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Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 512 Abstract:
We investigate ex-ante efficient contracts in an environment in which implementation is costless. In this environment, standard debt contracts will typically not be optimal. Optimal contracts may involve defaults, even in states in which the borrower is fully able to repay. We then examine the welfare costs of arbitrarily restricting the set of feasible contracts to standard debt contracts. When model parameters are calibrated to realistic values, the welfare loss from exogenously imposing this restriction is extremely small. Thus, if the implementation costs are actually nontrivial (as seems likely), standard debt contracts will be (very close to) optimal.
Palavra-chave: CSV, Optimal contract, CESV, Standard debt contract, Ex ante contract, Costly state verification, Loans, Financial contract, Bankruptcy, Costly ex-post state verification, Contracts, and Debt Sujeito: G10 - General Financial Markets: General (includes Measurement and Data) and D86 - Economics of Contract: Theory
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 522 Abstract:
We consider a two country growth model with international capital markets. These markets fund capital investment in both countries, and operate subject to a costly state verification (CSV) problem. Investors in each country require some external finance, but also provide internal finance, which mitigates the CSV problem. When two identical (except for their initial capital stocks) economies are closed, they necessarily converge monotonically to the same steady state output level. Unrestricted international financial trade precludes otherwise identical economies from converging, and poor countries are necessarily net lenders to rich countries. Oscillation in real activity and international capital flows can occur.
Palavra-chave: CSV, Open economy, International lending, Costly state verification, Capital investment, Closed economy, Credit rationing, International capital markets, and Credit Sujeito: F34 - International Lending and Debt Problems and O16 - Economic Development: Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
Creator: Williamson, Stephen D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 405 Abstract:
A model is constructed where banks provide access to a communication technology which facilitates trade. Bank liabilities may coexist with alternative means of payment in equilibrium, and there exist regions of the parameter space where banking dominates the payments system and where physical exchange media dominate. The model is consistent with some observations concerning the role of the banking system in economic development, and with characteristics of banking crises. In particular, in early stages of economic development: 1) rapid output growth is accompanied by an increasing share of banking in transactions activity and 2) there are recurrent banking "panics" where reductions in measured aggregate output coincide with increases in the use of alternative means of payment relative to bank liabilities. In later stages of development, growth slackens off, the share of banking in the payments system stabilizes and the economy is less likely to be subject to banking panics.
Palavra-chave: Financial panic, Banks, Banking panics, Communication cost, and Communication technology Sujeito: G21 - Banks; Depository Institutions; Micro Finance Institutions; Mortgages and O33 - Technological Change: Choices and Consequences; Diffusion Processes
Creator: Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 406 Palavra-chave: Inflation, Money, Monetary policy, Prices, Quantity theory of money, and Central banking Sujeito: E31 - Price Level; Inflation; Deflation and E52 - Monetary Policy
Creator: Todd, Richard M. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 407 Abstract:
Doan, Litterman, and Sims have described a method for estimating Bayesian vector autoregressive (BVAR) forecasting models. The method has been successfully applied to the U.S. macroeconomic dataset, which is relatively long and stable. Despite the brevity and volatility of the post-1976 Chilean macroeconomic dataset, this paper shows that a straightforward application of the DLS method to this dataset, with simple modifications to allow for delays in the release of data, also appears to satisfy at least one criterion of relative forecasting accuracy suggested by Doan, Litterman, and Sims. However, the forecast errors of the Chilean BVARs are still large in absolute terms.Also, the model's coefficients change sharply in periods marked by policy shifts, such as the floating of the peso in 1982.
Palavra-chave: Bayesian autoregressive vector forecasting models and Chile Sujeito: O54 - Economywide Country Studies: Latin America; Caribbean
Creator: Backus, David, Kehoe, Patrick J., and Kydland, Finn E. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 498 Palavra-chave: Harberger-Laursen-Metzler effect, Net exports , Balance of trade, Terms of trade, J curve, and Marshall-Lerner condition Sujeito: F41 - Open Economy Macroeconomics, F11 - Neoclassical Models of Trade, and F30 - International Finance: General
Creator: Braun, R. Anton Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 506 Abstract:
This paper investigates the macroeconomic effects of cyclical fluctuations in marginal tax rates. It finds that systematically including tax variables in a standard real business cycle model substantially improves the model's ability to reproduce basic facts about postwar U.S. business cycle fluctuations. In particular, modeling fluctuations in personal and corporate income tax rates increases the model's predicted relative variability of hours and decreases its predicted correlation between hours and average productivity. Fluctuations in tax rates produce large substitution effects that alter the leisure/labor supply decision.
Palavra-chave: Corporate tax , Taxes, Business cycle, Tax, Income tax, Tax rates, Real business cycle model, Productivity, and Taxation Sujeito: E32 - Business Fluctuations; Cycles, H25 - Business Taxes and Subsidies including sales and value-added (VAT), and H24 - Personal Income and Other Nonbusiness Taxes and Subsidies; includes inheritance and gift taxes
Creator: Atkeson, Andrew and Kehoe, Patrick J. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 513 Abstract:
In this paper, we build a model of the transition following large-scale economic reforms that predicts both a substantial drop in output and a prolonged pause in physical investment as the initial phase of the optimal transition following the reform. We model reform as a change in policy which induces agents to close existing enterprises using old technologies of production and to open up new enterprises adopting new technologies of production. The central idea of our paper is that it is costly to close old enterprises and open new enterprises because, in doing so, information capital built up about old enterprises is lost and time must pass before information capital about new enterprises can be acquired. Thus, an acceleration of the pace of industry evolution leads in the short run to a net loss of information capital, a drop in productivity, a recession, and a fall in physical investment. We calibrate our model of industry evolution, information capital, and transition to match micro data on industry evolution in the United States and macro data from the United States, Japan, and the former communist countries of Europe. We find that the loss of information capital that accompanies a major acceleration in the pace of industry evolution in an economy leads initially to a decade of recession and a five year pause in physical investment before the benefits of reform are realized.
Palavra-chave: Information capital, Recession, Transition, Industrial evolution, Economic reform, Technological evolution, Policy change, and Technology change Sujeito: O25 - Industrial Policy and O33 - Technological Change: Choices and Consequences; Diffusion Processes