Creator: Aiyagari, S. Rao, Wallace, Neil, and Wright, Randall D. Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 550 Abstract:
A random matching model with money is used to study the nominal yield on small denomination, bearer, safe, discount securities issued by the government. There is always one steady state with matured securities circulating at par and, for some parameters, another with them circulating at a discount. In the former, a necessary and sufficient condition for a positive nominal yield on not-yet-matured securities is exogenous discriminatory treatment of them by the government. In the latter, the post-maturity discount on securities induces a deeper pre-maturity discount even without such discriminatory treatment.
关键词: Money, Interest rates, and Monetary policy 学科: E43 - Interest Rates: Determination, Term Structure, and Effects, E41 - Demand for Money, E40 - Money and Interest Rates: General, and E42 - Monetary Systems; Standards; Regimes; Government and the Monetary System; Payment Systems
Creator: Cole, Harold Linh, 1957- and Kehoe, Timothy Jerome, 1953- Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 210 Abstract:
This paper explores the extent to which the Mexican government's inability to roll over its debt during December 1994 and January 1995 can be modeled as a self-fulfilling debt crisis. In the model there is a crucial interval of debt for which the government, although it finds it optimal to repay old debt if it can sell new debt, finds it optimal to default if it cannot sell new debt. If government debt is in this interval, which we call the crisis zone, then we can construct equilibria in which a crisis can occur stochastically, depending on the realization of a sunspot variable. The size of this zone depends on the average length of maturity of government debt. Our analysis suggests that for a country, like Mexico, with a very short maturity structure of debt, the crisis zone is large and includes levels of debt as low as that in Mexico before the crisis.
关键词: Sunspot, Mexico, and Debt crisis 学科: H63 - National Debt; Debt Management; Sovereign Debt, F34 - International Lending and Debt Problems, and E60 - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook: General
Creator: Cole, Harold Linh, 1957- and Kehoe, Patrick J. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 209 Abstract:
A traditional explanation for why sovereign governments repay debts is that they want to keep good reputations so they can easily borrow more. Bulow and Rogoff show that this argument is invalid under two conditions: (i) there is a single debt relationship, and (ii) regardless of their past actions, governments can earn the (possibly state-contingent) market rate of return by saving abroad. Bulow and Rogoff conjecture that, even under condition (ii), in more general reputation models with multiple relationships and spillover across them, reputation may support debt. This paper shows what is needed for this conjecture to be true.
关键词: Sovereign Debt, Reputation, Lending crises, Borrowing and lending, and Default 学科: F34 - International Lending and Debt Problems, E61 - Policy Objectives; Policy Designs and Consistency; Policy Coordination, and F00 - International Economics: General
Creator: Cole, Harold Linh, 1957- and Prescott, Edward C. Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 174 Abstract:
This paper considers model worlds in which there is a continuum of individuals who form finite-sized associations to undertake joint activities. We show how, through a suitable choice of commodity space, restrictions on the composition of feasible groups can be incorporated into the specification of the consumption and production sets of the economy. We also show that if there are a finite number of types, then the classical results from the competitive analysis of convex finite-agent economies can be reinterpreted to apply.
Creator: Boyd, John H. and Smith, Bruce D. (Bruce David), 1954-2002 Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 541 Abstract:
We produce a theoretical framework that helps explain the co-evolution of the real and financial sectors of an economy in the growth process, as described by Gurley and Shaw. According to them, self-financed capital investment first gives way to debt finance and later to the emergence of equity as an additional instrument for raising funds externally. As the economy develops further, the aggregate ratio of debt to equity will generally fall. We analyze that portion of their account concerning the evolution of equity markets. We show that in an important sense, debt equity are complementary sources for the financing of capital investments.
Creator: Mercenier, Jean and Yeldan, Erinç Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 207 Abstract:
We highlight an example of considerable bias in officially published input-output data (factor-income shares) by an LDC (Turkey), which many researchers use without question. We make use of an intertemporal general equilibrium model of trade and production to evaluate the dynamic gains for Turkey from currently debated trade policy options and compare the predictions using conservatively adjusted, rather than official, data on factor shares. We show that the predicted welfare gains are not only of a different order of magnitude, but in some cases, of a different sign, hence, suggesting contradictory policy recommendations.
Creator: Kehoe, Timothy Jerome, 1953- Series: Working paper (Federal Reserve Bank of Minneapolis. Research Department) Number: 563 Abstract:
To illustrate the use of social accounting matrices (SAMs) in applied general equilibrium (GE) modeling, we use an aggregated SAM for the Spanish economy to calibrate a simple applied GE model. The idea is to construct artificial people—households, government, and a foreign sector—who make the same transactions in the equilibrium of the model economy as do their counterparts in the data. This calibration procedure can be augmented, or partially substituted for, by statistical estimation of key parameters. We show the usefulness of such a model by presenting the results of a comparative exercise that mimics the policy changes that took place in Spain during its 1986 integration into the European Community. Sub-sequent data shows the model results to be remarkably accurate, especially if we account for other major shocks affected the Spanish economy in 1986.
Creator: Ferson, Wayne E. and Jagannathan, Ravi Series: Staff report (Federal Reserve Bank of Minneapolis. Research Department) Number: 206 Abstract:
We provide a brief review of the techniques that are based on the Generalized Method of Moments (GMM) and used for evaluating capital asset pricing models. We first develop the CAPM and multi-beta models and discuss the classical two-stage regression method originally used to evaluate them. We then describe the pricing kernel representation of a generic asset pricing model; this representation facilitates use of the GMM in a natural way for evaluating the conditional and unconditional versions of most asset pricing models. We also discuss diagnostic methods that provide additional insights.