuations - United States ; Canada : 1913-, and E52 - Monetary policy, central banking, and the supply of money and credit - Monetary policy
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.
Mot-clé: S & L, Public finance, Real interest rates, Welfare, Deposit insurance, Taxation, Government debt, and Savings and loan Assujettir: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and H63 - National Debt; Debt Management; Sovereign Debt
Creator: Backus, David and Kehoe, Patrick J. Series: Conference on economics and politics Abstract:
We document properties of business cycles in ten countries over the last hundred years, contrasting the behavior of real quantities with that of the price level and the stock of money. Although the magnitude of output fluctuations has varied across countries and periods, relations among variables have been remarkably uniform. Consumption has generally been about as variable as output, and investment substantially more variable, and both have been strongly procydical. The trade balance has generally been countercyclical. The exception to this regularity is government purchases, which exhibit no systematic cyclical tendency. With respect to the size of output fluctuations, standard deviations are largest between the two world wars. In some countries (notably Australia and Canada) they are substantially larger prior to World War I than after World War II, but in others (notably Japan and the United Kingdom) there is little difference between these periods. Properties of price levels, in contrast, exhibit striking differences between periods. Inflation rates are more persistent after World War II than before, and price level fluctuations are typically procyclical before World War II, countercyclical afterward. We find no general tendency toward increased persistence in money growth rates, but find that fluctuations in money are less highly correlated with output in the postwar period.
Assujettir: E32 - Business Fluctuations; Cycles and E31 - Price Level; Inflation; Deflation
Creator: Miller, Preston J. and Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 481 Abstract:
This paper investigates the effects of changes in a country's monetary policies on its economy and the welfare of its citizens and those of other countries. Each country is populated by two-period lived overlapping agents who reside in either a home service sector or a world-traded good sector. Policy effects are transmitted through changes in the real interest rate, relative prices, and price levels. Welfare effects are sometimes dominated by relative price movements and can thus be opposite of those found in one-good models. Simulation of dynamic paths also reveals that welfare effects for some types of agents reverse between those born in immediate post-shock periods and those born later.
Mot-clé: Real interest rates, Relative prices, Prices, Exchange rates, and Monetary policy Assujettir: F31 - Foreign Exchange, E52 - Monetary Policy, and E31 - Price Level; Inflation; Deflation
Creator: Boot, Arnoud W. A. (Willem Alexander), 1960-, Greenbaum, Stuart I., and Thakor, Anjan V. Series: Monetary theory and financial intermediation Abstract:
We explain why contracting parties may choose ambiguous financial contracts. Introducing ambiguity may be optimal, even when unambiguous contracts can be costlessly written. We show that an ambiguous contract has two advantages. First, it permits the guarantor to sacrifice reputational capital in order to preserve financial capital as well as information reusability in states where such tradeoff is optimal. Second, it fosters the development of reputation. This theory is then used to explain ambiguity in mutual fund contracts, bank loan commitments, bank holding company relationships, the investment banker's "highly confident" letter, non-recourse debt contracts in project financing, and other financial contracts.
Assujettir: G20 - Financial Institutions and Services: General, K12 - Contract Law, and D86 - Information, knowledge, and uncertainty - Economics of contract : Theory
Creator: Bordo, Michael D., Rappoport, Peter., and Schwartz, Anna J. (Anna Jacobson), 1915-2012. Series: Monetary theory and financial intermediation Abstract:
In this paper we examine the evidence for two competing views of how monetary and financial disturbances influenced the real economy during the national banking era, 1880-1914. According to the monetarist view, monetary disturbances affected the real economy through changes on the liability side of the banking system's balance sheet independent of the composition of bank portfolios. According to the credit rationing view, equilibrium credit rationing in a world of asymmetric information can explain short-run fluctuations in real output. Using structural VARs we incorporate monetary variables in credit models and credit variables in monetarist models, with inconclusive results. To resolve this ambiguity, we invoke the institutional features of the national banking era. Most of the variation in bank loans is accounted for by loans secured by stock, which in turn reflect volatility in the stock market. When account is taken of the stock market, the influence of credit in the VAR model is greatly reduced, while the influence of money remains robust. The breakdown of the composition of bank loans into stock market loans (traded in open asset markets) and other business loans (a possible setting for credit rationing) reveals that other business loans remained remarkably stable over the business cycle.
Assujettir: N21 - Economic History: Financial Markets and Institutions: U.S.; Canada: Pre-1913 and N11 - Macroeconomics and monetary economics ; Growth and fluctuations - United States ; Canada : Pre-1913