2024-03-28T22:16:36Zhttp://oai-repositori.upf.edu/oai/requestoai:repositori.upf.edu:10230/260012018-01-24T08:08:21Zcom_10230_25771com_10230_3col_10230_25772
Gaballo, Gaetano
Marimon, Ramon
2016-03-16T17:35:49Z
2016-03-16T17:35:49Z
2016-03
http://hdl.handle.net/10230/26001
We show that credit crises can be Self-Confirming Equilibria (SCE), which provides a new rationale for policy interventions like, for example, the FRB’s TALF credit-easing program in 2009.We introduce SCE in competitive credit markets with directed search. These markets are efficient when lenders have correct beliefs about borrowers’ reactions to their offers. Nevertheless, credit crises – where high interest rates self-confirm high credit risk - can arise when lenders have correct beliefs only locally around equilibrium outcomes. Policy is needed because competition deters the socially optimal degree of information acquisition via individual experiments at low interest rates. A policy maker with the same beliefs as lenders will find it optimal to implement a targeted subsidy to induce low interest rates and, as a by-product, generate new information for the market. We provide evidence that the 2009 TALF was an example of such Credit Easing policy. We collect new micro-data on the ABS auto loans in the US before and after the policy intervention, and we test, successfully, our theory in this case.
eng
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Breaking the spell with credit-easing: self-confirming credit crises in competitive search economies
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/260032018-01-24T08:08:21Zcom_10230_25771com_10230_3col_10230_25772
Jungherr, Joachim
2016-03-17T11:41:54Z
2016-03-17T11:41:54Z
2016-03
http://hdl.handle.net/10230/26003
This paper studies a model of endogenous bank opacity. In the model, bank opacity is costly for society because it reduces market discipline and encourages banks to take on too much risk. This is true even in the absence of agency problems between banks and the ultimate bearers of the risk. Banks choose to be inefficiently opaque if the composition of a bank’s balance sheet is proprietary information. Strategic behavior reduces transparency and increases the risk of a banking crisis. The model can explain why empirically a higher degree of bank competition leads to increased transparency. Optimal public disclosure requirements may make banks more vulnerable to a run for a given investment policy, but they reduce the risk of a run through an improvement in market discipline. The option of public stress tests is beneficial if the policy maker/nhas access to public information only. This option can be harmful if the policy maker has access to banks’ private information.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properly attributed.
Bank opacity and financial crises
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oai:repositori.upf.edu:10230/261902016-05-13T06:57:13Zcom_10230_25771com_10230_3col_10230_25772oai:repositori.upf.edu:10230/261912018-01-24T08:12:55Zcom_10230_25771com_10230_3col_10230_25772
Born, Benjamin
Müller, Gernot J.
Pfeifer, Johannes
2016-04-27T16:01:59Z
2016-04-27T16:01:59Z
2016-04-27
http://hdl.handle.net/10230/26191
We investigate if a reduction of government consumption lowers the sovereign default premium. For this purpose we build a new data set for 38 emerging and developed economies. Results vary along three dimensions. First, the time horizon: the premium declines, but only in the long run. Second, initial conditions: the premium increases in the short run, but only if it is already high. Third, size: the short-run response of the premium increases disproportionately as government consumption is reduced. We rationalize these findings in a structural model of optimal sovereign default where default risk is priced in an actuarially fair manner.
eng
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Does austerity pay off?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/261922018-01-24T08:12:56Zcom_10230_25771com_10230_3col_10230_25772
Kriwoluzky, Alexander
Müller, Gernot J.
Wolf, Martin
2016-04-27T16:07:17Z
2016-04-27T16:07:17Z
2016-04
http://hdl.handle.net/10230/26192
Membership in a currency union is not irreversible. Exit expectations may emerge during sovereign debt crises, because exit allows countries to reduce their liabilities through a currency redenomination. As market participants anticipate this possibility, sovereign debt crises intensify. We establish this formally within a small open economy model of changing policy regimes. The model permits explosive dynamics of debt and sovereign yields inside currency unions and allows us to distinguish between exit expectations and those of an outright default. By estimating the model on Greek data, we quantify the contribution of exit expectations to the crisis dynamics during 2009–2012.
eng
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Exit expectations and debt crises in currency unions?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/262812018-01-24T08:13:38Zcom_10230_25771com_10230_3col_10230_25772
Pappa, Evi
Sajedi, Rana
Vella, Eugenia
2016-05-13T07:05:07Z
2016-05-13T07:05:07Z
2016-02
http://hdl.handle.net/10230/26281
An important feature of the current economic conditions in the EU, which challenges the design and implementation of macroeconomic policy, is inflation uncertainty. With monetary policy at the zero lower bound, and inflation well below its target, a key issue for policy makers is the effect /nthis has on the transmission of fiscal policy. We aim to address this question, in particular comparing the effects of price-based and quantity-based fiscal instruments. In this paper we focus on the public wage bill, and consider a model of a monetary union in which the government can /nconsolidate their debt through reductions in the public wage or public employment. We find that in both cases the low inflation environment eliminates the expansionary effects of the reduction in the public wage bill for the private sector. The drag in economic activity is substantially amplified/nin the low inflation environment, with increased debt-to-GDP levels during the consolidation process.
eng
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Fiscal consolidation in a disinflationary environment: price vs. quantity-based measures
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/267802018-01-24T08:04:55Zcom_10230_25771com_10230_3col_10230_25772
Arce, Óscar
Hurtado, Samuel
Thomas, Carlos
2016-05-30T14:02:54Z
2016-05-30T14:02:54Z
2016-05
http://hdl.handle.net/10230/26780
We provide a general equilibrium framework for analyzing the effects of supply and demand side policies, and the potential synergies between them, in an asymmetric monetary union that faces a liquidity trap and a slow deleveraging process in its ‘periphery’. We find that the joint implementation of pro-competition structural reforms in the periphery, a fiscal expansion in the ‘core’, and forward guidance about the three policies: forward guidance re-inforces the expansionary effects of country-specific policies, and the latter in turn improve the effectiveness of forward guidance.
eng
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Policy spillovers and synergies in a monetary union
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/267812018-01-24T08:05:02Zcom_10230_25771com_10230_3col_10230_25772
Kilpatrick, Claire
2016-05-30T14:07:50Z
2016-05-30T14:07:50Z
2016-03
http://hdl.handle.net/10230/26781
This analysis aims to set out clearly and succinctly the legal arrangements for macro-economic governance in EMU, legal challenges to that regime and different ways of assessing that new regime. It focuses on changes introduced from 2010, the year when the euro area crisis, and the response to it, began, and on changes to the law other than those concerning provision of sovereign debt loan assistance. The analysis first presents the (many) key EMU acronyms before outlining in four diagrams what is new in EMU by looking at what changes have been made since 2010. It outlines what further proposals in this area are included in the Five Presidents’ Report of June 2015. It then briefly examines three central legal challenges with the current regime: competence, compatibility and complexity. Finally it raises issues of the effectiveness of the EU macro-economic governance regime by considering three assessments: too early to say, abject failure or triumph of pragmatic intelligence. These raise questions of optimal policy design. The four diagrams accordingly provide the foundation for understanding the current regime, further proposed changes, legal challenges and issues of effectiveness.
eng
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The new economic component of EMU: a lawful and effective design?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/267822018-01-24T08:05:28Zcom_10230_25771com_10230_3col_10230_25772
Den Haan, Wouter J.
Rendah, Pontus
Riegler, Markus
2016-05-30T14:11:39Z
2016-05-30T14:11:39Z
2015-09
http://hdl.handle.net/10230/26782
The interaction of incomplete markets and sticky nominal wages is shown to magnify business cycles even though these two features – in isolation – dampen them. During recessions, fears of unemployment stir up precautionary sentiments which induces agents to save more. The additional savings may be used as investments in both a productive asset (equity) and an unproductive asset (money). But even a small rise in money demand has important consequences. The desire to hold money puts deflationary pressure on the economy, which, provided that nominal wages are sticky, increases wage costs and reduces firm profits. Lower profits repress the desire to save in equity, which increases (the fear of) unemployment, and so on. This is a powerful mechanism which causes the model to behave differently from both its complete markets version, and a version with incomplete markets but without aggregate uncertainty. In contrast to previous results in the literature, agents uniformly prefer non-trivial levels of unemployment insurance.
eng
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Unemployment (fears) and deflationary spirals
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/267832018-01-24T08:06:06Zcom_10230_25771com_10230_3col_10230_25772
Chari, V. V.
Dovis, Alessandro
Kehoe, Patrick J.
2016-05-30T14:23:38Z
2016-05-30T14:23:38Z
2016-02
http://hdl.handle.net/10230/26783
The traditional Mundellian criterion, which implicitly assumes commitment to monetary policy, is that countries with similar shocks should form unions. Without such commitment a new criterion emerges: countries with dissimilar temptation shocks, namely those that exacerbate time inconsistency problems, should form unions. Critical to this new criterion is the idea that monetary policy is benevolent in that it takes into account the interests of all the countries in the union. When countries have dissimilar temptation shocks, benevolent unions can help overcome the time inconsistency problems that individual countries face. Existing unions can strictly gain by admitting new members with more severe time inconsistency problems, because policy in the expanded union is less sensitive to the temptation shocks of members of the existing union.
eng
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Rethinking optimal currency areas
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/267842018-01-24T08:06:17Zcom_10230_25771com_10230_3col_10230_25772
Sterk, Vincent
2016-05-30T14:28:01Z
2016-05-30T14:28:01Z
2016-01
http://hdl.handle.net/10230/26784
Standard models predict that episodes of high unemployment are followed by recoveries. This paper shows, by contrast, that a large shock may set the economy on a path towards very high unemployment, with no recovery in sight. First, I estimate a reduced-form model of flows in the U.S. labor market, allowing for the possibility of multiple steady states. Next, I estimate a non-linear search and matching model, in which multiplicity of steady states may arise due to skill losses upon unemployment, following Pissarides (1992). In both cases, estimates imply a stable steady state with around 5 percent unemployment and an unstable one with around 10 percent unemployment. The search and matching model can explain observed job finding rates remarkably well, due to its strong endogenous persistence mechanism.
eng
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The dark corners of the labor market
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/270222018-10-11T13:11:26Zcom_10230_25771com_10230_3col_10230_25772
Adão, Bernardino
Silva, André C.
2016-07-11T10:21:53Z
2016-07-11T10:21:53Z
2015-12
http://hdl.handle.net/10230/27022
Firm cash holdings increased substantially from 1980 to 2013. The overall distribution of firm cash holdings changed in the same period. We study the implications of these changes for monetary policy. We use Compustat data and a model with financial frictions that allows the calculation of the monetary policy effects according to the distribution of cash holdings. We find that the interest rate channel of the transmission of monetary policy has become more powerful, as the impact of monetary policy over real interest rates increased. With the observed changes in firm cash holdings, the real interest rate takes 3.4 months more to return to its initial value after a shock to/nthe nominal interest rate.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
The effect of firm cash holding on monetary policy
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/270232018-01-24T08:17:07Zcom_10230_25771com_10230_3col_10230_25772
Kehoe, Patrick J.
Pastorino, Elena
2016-07-11T10:52:23Z
2016-07-11T10:52:23Z
2015-11
Kehoe, Patrick J.; Pastorino, Elena. Fiscal unions redux. 2015 http://hdl.handle.net/10230/27023
http://hdl.handle.net/10230/27023
Before the advent of sophisticated international financial markets, the widely accepted belief was that within a monetary union, a union-wide authority orchestrating fiscal transfers between countries is necessary to provide adequate insurance against country-specific economic fluctuations. This belief prompts a question: Do sophisticated international financial markets obviate the need for such an active union-wide authority? We argue that they do. Specifically, we show that in a benchmark economy with no international financial markets, an activist union-wide authority is necessary to achieve desirable outcomes. With sophisticated financial markets, however, such an authority is unnecessary if its only goal is to provide cross-country insurance. Since restricting the set of policy instruments available to member countries does not create a social externality across them, this result holds in a wide variety of settings. Finally, we establish that an activist union-wide authority concerned just with providing insurance across member countries is needed only when individual countries are either unable or unwilling to pursue desirable policies.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Fiscal unions redux
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272852018-09-25T14:52:09Zcom_10230_25771com_10230_3col_10230_25772
Ábrahám, Árpád
Cárceles Poveda, Eva
2016-09-15T12:15:25Z
2016-09-15T12:15:25Z
2016-06
Abrahám A, Carceles Poveda E. Tax reform with endogenous borrowing limits and incomplete asset markets. 2016
http://hdl.handle.net/10230/27285
This paper studies different income tax reforms in an infinite horizon economy with a progressive labor income tax code, incomplete markets and endogenous borrowing constraints on asset holdings. The endogenous limits are determined at the level at which households are indifferent between defaulting and paying back their un-secured debt. The reforms we study area all revenue neutral and they eliminate capital income taxes but they differ in the changes to the labor income tax code. Our results illustrate that a successful reform has to combine the elimination of capital income taxes with an increase in the progressivity of the labor income tax code. On the one hand, this reduces the disposable income of the rich, leading to lower savings and to a lower aggregate capital. On the other hand, it allows the middle income households to save more at a higher after tax interest rate and the low income households to borrow more on a lower interest rate. This increases welfare both in the long run and throughout the transition. The welfare gains are hence obtained not through more capital accumulation but by reducing wealth and consequently consumption inequality.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Tax reform with endogenous borrowing limits and incomplete asset markets
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272862018-01-24T08:32:48Zcom_10230_25771com_10230_3col_10230_25772
Gazzani, Andrea
Vicondoa, Alejandro
2016-09-15T12:46:04Z
2016-09-15T12:46:04Z
2016-06
http://hdl.handle.net/10230/27286
This paper provides the first empirical evidence on the macroeconomic effects of liquidity shocks in secondary sovereign debt markets. We consider the Italian case in a VAR analysis by applying different identification strategies: recursive ordering and Proxy-SVAR. Our findings suggest that liquidity is a major driver for indicators of economic activity. A shock to the Bid-Ask Spread induces a strong (15% of the Forecast Error Variance) and persistent (10 months) effect on unemployment and indicators of confidence. Liquidity shocks are transmitted to the real economy through changes in the lending behaviors of banks. On the one hand, an exogenous fall in liquidity induces/na tightening of banks standards, particularly due to the asset and liquidity position of commercial banks. On the other hand, firms report worse credit conditions in terms of higher costs apart from the interest rate. Similar macroeconomic implications hold for Spain, whereas liquidity shocks are not a significant driver for France and Germany.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Attribution 4.0 Spain
The real effects of liquidity shocks in sovereign debt markets: evidence from Italy
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272872018-01-24T08:21:27Zcom_10230_25771com_10230_3col_10230_25772
Moura, Alban
2016-09-15T12:49:41Z
2016-09-15T12:49:41Z
2015-11
http://hdl.handle.net/10230/27287
This paper uses an estimated sticky-price model to identify endogenous movements in government consumption in the U.S. economy. Two feedback effects are considered, one originating from the stock of public debt and one from contemporaneous output. The data provide significant statistical evidence in favor of such mechanisms, even though a subsample analysis reveals that their strength may have decreased over time. Monte Carlo simulations assessing a DSGE model with exogenous spending and various identified VARs suggest that failing to account for these feedbacks may induce a severe upward bias in estimated multipliers.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
The effects of government spending endogeneity on estimated multipliers in the U.S.
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272882018-01-24T08:21:22Zcom_10230_25771com_10230_3col_10230_25772
Monti, Giorgio
Petit, Christy Ann
2016-09-15T12:53:36Z
2016-09-15T12:53:36Z
2016-05
http://hdl.handle.net/10230/27288
This paper analyses the principal legal challenges posed by the current Banking Union apparatus. It focuses on the legal basis for Banking Union, the powers of the various agencies and regulators and the problems that arise from their interaction, and the difficult relationship between Euro-area and the internal market. It outlines legislative changes to address the problems of the SSM framework.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
The Single Supervisory Mechanism: legal fragilities and possible solutions
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272892018-01-24T08:33:16Zcom_10230_25771com_10230_3col_10230_25772
Hintermaier, Thomas
Koeniger, Winfried
2016-09-15T12:57:23Z
2016-09-15T12:57:23Z
2016-07
http://hdl.handle.net/10230/27289
This paper documents facts about differences in household portfolio composition across European countries, using the Eurosystem’s Household Finance and Consumption Survey (HFCS) as a data source. On the asset side of balance sheets, the focus of our analysis is on the distinction between housing wealth and other assets. On the liability side, we distinguish types of debt which are collateralized by housing. As a consequence, this paper addresses cross-European differences in home-equity positions. These facts inform the design of a European Household Finance Common Reference Model (HFCRM). This reference model identifies a common structure of key factors in household financial decision making. At the same time the HFCRM is flexible enough to admit parameterizations which fit the diversity of financial and legal institutions across European countries.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Towards understanding differences in european household finances
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272902018-01-24T08:22:05Zcom_10230_25771com_10230_3col_10230_25772
Barattieri, Alessandro
2016-09-15T13:00:01Z
2016-09-15T13:00:01Z
2016-04
http://hdl.handle.net/10230/27290
In this paper, I show a strong positive correlation between the value-added share of manufacturing in 2000 and current account balances in 2007 for the Euro area countries. I propose asymmetries in the timing of trade liberalizations as a new mechanism affecting the dynamics of the current account. I build intuition using a simple model. Then, I use an international business cycle model to show how the asymmetric dynamics of trade costs in manufacturing and services in 2000-2007 can partially explain the rise in the German surplus. Lastly, I provide broad empirical support for the key predictions of the theory.
eng
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info:eu-repo/semantics/openAccess
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Asymmetric trade liberalizations and current account dynamics
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272912018-01-24T08:21:59Zcom_10230_25771com_10230_3col_10230_25772
Correia, Isabel
2016-09-15T13:02:18Z
2016-09-15T13:02:18Z
2015-10
http://hdl.handle.net/10230/27291
The decline of capital taxation is associated with efficiency gains.We show that, when agents are heterogeneous, equity concerns can change the policy recommendation driven by efficiency. Given the empirical evidence on the roots of heterogeneity inside each country, either in/ndeveloping or developed economies, the elimination of capital taxation would lead always to a decline in inequality and to an increase of welfare of the poorest, in a small open economy acting unilaterally. On the contrary for a closed economy, or for group of open economies following the same policy, the opposite can be the result: with the elimination of capital taxation it can hurts the poorest of each country. Therefore a low degree of capital openness can support a positive tax on capital.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Capital taxation and globalization
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272922018-01-24T08:21:38Zcom_10230_25771com_10230_3col_10230_25772
Dolado, Juan J.
Garcia-Peñalosa, Cecilia
Tarasonis, Linas
2016-09-15T13:05:20Z
2016-09-15T13:05:20Z
2016-06
http://hdl.handle.net/10230/27292
The aim of this paper is to evaluate the role played by selectivity issues induced by nonemployment in explaining gender wage gap patterns in the EU since the onset of the Great Recession. We show that male selection into the labour market, traditionally/ndisregarded, has increased. This is particularly the case in peripheral European countries, where dramatic drops in male unskilled jobs have taken place during the crisis. As regards female selection, traditionally positive, we document mixed findings. While it has declined in some countries, as a result of increasing female LFP due to an added-worker effect, it has become even more positive in other countries. This is due to adverse labour demand shifts in industries which are intensive in temporary work where women are overrepresented. These adverse shifts may have more than offset the rise in unskilled female labour supply.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
The changing nature of gender selection into employment: Europe over the Great Recession
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272932018-01-24T08:22:04Zcom_10230_25771com_10230_3col_10230_25772
Levine, David K.
Mattozzi, Andrea
2016-09-15T13:07:33Z
2016-09-15T13:07:33Z
2016-04
http://hdl.handle.net/10230/27293
We re-examine the theory of rational voter participation where voting is by two collusive parties enforcing social norms through costly peer punishment. The model nests both the ethical voter model and the pivotal voter model. In the unique mixed strategy equilibrium the advantaged party gets all surplus. When the cost of enforcement of social norms is low and the benefit of winning/nthe election is the same for both parties, the larger party is always advantaged. When instead the enforcement of social norms is costly we have a result reminiscent of Olson, and the smaller party may be advantaged.
eng
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info:eu-repo/semantics/openAccess
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Voter participation with collusive parties
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272942018-09-25T15:09:41Zcom_10230_25771com_10230_3col_10230_25772
Levine, David K.
Modica, Salvatore
2016-09-15T13:09:09Z
2016-09-15T13:09:09Z
2016-05
http://hdl.handle.net/10230/27294
How can a small special interest group successfully get an inefficient transfer at the expense of a much larger group with many more resources available for lobbying? We consider a simple model of collusive organizations that provide a public good in the form of effort and have a fixed cost per member of acting collusively. Our key result is that the willingness of such a group to pay for a/ngiven prize depends on whether the prize is fungible - that is, whether the prize can be used to pay for itself. If the prize is fungible, as in the case of a transfer payment, a smaller group always has an advantage. If the prize is non-fungible - civil rights for example - willingness to pay first increases then decreases with the size of the group. We use the theory to study agenda setting/nboth with and without blackmail by the politician showing that in general the small group is not too greedy: when it wins it optimally chooses to pre-empt the large group by choosing a prize small enough to equal the large group participation cost.
eng
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Size, fungibility and the strengh of lobbying organizations
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272952018-01-24T08:21:38Zcom_10230_25771com_10230_3col_10230_25772
Dutta, Rohan
Levine, David K.
Modica, Salvatore
2016-09-15T13:12:46Z
2016-09-15T13:12:46Z
2016-02
http://hdl.handle.net/10230/27295
We study collusion within groups in non-cooperative games. The primitives are the preferences of the players, their assignment to non-overlapping groups and the goals of the groups. Our notion of collusion is that a group coordinates the play of its members among different incentive compatible plans to best achieve its goals. Unfortunately, equilibria that meet this requirement need not exist. We instead introduce the weaker notion of collusion constrained equilibrium. This allows groups to randomize between alternatives to which they are not indifferent in certain razor's edge cases where slight perturbations of group beliefs change the set of incentive compatible plans in a discontinuous way. Collusion constrained equilibria exist and are a subset of the correlated equilibria of the underlying game. We examine four perturbations of the underlying game. In each case we show that equilibria in which groups choose the best alternative exist and that limits of these equilibria lead to collusion constrained equilibria. We also show that for a broadest class of perturbations every collusion constrained equilibrium arises as such a limit. We give an application to a voter participation game showing how collusion constraints may be socially costly.
eng
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Collusion constrained equilibrium
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272962018-01-24T08:22:05Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Kuester, Keith
2016-09-15T13:14:25Z
2016-09-15T13:14:25Z
2016-06
http://hdl.handle.net/10230/27296
We analyze macroeconomic stabilization in a small open economy which faces a large recession in the rest of the world. We show analytically that for the economy to remain isolated from the external shock, the exchange rate must depreciate not only to offset the collapse in external demand, but also to decouple domestic prices from the deflation in the rest of the world. If monetary policy becomes constrained by the zero lower bound, the scope of exchange rate depreciation is limited and the economy is no longer isolated from the shock. Still in this case there is a /benign coincidence": government spending is particularly effective in stabilizing economic activity. Under fixed exchange rates, instead, the impact of external shock is particularly severe and the effectiveness of fiscal policy reduced.
eng
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The case for flexilbe exchange rates in a great recession
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272972018-01-24T08:22:43Zcom_10230_25771com_10230_3col_10230_25772
Ayres, João
Navarro, Gaston
Nicolini, Juan Pablo
Teles, Pedro
2016-09-15T13:16:43Z
2016-09-15T13:16:43Z
2016-06
http://hdl.handle.net/10230/27297
In the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008), default is driven by fundamentals alone. There is no independent role for expectations. We show that small variations of that model are consistent with multiple interest rate equilibria. Some of those equilibria correspond to the ones identified by Calvo (1988), where default is likely because rates are high, and rates are high because default is likely. The model is used to simulate equilibrium movements in sovereign bond spreads that resemble sovereign debt crises. It is also used to discuss lending policies similar to the ones announced by the European Central Bank in 2012.
eng
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Sovereign default: the role of expectations
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272982018-01-24T08:21:38Zcom_10230_25771com_10230_3col_10230_25772
Caballé, Jordi
Dumitrescu, Ariadna
2016-09-15T13:18:21Z
2016-09-15T13:18:21Z
2016-09-15
http://hdl.handle.net/10230/27298
In this paper, we analyze the effects of disclosing corporate tax reports on the performance of financial markets and the use of asset prices by the tax enforcement agency in order to infer the true corporate cash flows. We model the interaction between a firm and the tax auditing agency,/nand highlight the role played by the tax report as a public signal used by the market dealer and the role of prices as a signal used by the tax authority. We discuss the determinants of both the reporting strategy of the firm and the auditing policy of the tax authority. Our model suggests that, despite disclosure of the tax reports being beneficial for market performance (as the spreads and trading costs are smaller than under no disclosure), the tax agency might have incentives to not disclose the tax report when its objective is to maximize expected net tax collection.
eng
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Disclosure of corporate tax reports, tax enforcement and insider trading
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/272992018-01-24T08:21:37Zcom_10230_25771com_10230_3col_10230_25772
Dupaigne, Martial
Fève, Patrick
2016-09-15T13:19:49Z
2016-09-15T13:19:49Z
2016-09-15
http://hdl.handle.net/10230/27299
This paper inspects the mechanism shaping government spending multipliers in various smallscale DSGE setups with endogenous labor supply and capital accumulation. We analytically characterize the short-run investment multiplier, which in equilibrium can be either positive or negative. The investment multiplier increases with the persistence of the exogenous government spending process. The response of investment to government spending shocks strongly affects short-run multipliers on output and consumption.
eng
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Persistent government spending and fiscal multipliers: the investment-channel
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/273022018-01-24T08:33:25Zcom_10230_25771com_10230_3col_10230_25772
Fève, Patrick
Sahuc, Jean-Guillaume
2016-09-19T13:34:19Z
2016-09-19T13:34:19Z
2016-09-19
http://hdl.handle.net/10230/27302
This paper applies the DSGE-VAR methodology to assess the size of fiscal multipliers in the data and the relative contributions of two transmission mechanisms of government spending shocks, namely hand-to-mouth consumers and Edgeworth complementarity. Econometric experiments show that a DSGE model with Edgeworth complementarity is a better representation of the transmission mechanism of fiscal policy as it yields dynamic responses close to those obtained with the flexible DSGE-VAR model (i.e. an impact output multiplier larger than one and a crowding-in of private consumption). The estimated share of hand-to-mouth consumers is too small to replicate the positive response of private consumption.
eng
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In search of the transmission mechanism of fiscal policy in the euro area
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/273132022-06-21T10:01:40Zcom_10230_25771com_10230_3col_10230_25772
Cabrales, Antonio
Gottardi, Piero
Vega-Redondo, Fernando
2016-09-26T10:17:27Z
2016-09-26T10:17:27Z
2016
http://hdl.handle.net/10230/27313
We investigate the properties of financial networks that allow to optimally solve the trade-off between higher risk-sharing and contagion. With continuous shock distributions, the optimum features the segmentation of the system of firms into disjoint components, with uniform exposure within them. With positive mass on some large shocks, it is instead optimal to modulate the exposure level to different firms. When firms are heterogeneous in the risk characteristics of their shocks, optimality requires homogeneous components, while with heterogeneity in size, an irrelevance result holds. Also, the incentives of firms to establish linkages may not be aligned with social optimality.
eng
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Risk-sharing and contagion network
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/273142018-01-24T08:22:52Zcom_10230_25771com_10230_3col_10230_25772
Ravn, Morten O.
Sterk, Vincent
2016-09-26T10:21:43Z
2016-09-26T10:21:43Z
2015-07
http://hdl.handle.net/10230/27314
This paper proposes a theory in which aggregate shocks also produce idiosyncratic risk which in turn introduces a demand channel that we argue is relevant for understanding the Great Recession. We study a model in which households are subject to uninsurable idiosyncratic employment shocks, firms set prices subject to nominal rigidities, and the labor market is characterized by matching frictions and by downward inflexible wages. Higher risk of job loss and worsening job finding prospects during unemployment depress goods demand because of a precautionary savings motive amongst employed households. Lower goods demand produces a decline in job vacancies and the ensuing drop in the job finding rate in turn triggers higher precautionary saving setting in motion an amplification mechanism. The amplification mechanism is absent from standard macroeconomic models and depends on the combination of incomplete financial markets and frictional goods and labor markets. The model can account for key features of the Great Recession in response to the observed changes in the job separation rate and an increase in search efficiency heterogeneity estimated from the matching function. We argue that the latter shock is required to reconcile the large increase in the incidence of longer term unemployment observed during the Great Recession.
eng
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Job uncertainty and deep recessions
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/276992018-01-24T08:17:20Zcom_10230_25771com_10230_3col_10230_25772
Ravn, Morten O.
Sterk, Vincent
2016-12-07T09:39:07Z
2016-12-07T09:39:07Z
2016-10
http://hdl.handle.net/10230/27699
New Keynesian models with unemployment and incomplete markets are rapidly becoming a new workhorse model in macroeconomics. Such models typically require heavy computational methods which may obscure intuition and overlook equilibria. We present a tractable version which can be characterized analytically. Our results highlight that - due the interaction between incomplete markets, sticky prices and endogenous unemployment risk - productivity shocks may have radically different effects than in traditional NK models, that the Taylor principle may fail, and that pessimistic beliefs may be self-fulfilling and move the economy into temporary episodes of low demand and high unemployment, as well as into a long-lasting .unemployment trap.. At the Zero Lower Bound, the presence of endogenous unemployment risk can create inflation and overturn paradoxical properties of the model. We further study financial asset prices and show that non-negligible risk premia emerge.
eng
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Macroeconomic fluctuations with HANK & SAM: an analytical approach
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277002018-01-24T08:17:27Zcom_10230_25771com_10230_3col_10230_25772
Delatte, Anne-Laure
Fouquau, Julien
Portes, Richard
2016-12-07T09:52:28Z
2016-12-07T09:52:28Z
2016-09
http://hdl.handle.net/10230/27700
Previous work has documented a greater sensitivity of long-term government bond yields to fundamentals in Euro area peripheral countries during the euro crisis, but we know little about the driver(s) of regime switches. Our estimates based on a panel smooth threshold regression model quantify and explain them: 1) investors have penalized a deterioration of fundamentals more strongly from 2010 to 2012; 2) the higher the bank credit risk, measured with the premium on credit derivatives, the higher the extra premium on fundamentals; 3) after ECB President Draghi’s speech in July 2012, it took one year to restore the non crisis regime and suppress the extra premium.
eng
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Regime-dependent sovereign risk pricing during the Euro Crisis
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277012018-01-24T08:17:21Zcom_10230_25771com_10230_3col_10230_25772
Bermperoglou, Dimitrios
Pappa, Evi
Vella, Eugenia
2016-12-07T10:02:53Z
2016-12-07T10:02:53Z
2016-10
http://hdl.handle.net/10230/27701
We estimate the effects of public wage expenditures on output and the labor market in U.S. data by identifying shocks to public employment and public wages using sign restrictions. Public wage shocks do not induce significant effects on output, but disaggregating by government level reveals that their effects can be contractionary at the federal level and expansionary at the state and local level. Public employment shocks are expansionary at all government levels by crowding in private consumption and increasing labor force participation and private-sector employment. Local government wage shocks lead to a similar crowd in of private consumption, while shocks to federal government wages lead to public-private wage spillovers, inducing a negative labor demand effect, a sharp fall in private-sector employment and an increase in unemployment. We develop a DSGE model with public good production, search and matching frictions, and endogenous labor force participation that matches the qualitative properties of the empirical evidence. The sign of the output response for public wage shocks depends crucially on the degree of complementarity between public and private goods in the consumption bundle.
eng
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The government wage bill and private activity
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277022018-01-24T08:17:24Zcom_10230_25771com_10230_3col_10230_25772
Beaudry, Paul
Galizia, Dana
Portier, Franck
2016-12-07T10:22:52Z
2016-12-07T10:22:52Z
2016-05
http://hdl.handle.net/10230/27702
In most modern macroeconomic models, the steady state (or balanced growth path) of the system is a local attractor, in the sense that, in the absence of shocks, the economy would converge to the steady state. In this paper, we examine whether the time series behavior of macroeconomic aggregates (especially labor market aggregates) is in fact supportive of this local-stability view of macroeconomic dynamics, or if it instead favors an alternative interpretation in which the macroeconomy may be better characterized as being locally unstable, with nonlinear deterministic forces capable of producing endogenous cyclical behavior. To do this, we extend a standard AR representation of the data to allow for smooth nonlinearities. Our main finding is that, even using a procedure that may have low power to detect local instability, the data provide intriguing support for the view that the macroeconomy may be locally unstable and involve limit-cycle forces. An interesting finding is that the degree of nonlinearity we detect in the data is small, but nevertheless enough to alter the description of macroeconomic behavior. We complete the paper with a discussion of the extent to which these two different views about the inherent dynamics of the macroeconomy may matter for policy.
eng
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Is the macroeconomy locally unstable and why should we care?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277032018-01-24T08:17:19Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Dedola, Luca
2016-12-07T10:29:50Z
2016-12-07T10:29:50Z
2016-07
http://hdl.handle.net/10230/27703
We study the conditions under which unconventional (balance-sheet) monetary policy can rule out self-fulfilling sovereign default in a model with optimizing but discretionary scale and monetary policymakers. When purchasing sovereign debt, the central bank effectively swaps risky government paper for monetary liabilities only exposed to inflation risk, thus yielding a lower interest rate. As central bank purchases reduce the (ex ante) costs of debt, we characterize a critical threshold beyond which, absent fundamental fiscal stress, the government strictly prefers primary surplus adjustment to default. Because default may still occur for fundamental reasons, however, the central bank faces the risk of losses on sovereign debt holdings, which may generate inefficient inflation. We show that these losses do not necessarily undermine the credibility of a backstop, nor the monetary authorities´ ability to pursue its inflation objectives. Backstops are credible if either the central bank enjoys fiscal backing or fiscal authorities are sufficiently averse to inflation.
eng
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The mytery of the printing press monetary policy and self-fulfilling debt crises
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277042018-01-24T08:32:25Zcom_10230_25771com_10230_3col_10230_25772
Leino, Päivi
Saarenheimo, Tuomas
2016-12-07T10:37:54Z
2016-12-07T10:37:54Z
2016-09
http://hdl.handle.net/10230/27704
Successive EMU roadmaps have presented the expansion of EU controls over Member States’ economic policies as an integral part of monetary union, vital to its survival. Possible alternatives have been hardly discussed. In this contribution we trace the evolution of the EU economic policy coordination framework from a relatively narrow, rules-based exercise into a largely discretionary process that reaches even the most politically salient areas of the Member States' economic policies. We then discuss how the extensive coercive powers the EU formally possesses have turned out to be difficult to use in practice. This reflects the fundamental limits of the EU’s legitimate use of power over its Member States, set by its current level of political and cultural integration. To have a chance of success, further designs EMU need to respect these limits.
eng
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On the limits of EU economic policy coordination
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277052018-01-24T08:32:10Zcom_10230_25771com_10230_3col_10230_25772
Leino, Päivi
2016-12-07T10:49:32Z
2016-12-07T10:49:32Z
2015-12
http://hdl.handle.net/10230/27705
This paper discusses the legal and institutional aspects relating to risk-sharing mechanisms at EU level. For this purpose, an attempt will first be made to define a “risk-sharing mechanism” and the relevant legal framework, most notably the no bail-out clause included in Article 125 TFEU. Following this, the paper will discuss the core legal and institutional considerations relating to the European Stability Mechanism, prospects for euro-bonds and some variations of fiscal stabilisation mechanisms that have been presented in the discussion. In addition, the brief considers the June 2015 Five Presidents’ Report on Completing Europe's Economic and Monetary Union and the plans it presents for further risk-sharing among the Member States and some of the earlier proposals that have been discussed in this context, even if they have not been included in the Five Presidents’ Report. The brief places these proposals in a broader framework of legitimacy, accountability and “fairness”, which in the context of the recent EMU Reports have usually been approached as separate or additional considerations. The argument made here is, however, that a more stable EMU needs to be broadly experienced as legitimate and fair. Consequently, these questions should be addressed together, as key considerations relating to the broader framework of how decisions are made in the EMU.
eng
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An overview of legal aspects of risk sharing
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277062018-01-24T08:17:23Zcom_10230_25771com_10230_3col_10230_25772
Yiatrou, Mikaella
2016-12-07T11:08:06Z
2016-12-07T11:08:06Z
2016-05
http://hdl.handle.net/10230/27706
This paper tests the credibility of the bank resolution regime in the European Union in removing the implicit public guarantee that governments will bail-out their troubled banks, and discusses the implications of a resolution regime with limited credibility. It argues that the removal of the implicit guarantee, and thus the perceived credibility of the regime hinge greatly on the adequacy of funds envisaged for bank resolution in any given case, and on the willingness of a government to place a bank into resolution first, before bailing it out. As such, to test whether the implicit guarantee is removed, the paper analyses the adequacy of the envisaged funds by looking at their technicalities and their target-levels, starting from internal and external funding (the bail- in tool and capital markets) to the newly created Single Resolution Fund (SRF), National Resolution Funds (NRFs), Deposit Guarantee Scheme (DGS) and the Direct Recapitalisation Instrument (DRI) of the ESM. This analysis comes to the conclusion that the regime might not provide adequate funding for every given bank resolution, and as such it creates winners and losers under a limitedly-credible regime. This finding can have some important economic implications. Most importantly, it aggravates the inconsistencies of the cost of funding of different banks. Also, where it fails to remove the implicit guarantee, it creates an ever closer link between the cost of funding of the bank and its sovereign’s credit rating instead of severing the sovereign-bank default loop. Nevertheless, the paper acknowledges that in order to construct a fully credible regime much higher sources of funding would be needed, which would pose huge opportunity losses and hurt the profitability of banks perhaps to a disproportionate extent. As such, the paper settles that the current regime might be a good compromise in terms of the limited credibility it provides.
eng
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Bank resolution credibility and economic implications
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277082018-01-24T08:17:28Zcom_10230_25771com_10230_3col_10230_25772
Fasone, Cristina
Beukers, Thomas
2016-12-07T11:16:05Z
2016-12-07T11:16:05Z
2015-12
http://hdl.handle.net/10230/27708
Significant long-term developments in EMU are conditioned not only by the current EU legal framework but also by national constitutions. Conditions are posed by constitutional courts interpreting the constitution, by putting limits to transfers of sovereignty and by putting limits on the basis of rights protection. Good examples of this are the German and Portuguese constitution. Conditions are posed also by referenda prescribed or allowed for the ratification of new treaties. Member states are free to determine the national constitutional requirements for the ratification of EU treaties (in line with the national constitution), including the use of referenda. The United Kingdom illustrates that development of the EU can also be conditioned by referenda on membership. Conditions are posed to euro area development by non-euro area member states. The most prominent example of this is again provided by the United Kingdom (Fiscal Compact and in-or-out referendum).
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
EMU and national constitutional conditions to long term change
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277092018-01-24T08:17:27Zcom_10230_25771com_10230_3col_10230_25772
Rodríguez Mendizábal, Hugo
2016-12-07T11:32:16Z
2016-12-07T11:32:16Z
2016-07
http://hdl.handle.net/10230/27709
This paper presents a theoretical model based on risk diversification to rationalize the observed dichotomy in money markets by which small banks are net providers of funds while large banks become net purchasers. Unlike the existing literature on this topic, the model incorporates liquidity provision by a central bank. In the model, smaller banks are less diversified and more risky which means producing a lower amount of loans through smaller leverage and borrowing in the wholesale money market with larger risk premiums. Because payment needs for settlement purposes are random and because smaller banks face worse rates in the interbank market, in equilibrium they will obtain from the central bank extra funds for precautionary reasons and offer these excess reserves in the money market. The opposite will be true for large banks.
eng
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Risk diversification and the large-small bank dichotomy in money markets
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277102018-01-24T08:17:25Zcom_10230_25771com_10230_3col_10230_25772
Biguri, Kizkitza
2016-12-07T11:58:08Z
2016-12-07T11:58:08Z
2016-09
http://hdl.handle.net/10230/27710
This paper examines the relation between debt structure and investment, by exploiting differences in secured and unsecured debt holdings. In order to address endogeneity concerns, I exploit two sources of exogenous variation for identification. From the firms' side, the Jobs and Growth Tax Relief Reconciliation Act of 2003 represents a negative shock to firms' creditworthiness. From the credit market's perspective, the asset-backed commercial paper market collapse of 2007 caused a temporary shortage of unsecured commercial paper. Each of these shocks to debt structure is analyzed combining a difference-in-differences approach with an instrumental variable estimation (Waldinger (2010)), which allows studying i) substitution patterns among debt types and ii) the impact on investment. Results show that greater access to unsecured debt leads to larger investment. When firms face more restricted access to the unsecured debt market, they substitute toward secured debt, and reduce investment. The reason behind this result is that unsecured debt is more cost-effective in terms of spreads and covenants. These findings suggest that collateral is not key to finance investment, as instead has often been claimed in the literature. Creditworthiness rather than collateral is key to access unsecured debt. Additionally, I shed light on how access to the unsecured debt market relates to the balance sheet and credit channels of monetary policy.
eng
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How does access to the unsecured debt market affect investment?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277112018-01-24T08:17:28Zcom_10230_25771com_10230_3col_10230_25772
Andrés, Javier
Arce, Óscar
Thomas, Carlos
2016-12-07T12:06:38Z
2016-12-07T12:06:38Z
2016-09
http://hdl.handle.net/10230/27711
We analyze the interaction between fiscal consolidations and private sector deleveraging in an economy inside a monetary union. Pre-existing long-term collateralized private debt - a core ingredient of the deleveraging process - plays a critical role in shaping fiscal multipliers. By buffering the short-run fall in debtors´ spending capacity, long-run private debt reduces the shortrun multipliers of aggressive (large and/or fast) consolidations. However, absent credibility concerns, aggressive consolidations raise the intensity and length of private deleveraging, causing higher output losses over the medium-run. In terms of discounted output losses and welfare, this latter effect dominates, so that larger and faster consolidations are relatively costlier than smaller and more gradual ones. Also, in this environment, alternative budgetary instruments generate sizable differences in terms of their incidence on private deleveraging dynamics and, hence, on their overall output costs of fiscal consolidations.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
When fiscal consolidation meets private deleveraging
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277122018-01-24T08:17:26Zcom_10230_25771com_10230_3col_10230_25772
Martinelli, Thibault
2016-12-07T12:12:17Z
2016-12-07T12:12:17Z
2016-05
http://hdl.handle.net/10230/27712
After explaining the role of Collective Action Clauses (CAC), this paper explores how these have been developed in the ‘statutory’ CAC operation in Greece in 2012 and the Euro-area CAC provisions found in the ESM Treaty which apply to all Euro-area bonds issued from 2013. The paper explains the legal risks that arise and the capacity of CAC to assist in debt restructuring. Noting certain remaining weaknesses in the existing Euro CAC, the paper closes by offering some modifications as well as more long term solutions to debt restructuring.
eng
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Euro CAC and the existing rules on sovereign debt restructuring in the Euro area: An appraisal four years after the Greek debt swap
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277132018-01-24T08:17:26Zcom_10230_25771com_10230_3col_10230_25772
Gambetti, Luca
Gallio, Francesco
2016-12-07T12:18:05Z
2016-12-07T12:18:05Z
2016-04
http://hdl.handle.net/10230/27713
We study fiscal policy coordination and fiscal policy spillovers in Germany, France, Spain and Italy using a Time-Varying Coefficients VAR model for the period 1995-2014. While the four country-specific cycles share large commonalities, fiscal policy coordination across countries, measured as the time-varying correlation between government spending growth, is very low. Country-specific government spending shocks generate significant effects on the remaining countries. International spillovers are especially strong in the medium run and during the financial crisis. Also, we find heterogeneous and asymmetric response to spending across countries.
eng
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Measuring fiscal policy spillovers in the Euro area
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277142018-01-24T08:17:28Zcom_10230_25771com_10230_3col_10230_25772
Steinbach, Armin
2016-12-07T12:22:44Z
2016-12-07T12:22:44Z
2016-09
http://hdl.handle.net/10230/27714
An insufficient level of structural reforms remains a perennial phenomenon in the EU. Despite the gradual expansion of macroeconomic governance, legal instruments fostering the implementation of structural reforms have been underexploited. This article examines the leeway provided by EU Treaties and legislation to use existing and new instruments to incentivize structural reforms more forcefully. First, in light of the recent change in the EU Commission’s enforcement practice, we highlight how the sanctions-based regime under the Stability and Growth Pact (SGP) can be extended to incorporate structural reforms. There is significant room for manoeuvre to account for the implementation of structural reforms both in the preventive and the corrective arm of the SGP. Second, contractual agreements on structural reforms offer an alternative to the sanction based system. Unlike existing instruments, contractual agreements allow for more egalitarian and reward-based incentives and thus deviate from the classic 'surveillance model' of economic governance in the EU. We can conceptualize such agreements in two ways: First, as agreements concluded between the EU and individual Member States, underpinned by financial support as an incentive. Second, as mutual agreements concluded between Member States, which agree on the implementation of structural reforms as a kind of barter trading ensuring reciprocity. We highlight the legal boundaries on scope and design of such agreements and how they relate to the institutional governance setting in the EU.
eng
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The structural reforms in EU member states: Exploring sanction-based mechanisms
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277162018-01-24T08:17:21Zcom_10230_25771com_10230_3col_10230_25772
Kankanamge, Sumudu
Weitzenblum, Thomas
2016-12-07T12:31:34Z
2016-12-07T12:31:34Z
2016-05
http://hdl.handle.net/10230/27716
This paper examines the optimal time-consistent unemployment insurance policy in a search economy with incomplete markets. In a context of repeated choice without a commitment device, we show that the optimal replacement rate depends on how frequently in time the policy can be revised. The exact relation is dependent on the political process: if the utilitarian welfare criterion is used, the optimal rate is higher the shorter the choice periodicity. Self-insurance reduces the need for the public scheme but mostly because the policy cannot be changed often enough. The comparison with an economy where a commitment device is assumed shows that the commitment rate is close to time-consistent rates with very long choice periodicities.
eng
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Time-consistent unemployment insurance
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277172018-01-24T08:17:26Zcom_10230_25771com_10230_3col_10230_25772
Almeida Bandeira, Guilherme de
2016-12-07T12:38:01Z
2016-12-07T12:38:01Z
2016-06
http://hdl.handle.net/10230/27717
This paper considers a scheme of fiscal transfers between member states of a monetary union subject to sovereign spread shocks. The scheme consists of a set of cross-country transfer rules triggered when sovereign spreads widen. I study its implementation in a twocountry model with financial frictions estimated for Portugal and the Eurozone. The model illustrates how domestic fiscal policy is unable to buffer the widening of sovereign spreads when public debt is high and spreads are responsive to the fiscal outlook. On the contrary, because transfers are made between governments, they alleviate the strain caused on the fiscal stance directly and reduce the pass-through of sovereign risk to private lending to firms. I find that, for welfare to improve for all member states, their relative size and fiscal profile need to be nearly symmetric. Nevertheless, I show that for a cost to the remaining members states significantly smaller than the benefits they derive from being part of the union, a small country like Portugal can secure sizeable increases in life-time consumption.
eng
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Fiscal transfers in a monetary union with sovereign risk
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277182018-01-24T08:17:29Zcom_10230_25771com_10230_3col_10230_25772
Dolls, Mathias
Fuest, Clemens, 1968-
Neumann, Dirk
Peichl, Andreas
2016-12-09T09:33:33Z
2016-12-09T09:33:33Z
2016-09
http://hdl.handle.net/10230/27718
This is the first paper that assesses the importance of different stabilization channels of an unemployment insurance system for the euro area (EA). We provide insights on the potential added value of common unemployment insurance (UI) as a fiscal risk sharing device which crucially hinges on its ability to provide interregional smoothing. Running/ncounterfactual simulations based on micro data for the period 2000-13, we and that 10 per cent of the income fluctuations due to transitions into and out of un-employment would have been cushioned through interregional smoothing at EA-level. Smoothing gains are unevenly distributed across countries, ranging from -5 per cent in Malta to 22 per cent in Latvia. Our results suggest that the interregional smoothing potential is as important as intertemporal smoothing through debt. We and that four member states would have been either a permanent net contributor or net recipient. Contingent benefits could limit the degree of cross-country redistribution, but might reduce desired insurance effects. We also study heterogeneous effects within countries and discuss moral hazard issues at the level of individuals, the administration and economic policy.
eng
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An unemployment insurance scheme for the Euro area? A comparison of different alternatives using micro data
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277192018-01-24T08:17:27Zcom_10230_25771com_10230_3col_10230_25772
Balke, Neele L.
Ravn, Morten O.
2016-12-09T09:43:26Z
2016-12-09T09:43:26Z
2016-09
http://hdl.handle.net/10230/27719
We analyze time-consistent fiscal policy in a sovereign debt model. We consider a production economy that incorporates feedback from policy to output through employment, features inequality though unemployment, and in which the government lacks a commitment technology. The government's optimal policies play off wedges due to the lack of lump-sum taxes and the distortions that taxes and transfers introduce on employment. Lack of commitment matters during a debt crises - episodes where the price of debt reacts elastically to the issuance of new debt. In normal times, the government sets procyclical taxes, transfers and public goods provision but in crisis times it is optimal to implement austerity policies which minimize the distortions deriving from default premia. Could a third party provide a commitment technology, austerity is no longer optimal.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Time-consistent fiscal policy in a debt crisis
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/277212018-01-24T08:17:28Zcom_10230_25771com_10230_3col_10230_25772
Monge-Naranjo, Alexander
Sanchez, Juan M.
Santaeulalia-Llopis, Raul
2016-12-09T10:28:59Z
2016-12-09T10:28:59Z
2016-07
http://hdl.handle.net/10230/27721
Are production factors allocated efficiently across countries? To differentiate misallocation from factor intensity differences, we construct a new dataset of estimates for the output shares of natural resources for a large panel of countries. We find a significant and persistent degree of misallocation of physical capital. We also find a remarkable movement toward efficiency during last 35 years, associated with the elimination of interventionist policies and driven by domestic accumulation. In contrast, we find a much larger and persistent misallocation of human capital. Interestingly, when both production factors can be reallocated, capital would often flow from poor to rich countries.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Natural resources and global misallocation
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/278882018-01-24T08:08:10Zcom_10230_25771com_10230_3col_10230_25772
Juggler, Joachim
Schott, Immo
2017-01-13T11:13:25Z
2017-01-13T11:13:25Z
2016-11
http://hdl.handle.net/10230/27888
This paper introduces a maturity choice to the standard model of firm financing and investment. Longterm debt renders the optimal firm policy time-inconsistent. Lack of commitment gives rise to debt dilution. This problem becomes more severe during downturns. We show that cyclical debt dilution generates the observed counter-cyclical behavior of default, bond spreads, leverage, and debt maturity. It also generates the pro-cyclical term structure of corporate bond spreads. Debt dilution renders the equilibrium outcome constrained-inefficient: credit spreads are too high and investment is too low. In two policy experiments we find the following: (1) an outright ban of long-term debt improves welfare in our model economy, and (2.) debt dilution accounts for 84% of the credit spread and 25% of the welfare gap with respect to the first best allocation.
eng
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info:eu-repo/semantics/openAccess
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Optimal debt maturity and firm investment
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/279122018-01-24T08:09:51Zcom_10230_25771com_10230_3col_10230_25772
Rodríguez Mendizábal, Hugo
2017-01-17T09:00:47Z
2017-01-17T09:00:47Z
2017-01
http://hdl.handle.net/10230/27912
What would be the effect of imposing a 100 percent reserve requirement to depository institutions? This paper contends that reserves do not compete with loans on the asset side of bank’s balance sheets. Thus, they only affect liquidity provision by banks indirectly through their impact on the cost of loan and deposit creation. This cost could be driven to zero if, as the Eurosystem does, central banks remunerated required reserves at the same rate of their refinancing operations. The paper argues that the crucial constraint imposed by a fully backed banking system is collateral availability by depository institutions.
eng
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info:eu-repo/semantics/openAccess
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Narrow banking with modern depository institutions: Is there a reason to panic?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/280462018-01-24T08:28:55Zcom_10230_25771com_10230_3col_10230_25772
Priftis, Romanos
Zimic, Srecko
2017-02-03T08:56:02Z
2017-02-03T08:56:02Z
2017-09
http://hdl.handle.net/10230/28046
We find that debt-financed government spending multipliers vary considerably depending on the location of the debt holder. In a sample of 59 countries we find that government spending multipliers are larger when government purchases are financed by issuing debt to foreign investors (non-residents), compared to the case when government purchases are financed by issuing debt to home investors (residents). In a theoretical model we show that the location of the government debt holder produces these differential responses through the extent that private investment is crowded out in each case. Increasing international capital mobility of the resident private sector decreases the difference between the two types of financing, a prediction, which is also confirmed by the data. The share of rule-of-thumb workers, as well as the strength of the public good in the utility function play a key role in generating model-based fiscal multipliers, which are quantitatively comparable with those of the data.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Sources of borrowing and fiscal multipliers
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/280472018-01-24T08:28:56Zcom_10230_25771com_10230_3col_10230_25772
Chari, V. V.
Dovis, Alessandro
Kehoe, Patrick J.
2017-02-03T09:27:49Z
2017-02-03T09:27:49Z
2017-09
http://hdl.handle.net/10230/28047
We offer a theoretically based narrative that attempts to account both for the formation of the European Monetary Union and the callenges it has faced. Lack of commitment to policy plays a central role in this narrative.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
A journey down the slippery slope to the European crisis: a theorist's guide
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/282822018-01-24T08:34:58Zcom_10230_25771com_10230_3col_10230_25772
Ferrari, Alessandro
Rogantini Picco, Anna
2017-03-23T09:24:15Z
2017-03-23T09:24:15Z
2017-01
http://hdl.handle.net/10230/28282
This paper aims at empirically assessing the effect of the adoption of the euro on the ability of euro area member states to smooth consumption and share risk. With the objective of evaluating the economic performance of euro area countries in the scenario where the euro had not been adopted, we construct a counterfactual dataset of macroeconomic variables via the Synthetic Control Method. In order to get some preliminary measures of risk sharing, we compute correlations between consumption and GDP within a country, bilateral consumption correlations, and Brandt-Cochrane-Santa Clara indices across euro area member states. We then decompose risk sharing in different channels by means of the Asdrubali, Sorensen and Yosha (1996) output variance decomposition. Our difference in difference estimates show that the euro has not affected the level of international risk sharing across euro area countries, but has partially reduced the ability of member states to smooth consumption. We attribute this change to the higher GDP growth generated by the adoption of the euro, which has been accompanied by a greater output volatility. We also report differential effects for euro area core and periphery countries, showing that the former have not suffered any negative effect from the adoption of the euro in terms of risk sharing whereas the latter are now less able to smooth consumption.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
International risk sharing in the European Monetary Union
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/282832018-01-24T08:34:45Zcom_10230_25771com_10230_3col_10230_25772
Müller, Andreas
Storesletten, Kjetil
Zilibotti, Fabrizio
2017-03-23T09:34:59Z
2017-03-23T09:34:59Z
2016-09
http://hdl.handle.net/10230/28283
We construct a dynamic theory of sovereign debt and structural reforms with three interacting frictions: limited enforcement, limited commitment, and incomplete markets. A sovereign country in recession issues debt to smooth consumption and makes reforms to speed up recovery. The sovereign can renege on debt by suffering a stochastic cost, in which case debt is renegotiated. The competitive Markov equilibrium features large fluctuations in consumption and reform effort. We contrast the equilibrium with an optimal contract with one-sided commitment. A calibrated model can match several salient facts about debt crises. We quantify the welfare effect of relaxing different frictions.
eng
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info:eu-repo/semantics/openAccess
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Sovereign debt and structural reforms
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/282842018-01-24T08:34:47Zcom_10230_25771com_10230_3col_10230_25772
Beaudry, Paul
Galizia, Dana
Portier, Franck
2017-03-23T09:55:37Z
2017-03-23T09:55:37Z
2016-09
http://hdl.handle.net/10230/28284
Recessions often happen after periods of rapid accumulation of houses, consumer durables and business capital. This observation has led some economists, most notably Friedrich Hayek, to conclude that recessions often reflect periods of needed liquidation resulting from past over-investment. According to the main proponents of this view, government spending or any other form of aggregate demand policy should not be used to mitigate such a liquidation process, as doing so would simply result in a needed adjustment being postponed. In contrast, ever since the work of Keynes, many economists have viewed recessions as periods of deficient demand that should be countered by activist fiscal policy. In this paper, we re-examine the liquidation perspective of recessions in a setup where prices are flexible but where not all trades are coordinated by centralized markets. The model illustrates why liquidations likely cause recessions characterized by deficient aggregate demand and accordingly suggests that Keynes' and Hayek's views of recessions may be closely linked. In our framework, interventions aimed at stimulating aggregate demand face a trade-off whereby current stimulus postpones the adjustment process and therefore prolongs the recessions, but where some stimulative policies may nevertheless remain desirable.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Reconciling Hayek's and Keynes' views of recessions
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/309272018-01-24T08:35:04Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Dedola, Luca
Jarocinski, Marek
Mackowiak, Bartosz
Schmidt, Sebastian
2017-04-28T08:35:06Z
2017-04-28T08:35:06Z
2016
http://hdl.handle.net/10230/30927
The euro area has been experiencing a prolonged period of weak economic activity and very low inflation. This paper reviews models of business cycle stabilization with an eye to formulating lessons for policy in the euro area. According to standard models, after a large recessionary shock accommodative monetary and fiscal policy together may be necessary to stabilize economic activity and inflation. The paper describes practical ways for the euro area to be able to implement an effective monetary-fiscal policy mix.
eng
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info:eu-repo/semantics/openAccess
This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Macroeconomic stabilization, monetary-fiscal interactions, and Europe's monetary union
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/309282018-01-24T08:34:52Zcom_10230_25771com_10230_3col_10230_25772
Bassetto, Marco
Galli, Carlo
2017-04-28T09:05:34Z
2017-04-28T09:05:34Z
2017-04
http://hdl.handle.net/10230/30928
We consider a two-period Bayesian trading game where in each period informed agents decide whether to buy an asset ("government debt") after observing an idiosyncratic signal about the prospects of default. While second-period buyers only need to forecast default, first-period buyers pass the asset to the new agents in the secondary market, and thus need to form beliefs about the price that will prevail at that stage. We provide conditions such that coarser information in the hands of second-period agents makes the price of debt more resilient to bad shocks not only in the last period, but in the first one as well. We use this model to study the consequiences of issuing debt denominated in domestic vs. foreign currency: we interpret the former as a subject to inflation risk and the latter as subject to default risk, with inflation driven by the information of a less-sophisticated group of agents endowed with less precise information, and default by the information of sophisticated bond traders. Our results can be used to account for the behavior of debt prices across countries following the 2008 financial crisis, and also provide a theory of "original sin".
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Is inflation default? The role of information in debt crises
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/323872018-10-18T13:18:07Zcom_10230_25771com_10230_3col_10230_25772
Bohácek, Radim
2017-06-21T09:06:53Z
2017-06-21T09:06:53Z
2017-05
http://hdl.handle.net/10230/32387
This paper analyzes productivity and welfare losses from capital misallocation in a general equilibrium model of occupational choice and financial intermediation. It studies the effects of risk sharing with default and imperfect monitoring on the optimal allocation of resources and derives endogenous leverage bounds. Information frictions have large impact on entrepreneurs' entry and firm-size decisions due to endogenous collateral requirements derived from incentive compatible allocations. Leverage bounds derived from default and asymmetric information constraints are then used to simulate the tradeoff from a macroprudential policy aimed at mitigating the effects of unanticipated changes in information regime.
eng
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This is an Open Access article distributed under the terms of the Creative Commons Attribution License Creative Commons Attribution 4.0 International, which permits unrestricted use, distribution and reproduction in any medium provided that the original work is properlyattributed.
Leverage bounds with default and asymmetric information
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/323882018-01-24T08:18:21Zcom_10230_25771com_10230_3col_10230_25772
Cui, Wei, 1970-
Radde, Soeren
2017-06-21T09:32:40Z
2017-06-21T09:32:40Z
2017-05
http://hdl.handle.net/10230/32388
We develop a search-theory of asset market liquidity which gives rise to endogenous financing constraints in an otherwise standard dynamic general equilibrium model. Asset liquidity describes the ease of issuance and re-saleability of private financial claims for a certain price. We model asset liquidity as an outcome of the participation margins of buyers and sellers on an asset market, where financial intermediaries implement a costly search-and-matching process. Limited market liquidity of private claims creates a role for liquid assets, such as fiat money, to ease financing constraints. We show that endogenising liquidity is essential to generate positive co-movement between asset (re)saleability and asset prices. When the capacity of the asset market to channel funds to entrepreneurs deteriorates, investment falls while the hedging value of liquid assets increases, driving up liquidity premia. Our model, thus, demonstrates that shocks to the intermediation capacity of financial markets can be an important source of flight-to-liquidity dynamics and macroeconomic fluctuations, matching key business cycle characteristics of the U.S. economy.
eng
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Search-based endogenous asset liquidity and the macroeconomy
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/323892018-01-24T08:18:22Zcom_10230_25771com_10230_3col_10230_25772
Cui, Wei, 1970-
Kaas, Leo
2017-06-21T10:13:15Z
2017-06-21T10:13:15Z
2017-05
http://hdl.handle.net/10230/32389
Recessions are often accompanied by spikes of corporate default and prolonged declines of business credit. This paper argues that credit and default cycles are the outcomes of variations in self-fulfilling beliefs about credit market conditions. We develop a tractable macroeconomic model in which leverage ratios and interest spreads are determined in optimal credit contracts that reflect the expected default risk of borrowing forms. We calibrate the model to evaluate the impact of sunspots and fundamental shocks on the credit market and on output dynamics. Self-fulfilling changes in credit market expectations trigger sizable reactions in default rates and generate endogenously persistent credit and output cycles. All credit market shocks together account for about 50% of the variation of U.S. output growth during 1982-2015.
eng
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Default cycles
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/323902023-05-09T10:06:15Zcom_10230_25771com_10230_3col_10230_25772
Banulescu-Radu, Denisa
Hansen, Peter
Huang, Zhuo
Matei, Marius
2017-06-21T11:04:56Z
2017-06-21T11:04:56Z
2017-05
http://hdl.handle.net/10230/32390
We study financial volatility during the global financial crisis and use the largest volatility shocks to identify major events during the crisis. Our analysis makes extensive use of high frequency (HF) financial data to model volatility and, importantly, to determine the timing within the day when the largest volatility shocks occurred. The latter helps us identify the events that may be associated with each of these shocks, and serves to illustrate the benefits of using high-frequency data. Some of the largest volatility shocks coincide, not surprisingly, with the bankruptcy of Lehman Brothers on September 15, 2008 and Congress’s failure to pass the Emergency Economic Stabilization Act on September 29, 2008. The day with the largest volatility shock was February 27, 2007, the date when Freddie Mac announced a stricter policy for underwriting subprime loans and a date that was marked by a crash on the Chinese stock market. However, the intraday HF data shows that the main culprit was a computer glitch in the trading system. The days with the largest drops in volatility can in most cases be related to interventions by governments and central banks.
eng
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Volatility during the financial crisis through the lens of high frequency data: a realized GARCH approach
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327712018-01-24T08:07:16Zcom_10230_25771com_10230_3col_10230_25772
Panousi, Vasia
Reis, Catarina
2017-09-20T10:57:52Z
2017-09-20T10:57:52Z
2017-04
http://hdl.handle.net/10230/32771
This paper considers a model of linear capital taxation for an economy where capital and labor income are subject to idiosyncratic uninsurable risk. To keep the model tractable, we assume that investment decisions are made before uncertainty is realized, so that the realization of the capital and labor income shocks only affects current consumption. In this setting, we are able to jointly analyze capital and labor income risk and derive analytical results regarding the optimal taxation of capital. We and that the optimal capital tax is positive in the long run if there is only capital income risk. The reason for this is that the capital tax provides insurance against capital income risk. Furthermore, for high levels of risk, increasing the capital tax may actually induce capital accumulation. On the other hand, if there is only labor income risk the optimal capital tax is zero. The sign of the optimal tax can only be negative if the two types of risk are negatively correlated and labor income risk is large enough.
eng
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A unified framework for optimal taxation with undiversifiable risk
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327722018-01-24T08:07:36Zcom_10230_25771com_10230_3col_10230_25772
Straub, Ludwig
Ulbricht, Robert
2017-09-20T11:04:08Z
2017-09-20T11:04:08Z
2017-03
http://hdl.handle.net/10230/32772
We develop a theory of endogenous uncertainty where the ability of investors to learn about firm-level fundamentals declines during financial crises. At the same time, higher uncertainty reinforces financial distress of firms, giving rise to “belief traps" - a persistent cycle of uncertainty, pessimistic expectations, and financial constraints, through which a temporary shortage of funds can develop into a long-lasting funding problem for firms. At the macro-level, belief traps can explain why financial crises can result in long-lasting recessions. In our model, financial crises are characterized by high levels of credit misallocation, an increased cross-sectional dispersion of growth rates, endogenously increased pessimism, uncertainty and disagreement among investors, highly volatile asset prices, and high risk premia. A calibration of our model to U.S. micro data on investor beliefs explains a considerable fraction of the slow recovery after the 08/09 crisis.
eng
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Endogenous uncertainty and credit crunches
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327732018-01-24T08:07:57Zcom_10230_25771com_10230_3col_10230_25772
Gabriele, Carmine
Erce, Aitor
Athanasopoulou, Mariaelena
Rojas, Juan
2017-09-20T11:13:30Z
2017-09-20T11:13:30Z
2017-06
http://hdl.handle.net/10230/32773
It is well known that no single metric can provide reliable cross-country risk assessments of debt sustainability. While approaches to understanding sustainability have traditionally relied heavily on stock metrics, a consensus is emerging that debt sustainability should be linked to both stock and flow features of underlying public debt. This paper informs this debate by analysing the ability of gross financing needs, the preferred flow metric in current debt sustainability analyses by official institutions, to provide additional information to that provided by standard stock metrics of a sovereign’s likelihood of distress. Our main contribution is to document a significant negative effect from changes in gross financing needs when debt stocks are high. These results support the intuition that countries can sustain very large debt stocks if these do not generate unmanageable flow needs. Additionally, we show that sovereign roll-over needs are a critical element driving this effect. Given the role of official lending in taming the dynamics of this component, our findings also inform the literature on the role of official lending in crises resolution.
eng
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Debt stocks meet gross financing needs: a flow perspective into sustainability
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327742018-01-24T08:07:18Zcom_10230_25771com_10230_3col_10230_25772
Manuelli, Rody
Vizcaino, Juan I.
2017-09-20T15:55:49Z
2017-09-20T15:55:49Z
2017-05
http://hdl.handle.net/10230/32774
We study the nature of the optimal monetary policy in a regime of “fiscal dominance” when the monetary authority -that can print money or issue interest earning debt- is required to finance an exogenous sequence of transfers to the Treasury. We show that the degree of commitment on the part of the monetary authority has a significant impact on the details of the optimal policy. We apply this model to the recent experience of Argentina and we find that the inflation rate experienced by Argentina during the first year of the monetary program is close to the predictions of the weakly time consistent solution. Moreover, consistent with both versions of the model, the Argentine central bank has increased the ratio of interest earning debt to monetary base.
eng
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Monetary policy with declining deficits: theory and an application to recent Argentine monetary policy
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327752018-01-24T08:07:36Zcom_10230_25771com_10230_3col_10230_25772
Ridder, Maarten de
Pfajfar, Damjan
2017-09-20T16:18:04Z
2017-09-20T16:18:04Z
2017-04
http://hdl.handle.net/10230/32775
This paper studies the effect of wage rigidities on the transmission of fiscal and monetary policy shocks. We calculate downward wage rigidities across U.S. states using the Current Population Survey. These estimates are used to explain differences in the state level economic effects of identical national shocks in interest rates and taxes. In line with the role of sticky wages in New Keynesian models, we find that contractionary monetary policy and tax shocks increase unemployment and decrease economic activity in rigid states considerably more than in flexible states. We also find larger and more persistent effects of monetary and tax policy shocks for states where the ratio between minimum and median wage is higher and for states that do not have right-to-work legislation.
eng
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Policy shocks and wage rigidities: empirical evidence from regional effects of national shocks
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/327762018-01-24T08:07:35Zcom_10230_25771com_10230_3col_10230_25772
Fieldhouse, Andrew
Mertens, Karel
Ravn, Morten O.
2017-09-20T16:25:42Z
2017-09-20T16:25:42Z
2017-07
http://hdl.handle.net/10230/32776
We document the portfolio activity of federal housing agencies and provide evidence on its impact on mortgage markets and the economy. Through a narrative analysis, we identify historical policy changes leading to expansions or contractions in agency mortgage holdings. Based on those regulatory events that we classify as unrelated to short-run cyclical or credit market shocks, we find that an increase in mortgage purchases by the agencies boosts mortgage lending, in particular refinancing, and lowers mortgage rates. Agency purchases influence prices in other asset markets, stimulate residential investment and expand homeownership. Using information in GSE stock prices to construct an alternative instrument for agency purchasing activity yields
very similar results as our benchmark narrative identification approach.
eng
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The macroeconomic effects of government asset purchases: evidence from postwar US housing credit
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/333642018-01-24T08:36:53Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Erce, Aitor
Uy, Timothy
2017-11-28T09:17:43Z
2017-11-28T09:17:43Z
2017-08
http://hdl.handle.net/10230/33364
In response to the euro area crisis, European policymakers took a gradual, incremental approach
to official lending, at first relying on the approach followed by the International Monetary Fund,
then developing their own crisis resolution framework. We review this development, marked by a
substantial divergence in the terms of official loans offered to the crisis countries by the IMF and
the euro area official lenders. Based on a unique dataset, we use event analysis to assess the
impact of changing maturity and spreads of official loans on bond yields, liquidity and market
access. In light of the euro area experience, we discuss arguments for rebalancing Debt
Sustainability Analysis and programme design towards cash-flow management. While the official
assistance granted to crisis countries in the euro area may not be replicable elsewhere, key
lessons from it that could foster a reconsideration of the modalities by which official lending
institutions handle crises.
eng
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Official sector lending strategies during the euro area crisis
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/333652018-01-24T08:36:53Zcom_10230_25771com_10230_3col_10230_25772
Kapicka, Marek
2017-11-28T09:38:36Z
2017-11-28T09:38:36Z
2017-08
http://hdl.handle.net/10230/33365
I quantify the welfare gains from introducing history dependent income tax in an incomplete
markets overlapping generations framework where individuals face uninsurable idiosyncratic
shocks. I assume that the income tax paid is a function of a geometrical weighted average of past
incomes, and solve for the optimal weights. I find that the two main factors that determine the
nature of history dependence are the degree to which the government discounts future
generations and the degree of mean reversion in the productivity process. The welfare gains from
history dependence are large, about 1.76 percent of consumption. I decompose the total effect
into an efficiency effect that increases labour supply, and an insurance effect that reduces volatility
of consumption and find that, quantitatively, the insurance effect dominates the efficiency effect.
The optimal tax increases consumption insurance by trading higher tax progressivity with respect
to past incomes for a reduced tax progressivity with respect to the current income.
eng
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Quantifying the welfare gains from history dependent income taxation
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/334282018-01-24T08:36:48Zcom_10230_25771com_10230_3col_10230_25772
Molteni, Francesco
2017-12-01T11:38:25Z
2017-12-01T11:38:25Z
2017-08
http://hdl.handle.net/10230/33428
This paper analyzes the Eurozone financial crisis through the lens of sovereign bond liquidity.
Using novel data, I show that repo haircuts on peripheral government bonds sharply increased
during the crisis, reducing their liquidity and amplifying the rise in their yields. I study the impact
of this liquidity shock on asset prices and macroeconomic variables in a general equilibrium model
with financial frictions calibrated for Ireland. The model confirms the rise in the required returns of
illiquid government bonds and predicts a substantial drop in economic activity and deflation.
Unconventional policy alleviates the effect of the liquidity shock.
eng
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Liquidity, government bonds and sovereign debt crises
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335482018-01-24T08:08:23Zcom_10230_25771com_10230_3col_10230_25772
Ellison, Martin
Scott, Andrew
2017-12-21T08:55:20Z
2017-12-21T08:55:20Z
2017-09
http://hdl.handle.net/10230/33548
We construct a new monthly dataset for UK government debt over the period 1694 to 2017 based
on price and quantity data for each individual bond issued. This enables us to examine long run
fiscal sustainability using the theoretically relevant variable of the market value of debt, and
investigate the historical importance of debt management. We find the general implications of the
tax smoothing literature are replicated in our data, especially around financing wars, although we
find major shifts over time in how fiscal sustainability is achieved. Before the 20th century,
governments continued to pay bond holders a high rate of return and achieved sustainability
through running fiscal surpluses but since then governments have relied on low growth adjusted
real interest rates. The optimal debt management literature tends to favour the use of long bonds
but we find the government would have been better off over the 20th century issuing short bonds.
The contrast with the literature occurs because of an upward sloping yield curve and long bonds
rarely providing fiscal insurance. This is particularly true during periods of financial crises when
falling interest rates lead to sharp rises in the price of long bonds, making them an expensive form
of finance. We examine the robustness of our conclusions to liquidity effects, rollover risks,
buyback operations and leverage. In general, these do suggest a greater role for long bonds but
do not overturn an issuance strategy based mainly on short term bonds.
eng
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Managing the UK national debt 1694-2017
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335492018-01-24T08:08:14Zcom_10230_25771com_10230_3col_10230_25772
Correia, Hugo
Fontoura Gouveia, Ana
2017-12-21T09:07:28Z
2017-12-21T09:07:28Z
2017-10
http://hdl.handle.net/10230/33549
This paper examines the impact of labour and product market reforms on sectoral employment
and productivity, following a difference-in-differences approach. Using industry-level data for the
period 1997-2013, we show that employment protection deregulation has a positive effect on
sectoral employment for industries more exposed to labour market legislation, despite having a
non-positive impact on productivity. Upstream product market deregulation also increases
sectoral employment for the downstream sectors more dependent on upstream inputs.
Nevertheless, it has mixed effects on sectoral productivity: while upstream sectors face
productivity losses, the downstream sectors more exposed to the deregulated sectors grasp
productivity gains.
eng
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Is deregulation of product and labour markets promoting employment and productivity? A difference-in-differences approach
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335522018-09-25T15:14:50Zcom_10230_25771com_10230_3col_10230_25772
Riet, Ad van
2017-12-21T09:25:21Z
2017-12-21T09:25:21Z
2017-10
http://hdl.handle.net/10230/33552
New-style central banking in many advanced economies, involving the use of unconventional
monetary policy instruments and forward guidance at the effective lower bound for interest rates,
has raised questions about the appropriate role of fiscal policy – also in the euro area, where a
fiscal counterpart to the European Central Bank (ECB) and the Eurosystem is missing. This paper
considers three areas where euro area governments could act as the ‘joint sovereign’ behind the
euro and support the ECB in its task of maintaining price stability, staying within the boundaries
of the Maastricht Treaty. First, member countries could coordinate a growth-friendly aggregate
economic policy mix that is supportive of the single monetary policy, with the help of a central
fiscal capacity subject to common decision-making. Second, they could introduce a safe
sovereign asset for the eurozone without assuming common liability in order to anchor financial
integration and facilitate monetary policy implementation. Third, the significant benefits for the
Eurosystem from a lower burden on monetary policy and a reduced exposure to sovereign risk
could make it acceptable for euro area governments to indemnify it against potential large losses
on its much expanded balance sheet. The fundamental solution, however, lies in advancing with
fiscal integration to address the ‘institutional loneliness’ of the Eurosystem with full respect for its
independent status.
eng
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Monetary policy stretched to the limit: How could governments support the European Central Bank?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335542018-01-24T08:09:06Zcom_10230_25771com_10230_3col_10230_25772
Sosa-Padilla, César
2017-12-21T10:01:06Z
2017-12-21T10:01:06Z
2017-10
http://hdl.handle.net/10230/33554
Episodes of sovereign default feature three key empirical regularities in connection with the
banking systems of the countries where they occur: (i) sovereign defaults and banking crises tend
to happen together, (ii) commercial banks have substantial holdings of government debt, and (iii)
sovereign defaults result in major contractions in bank credit and production. This paper provides
a rationale for these phenomena by extending the traditional sovereign default framework to
incorporate bankers who lend to both the government and the corporate sector. When these
bankers are highly exposed to government debt, a default triggers a banking crisis, which leads
to a corporate credit collapse and subsequently to an output decline. When calibrated to the 2001-
02 Argentine default episode, the model is able to produce default in equilibrium at observed
frequencies, and when defaults occur credit contracts sharply, generating output drops of 7
percentage points, on average. Moreover, the model matches several moments of the data on
macroeconomic aggregates, sovereign borrowing, and fiscal policy. The framework presented
can also be useful for studying the optimality of fractional defaults.
eng
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Sovereign defaults and banking crises
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335652018-01-24T08:09:53Zcom_10230_25771com_10230_3col_10230_25772
Brinca, Pedro
Ferreira, Miguel H.
Franco, Francesco
Holter, Hans A.
Malafry, Laurence
2017-12-22T11:03:11Z
2017-12-22T11:03:11Z
2017-11
http://hdl.handle.net/10230/33565
Following the Great Recession, many European countries implemented fiscal consolidation
policies aimed at reducing government debt. Using three independent data sources and three
different empirical approaches, we document a strong positive relationship between higher
income inequality and stronger recessive impacts of fiscal consolidation programs across time
and place. To explain this finding, we develop a life-cycle, overlapping generations economy with
uninsurable labour market risk. We calibrate our model to match key characteristics of a number
of European economies, including the distribution of wages and wealth, social security, taxes and
debt, and study the effects of fiscal consolidation programs. We find that higher income risk
induces precautionary savings behaviour, which decreases the proportion of credit-constrained
agents in the economy. Credit-constrained agents have less elastic labour supply responses to
fiscal consolidation achieved through either tax hikes or public spending cuts, and this explains
the relationship between income inequality and the impact of fiscal consolidation programs. Our
model produces a cross-country correlation between inequality and the fiscal consolidation
multipliers, which is quite similar to that in the data.
eng
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Fiscal consolidation programs and income inequality
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335662018-01-24T08:09:24Zcom_10230_25771com_10230_3col_10230_25772
Thiele, Alexander
2017-12-22T11:56:39Z
2017-12-22T11:56:39Z
2017-12
http://hdl.handle.net/10230/33566
The paper first takes a brief look at the economic and judicial justification for the
independent status of central banks in general and will thereby also illustrate the different
manifestations of independence that need to be distinguished. Recent developments will
then form the initial point for a detailed analysis of the concrete range of the ECB’s
independence. This analysis will end with a positive conclusion. Until today its
independent status has not been violated by any of the analysed measures. Possible
threats, however, continue to exist. Safeguarding the independent status of the ECB thus
remains an important mission not only for legal scholars.
eng
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The independence of the ECB: justification, limitations and possible threats
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/335682018-01-24T08:09:24Zcom_10230_25771com_10230_3col_10230_25772
Petit, Christy Ann
2017-12-22T12:15:57Z
2017-12-22T12:15:57Z
2017-12
http://hdl.handle.net/10230/33568
In a context of institutional flexibility and political necessity, central banks’ responses to
the recent crises modelled the scope of their mandate, in law and in action. The current
mandates of the European Central Bank, the Federal Reserve System, the Bank of
Canada, and of the Bank of England are examined in their constitutional, statutory, and/or
legal sources. This inquiry is complemented with recent policy statements and institutional
discourse to interpret the mandate of those central banks in action and their underpinning
objectives, tasks, and measures, during and in the aftermath of the crises. The central
banks’ mandate is furthermore contextualised within the examined central banks’
organisational structure and the constitutional settings of the EU and of the states in which
the central banks are embedded.
eng
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Calibrating central banks’ mandate: central banking objectives, tasks, and measures within unitary and federal constitutional settings
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344512018-04-26T01:31:08Zcom_10230_25771com_10230_3col_10230_25772
Amtenbrink, Fabian
Markakis, Menelaos
2018-04-25T08:36:01Z
2018-04-25T08:36:01Z
2017-12
http://hdl.handle.net/10230/34451
This working paper focuses on the accountability arrangements for the ECB in the framework of the EU's
Banking Union. For this purpose, first of all an analytical framework for the purposes of evaluating the
preconditions and instruments of accountability placed at the disposal of the European Parliament in the
Single Supervisory Mechanism is set out. Thereafter the powers conferred on the European Parliament in
the legal framework of the SSM to hold the Supervisory Board to account for the exercise of its duties are
examined based on this framework. Notably, the paper highlights the lack of a clear yardstick against which
to assess the ECB's performance in the area of banking supervision, as well as a gap in terms of the ability
of the European Parliament to assign consequences to the ECB's conduct. Furthermore, the interaction
between the European Parliament and the Supervisory Board of the ECB, as evidenced through the
parliamentary hearings that have been held thus far, is examined. A qualitative analysis of these hearings
notably highlights the topics covered in those hearings, as well as the attitude of the MEPs towards the
institutional structure and accountability arrangements in the Banking Union. Finally, a number of concrete
proposals for enhancing the role of the European Parliament as an accountability holder in the Banking
Union are made.
eng
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Towards a meaningful prudential supervision dialogue in the euro area? A study of the interaction between the European Parliament and the European Central Bank in the single supervisory mechanism
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344532018-04-26T01:31:14Zcom_10230_25771com_10230_3col_10230_25772
Brendon, Charles
Ellison, Martin
2018-04-25T09:03:36Z
2018-04-25T09:03:36Z
2018-01
http://hdl.handle.net/10230/34453
This paper proposes and characterises a new normative solution concept for Kydland and
Prescott problems, allowing for a commitment device. A policy choice is dominated if either (a) an
alternative exists that is superior to it in a time-consistent subdomain of the constraint set, or (b)
an alternative exists that Pareto-dominates it over time. Policies may be time-consistently
undominated where time-consistent optimality is not possible. We derive necessary and sufficient
conditions for this to be true, and show that these are equivalent to a straightforward but significant
change to the first-order conditions that apply under Ramsey policy. Time-consistently
undominated policies are an order of magnitude simpler than Ramsey choice, whilst retaining
normative appeal. This is illustrated across a range of examples.
eng
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Time-consistently undominated policies
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344542018-04-26T01:31:05Zcom_10230_25771com_10230_3col_10230_25772
Bandeira, Guilherme
Caballé, Jordi
Vella, Eugenia
2018-04-25T09:28:43Z
2018-04-25T09:28:43Z
2018-02
http://hdl.handle.net/10230/34454
High unemployment and fiscal austerity during the recent crisis have led to significant migration
outflows from the periphery of the euro area. This paper introduces endogenous migration both
for the unemployed and employed members of the household in a small open economy DSGE
model with search and matching frictions. The government can use public spending,
unemployment benefits, or labor income taxes as fiscal consolidation instruments. A tax-based
consolidation induces the highest migration outflows in the short run, which exacerbates the
induced GDP contraction. Cuts in unemployment benefits induce the highest outflows of
jobseekers in the medium run, but with more favorable effects on GDP and unemployment as the
domestic wage adjusts downwards. The latter also leads to a very persistent increase in the
intensity with which current workers look for a job abroad. Government spending cuts, on the
other hand, have a small impact on migration. A repatriation policy, modelled as a higher utility
cost of migration, generates a return of migrants, leading to a boost in aggregate demand, a fall
in real wages and an increase in unemployment.
eng
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Should I stay or should I go? Austerity, unemployment and migration
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344562018-04-26T01:31:26Zcom_10230_25771com_10230_3col_10230_25772
Chari, V. V.
Nicolini, Juan Pablo
Teles, Pedro
2018-04-25T09:57:16Z
2018-04-25T09:57:16Z
2018-02
http://hdl.handle.net/10230/34456
We study cooperative optimal Ramsey equilibria in the open economy, addressing classic policy
questions: Should restrictions be placed to free trade and capital mobility? Should capital income
be taxed? Should goods be taxed based on origin or destination? What are desirable border
adjustments? How can a Ramsey allocation be implemented with residence-based taxes on
assets? We characterize optimal wedges and analyse alternative policy implementations.
eng
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Ramsey taxation in the global economy
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344572018-04-26T01:31:33Zcom_10230_25771com_10230_3col_10230_25772
Guerreiro, Joao
Rebelo, Sergio
Teles, Pedro
2018-04-25T10:12:48Z
2018-04-25T10:12:48Z
2018-02
http://hdl.handle.net/10230/34457
We use a model of automation to show that with the current U.S. tax system, a fall in automation
costs could lead to a massive rise in income inequality. This inequality can be reduced by raising
marginal income tax rates and taxing robots. But this solution involves a substantial efficiency
loss for the reduced level of inequality. A Mirrleesian optimal income tax can reduce inequality at
a smaller efficiency cost, but is difficult to implement. An alternative approach is to amend the
current tax system to include a lump-sum rebate. In our model, with the rebate in place, it is
optimal to tax robots only when there is partial automation.
eng
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Should robots be taxed?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344582018-04-26T01:31:37Zcom_10230_25771com_10230_3col_10230_25772
Ayres, João
Navarro, Gaston
Nicolini, Juan Pablo
Teles, Pedro
2018-04-25T10:25:17Z
2018-04-25T10:25:17Z
2018-02
http://hdl.handle.net/10230/34458
In the standard model of sovereign default, as in Aguiar and Gopinath (2006) or Arellano (2008),
default is driven by fundamentals alone. There is no independent role for expectations. We show
that small variations of that model are consistent with multiple interest rate equilibria, similar to
the ones found in Calvo (1988). For distributions of output that are commonly used in the literature,
the high interest rate equilibria have properties that make them fragile. Once output is drawn from
a distribution with both good and bad times, however, it is possible to have robust high interest
rate equilibria.
eng
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Sovereign default: the role of expectations
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344592018-04-26T01:31:36Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Duarte, Joao B.
Mann, Samuel
2018-04-25T11:02:32Z
2018-04-25T11:02:32Z
2018-03
http://hdl.handle.net/10230/34459
We reconsider the effects of common monetary policy shocks across countries in the euro area,
using a data-rich factor model and identifying shocks with high-frequency surprises around policy
announcements. We show that the degree of heterogeneity in the response to shocks, while being
low in _nancial variables and output, is significant in consumption, consumer prices and macro
variables related to the labour and housing markets. Mirroring country-specific institutional and
market differences, we find that home ownership rates are significantly correlated with the
strength of the housing channel in monetary policy transmission. We document a high dispersion
in the response to shocks of house prices and rents and show that, similar to responses in the
US, these variables tend to move in different directions.
eng
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One money, many markets: a factor model approach to monetary policy in the euro area with high-frequency identification
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344792018-04-27T01:30:53Zcom_10230_25771com_10230_3col_10230_25772
Slavík, Ctirad
Yazici, Hakki
2018-04-26T09:02:21Z
2018-04-26T09:02:21Z
2018-03
http://hdl.handle.net/10230/34479
The skill premium has increased significantly in the United States in the last five decades.
During the same period, individual wage risk has also increased. This paper proposes a
mechanism through which a rise in wage risk increases the skill premium. Intuitively, a
rise in uninsured wage risk increases precautionary savings, thereby boosting capital
accumulation, which increases the skill premium due to capital-skill complementarity.
Using a quantitative macroeconomic model, we find that the rise in wage risk observed
between 1967 and 2010 increases the skill premium significantly. This finding is robust
across a variety of model specifications.
eng
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Wage risk and the skill premium
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344802018-04-27T01:30:59Zcom_10230_25771com_10230_3col_10230_25772
Corsetti, Giancarlo
Dedola, Luca
Leduc, Sylvain
2018-04-26T09:57:51Z
2018-04-26T09:57:51Z
2018-03
http://hdl.handle.net/10230/34480
What determines the optimal monetary trade-off between internal objectives (inflation, and output
gap) and external objectives (competitiveness and trade imbalances) when inefficient capital
flows cause exchange rate misalignment and distort current account positions? We characterize
this trade-off analytically, using the workhorse model of modern monetary theory in open
economies under incomplete markets–where inefficient capital flows and exchange rate
misalignments can arise independently of nominal distortions. We derive a quadratic
approximation of the utility-based global policy loss function under fairly general assumptions on
preferences and openness, and solve for the optimal targeting rules under cooperation. We show
that, in economies with a low degree of exchange rate pass-through, the optimal response to
inefficient capital inflows associated with real appreciation is contractionary, above and beyond
the natural rate: the optimal policy curbs excessive demand at the cost of exacerbating currency
overvaluation. In contrast, a high degree of pass-through, and/or low trade elasticities, warrants
expansionary policies that lean against exchange rate appreciation and competitive losses, at the
cost of inefficient inflation.
eng
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Exchange rate misalignment, capital flows, and optimal monetary policy trade-offs
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344832018-04-27T01:31:09Zcom_10230_25771com_10230_3col_10230_25772
Rivero Leiva, David
Rodríguez Mendizábal, Hugo
2018-04-26T10:13:23Z
2018-04-26T10:13:23Z
2018-03
http://hdl.handle.net/10230/34483
This paper incorporates endogenous money creation into the liquidity mismatch problem
of Diamond and Dybvig (1983). We characterize a nominal economy where demandable
deposits are created through lending. Depositors use sight deposits to buy consumption
goods and the banks manage reserves to clear payments and to offset liquidity risk. We
show that deposit contracts are suboptimal in terms of liquidity risk-sharing. We also
observe that the self-fulfilling run depends on the refinancing rate of the central bank. Our
analysis emphasizes the importance of effective lender of last resort policies to prevent
expectational banking panics.
eng
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Self-fulfilling runs and endogeneous liquidity creation
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344872018-04-27T01:31:17Zcom_10230_25771com_10230_3col_10230_25772
Beaudry, Paul
Portier, Franck
2018-04-26T10:18:37Z
2018-04-26T10:18:37Z
2018-03
http://hdl.handle.net/10230/34487
In this paper we present a generalized sticky price model which allows, depending on the
parameterization, for demand shocks to maintain strong expansionary effects even in the
presence of perfectly flexible prices. The model is constructed to incorporate the standard threeequation
New Keynesian model as a special case. We refer to the parameterizations where
demand shocks have expansionary effects regardless of the degree of price stickiness as Real
Keynesian parameterizations. We use the model to show how the effects of monetary policy - for
the same degree of price stickiness – differ depending whether the model parameters are within
the Real Keynesian subset or not. In particular, we show that in the Real Keynesian subset, the
effect of a monetary policy that tries to counter demand shocks creates the opposite trade-off
between inflation and output variability than under more traditional parameterizations. Moreover,
we show that under the Real Keynesian parameterization neo-Fisherian effects emerge even
though the equilibrium remains unique. We then estimate our extended sticky price model on U.S.
data to see whether estimated parameters tend to fall within the Real Keynesian subset or
whether they are more in line with the parameterization generally assumed in the New Keynesian
literature. In passage, we use the model to justify a new SVAR procedure that offers a simple
presentation of the data features which help identify the key parameters of the model. The main
finding from our multiple estimations, and many robustness checks is that the data point to model
parameters that fall within the Real Keynesian subset as opposed to a New Keynesian subset.
We discuss both (i) how a Real Keynesian parametrization offers an explanation to puzzles
associated with joint behaviour of inflation and employment during the zero lower bound period
and during the Great Moderation period, (ii) how it potentially changes the challenge faced by
monetary policy if authorities want to achieve price stability and favour employment stability.
eng
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Real Keynesian models and sticky prices
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/344882018-04-27T01:31:08Zcom_10230_25771com_10230_3col_10230_25772
Beaudry, Paul
Galizia, Dana
Portier, Franck
2018-04-26T10:23:17Z
2018-04-26T10:23:17Z
2018-03
http://hdl.handle.net/10230/34488
Are business cycles mainly a response to persistent exogenous shocks, or do they
instead reflect a strong endogenous mechanism which produces recurrent boom-bust
phenomena? In this paper we present new evidence in favour of the second interpretation
and, most importantly, we highlight the set of key elements that influence our answer to
this question. In particular, when adopting our most preferred estimation framework, we
find support for the somewhat extreme notion that business cycles may be generated by
stochastic limit cycle forces; that is, we find support for the notion that business cycles
may primarily reflect an endogenous propagation mechanism buffeted only by temporary
shocks. The three elements that tend to favour this type of interpretation of business
cycles are: (i) slightly extending the frequency window one associates with business cycle
phenomena, (ii) allowing for strategic complementarities across agents that arise due to
financial frictions, and (iii) allowing for a locally unstable steady state in estimation. We
document the sensitivity of our findings to each of these elements within the context of an
extended New Keynesian model with real-financial linkages.
eng
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Putting the cycle back into business cycle analysis
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/345972018-05-10T01:31:21Zcom_10230_25771com_10230_3col_10230_25772
Buiatti, Cesare
Duarte, Joao B.
Sáenz, Luis Felipe
2018-05-09T10:23:34Z
2018-05-09T10:23:34Z
2018-03
http://hdl.handle.net/10230/34597
We explain labour productivity differences of the service sector between Europe and the U.S.
through the labour allocation taking place within the service sector. We measure labour
productivity using a multisector structural transformation model that decomposes services into 11
sub-sectors comparable across Europe and the U.S. We identify wholesale and retail trade as
well as business services to be the two sectors responsible for most of the lack of catch-up in
labour productivity between Europe and the U.S. We also investigate which institutional
characteristics are associated with the different performances of sectoral productivity across
sectors. We empirically explore our country-sector panel measures of labour productivity levels,
and our results suggest that differences in taxation, pro-business attitudes, ICT diffusion and rates
of innovation are disproportionally correlated with the productivity of wholesale, retail and
business services relative to the rest of the sectors in the economy.
eng
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Why is Europe falling behind? Structural transformation and services' productivity differences between Europe and the U.S.
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/345982018-05-10T01:31:36Zcom_10230_25771com_10230_3col_10230_25772
Ari, Anil
2018-05-09T11:01:20Z
2018-05-09T11:01:20Z
2018-03
http://hdl.handle.net/10230/34598
I propose a dynamic general equilibrium model in which strategic interactions between
banks and depositors may lead to endogenous bank fragility and slow recovery from
crises. When banks’ investment decisions are not contractible, depositors form
expectations about bank risk-taking and demand a return on deposits according to their
risk. This creates strategic complementarities and possibly multiple equilibria: in response
to an increase in funding costs, banks may optimally choose to pursue risky portfolios
that undermine their solvency prospects. In a bad equilibrium, high funding costs hinder
the accumulation of bank net worth, leading to a persistent drop in investment and output.
I bring the model to bear on the European sovereign debt crisis, in the course of which
under-capitalized banks in default-risky countries experienced an increase in funding
costs and raised their holdings of domestic government debt. The model is quantified
using Portuguese data and accounts for macroeconomic dynamics in Portugal in 2010-
2016. Policy interventions face a trade-o¤ between alleviating banks’ funding conditions
and strengthening risk-taking incentives. Liquidity provision to banks may eliminate the
good equilibrium when not targeted. Targeted interventions have the capacity to eliminate
adverse equilibria.
eng
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Sovereign risk and bank risk-taking
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354542018-09-25T15:04:04Zcom_10230_25771com_10230_3col_10230_25772
Leino, Päivi
Saarenheimo, Tuomas
2018-09-18T09:28:55Z
2018-09-18T09:28:55Z
2018-03
http://hdl.handle.net/10230/35454
The dominant narrative presents the Economic and Monetary Union as an incomplete structure which, to operate stably, needs to be supplemented by a deeper fiscal integration. We study the general features of the recent proposals for a fiscal stabilisation mechanism, intended to smooth the effects of asymmetric shocks on Member States, from a multi-disciplinary viewpoint, combining economic, legal and political analyses. While possible to construct within the current Treaties, we find the proposals economically and politically fragile, and likely to be unenforceable. Our gravest concern however relates to the envisaged broad macroeconomic conditionality, which is largely unconnected to the stability aims of the mechanism but has potential to undermine the democratic legitimacy of some of the Member States’ most foundational societal choices.
eng
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A fiscal union for the EMU?
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354552018-09-19T01:31:44Zcom_10230_25771com_10230_3col_10230_25772
Patrin, Maria
2018-09-18T09:49:15Z
2018-09-18T09:49:15Z
2018-04
http://hdl.handle.net/10230/35455
In December 2017, the European Commission presented a communication on the creation of a European Minister of Economy and Finance, proposing to merge the functions of the European Commissioner in charge of economic and monetary policy with the position of the Eurogroup’s President. This paper reviews the legal framework in which the European Finance Minister would operate and highlights the legal and institutional implications of the Commission’s proposal. It analyses the potential impact of the new institutional arrangements on the Commission’s collegial organization, on the inter-institutional balance of the Union and on the accountability relations between the Commission and the European Parliament. The paper ultimately questions the Commission’s assumption that the proposed changes could be implemented without modifying the Treaties and raises some fundamental issues regarding the impact of the reform on the democratic legitimacy of the Union in the absence of Treaty revision.
eng
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A European finance minister : form follows function, but is it legal? : a legal analysis of the European Commission’s proposal to create a European Minister of Economy and Finance
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354562018-09-19T01:31:49Zcom_10230_25771com_10230_3col_10230_25772
Hedlund, Aaron
2018-09-18T14:19:09Z
2018-09-18T14:19:09Z
2018-04
http://hdl.handle.net/10230/35456
Can inflating away nominal mortgage liabilities effectively combat recessions? I address this question using a model of illiquid housing, endogenous credit supply, and equilibrium default. I show that, in an ordinary recession, temporarily raising the inflation target has only modest or even counterproductive effects. However, during episodes like the Great Recession, inflation effectively boosts house prices, consumption, and dramatically cuts foreclosures, but only when fixed rate mortgages are the dominant instrument. The quantitative implications of inflation also vary if other nominal rigidities or demand externalities are present. In the cross section, inflation delivers especially large gains to highly leveraged homeowners.
eng
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Failure to launch : housing, debt overhang, and the inflation option
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354582018-09-19T01:31:48Zcom_10230_25771com_10230_3col_10230_25772
Fornaro, Luca
Romei, Federica
2018-09-18T14:32:10Z
2018-09-18T14:32:10Z
2018-04
http://hdl.handle.net/10230/35458
This paper describes a paradox of global thrift. Consider a world in which interest rates are low and monetary policy cannot stabilize the economy because it is frequently constrained by the zero lower bound. Now imagine that governments complement monetary policy with prudential financial and fiscal policies, because they perceive that limiting private and public borrowing during booms will help stabilize the economy by reducing the risk of financial crises and by creating space for fiscal interventions during busts. We show that these policies, while effective from the perspective of individual countries, might backfire if applied on a global scale. In a financially integrated world, in fact, prudential policies generate a rise in the global supply of savings, or equivalently a drop in global aggregate demand. In turn, weaker global aggregate demand depresses output in countries whose monetary policy is constrained by the zero lower bound. Due to this effect, the world might paradoxically experience a fall in output and welfare following the implementation of well-intended prudential policies.
eng
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The paradox of global thrift
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354592018-09-19T01:31:50Zcom_10230_25771com_10230_3col_10230_25772
Gehrig, Thomas P.
Levínský, René
2018-09-18T14:45:12Z
2018-09-18T14:45:12Z
2018-04
http://hdl.handle.net/10230/35459
The present study contributes to the ongoing debate on possible costs and benefis of leverage requirements. In particular, we run two series of electronic call auctions with heterogeneous agents in the laboratory where we change the leverage bounds as a treatment variable. Over the two treatments, participants in our experiment realise about forty percent of the possible gains from trade. We show, in accordance the theory, leverage bounds do affect the efficiency of the market and the price of the asset.
eng
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On asset prices and leverage requirements : an experimental analysis
info:eu-repo/semantics/workingPaper
oai:repositori.upf.edu:10230/354602018-09-19T01:31:51Zcom_10230_25771com_10230_3col_10230_25772
López-Quiles Centeno, Carolina
Petricek, Matic
2018-09-18T15:02:31Z
2018-09-18T15:02:31Z
2018-04
http://hdl.handle.net/10230/35460
This paper aims to assess the effect of deposit insurance on the risk-taking behaviour of banks. As shown in the theoretical literature, deposit insurance may induce moral hazard and incentivize banks to take on more risk. In this paper we provide an experimental setup in which we exploit an increase in the coverage limit of deposit insurance in the U.S. in order to identify the difference in risk taking by banks that were affected and banks that were not. This difference comes from the fact that state chartered savings banks in Massachusetts had unlimited deposit insurance coverage at the time when it was increased for all other banks in the US. Given that all banks in the sample are subject to the same regulatory and supervisory requirements, and that they are similar in other characteristics, we can isolate the effect of such increase in deposit insurance. We find, contrary to the literature, that this increase in deposit insurance did not increase bank risk-taking.
eng
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Deposit insurance and bank risk-taking
info:eu-repo/semantics/workingPaper
mods///col_10230_25772/100