Search Results
Working Paper
Barriers to international capital flows: who should erect them and how big should they be?
Until recently, the trend in world capital markets has been toward increasing globalization. Recent events in Latin America and Asia have caused many in policy-making circles to question whether this trend should be wholly, or at least partially, reversed. It is commonly argued that?at a minimum?countries should be given the discretion to erect such barriers, at least in certain circumstances. Recent events, then, have forced a rethinking of the desirability of unrestricted world capital flows. The general presumption appears to be that the "victims" of highly volatile capital flows should ...
Conference Paper
Inflation, financial markets and capital formation
Working Paper
Inflation and financial market performance
An exploration of the cross-sectional relationship between inflation and an array of indicators of financial market conditions, using time-averaged data covering several decades and a large number of countries.
Journal Article
James Madison's monetary economics
An analysis of Madison's essay, "Money," and a presentation of a model giving rise to equilibria that mimic general observations about the consequences of government policies like the one Madison describes for limiting inflation.
Working Paper
Intermediaries and payments instruments
We study an economy in which intermediaries have incentives to issue circulating liabilities as part of an equilibrium. We show that, with arbitrarily small transactions costs, only the liabilities of intermediaries will circulate, and not those of other private sector agents. Therefore, our model connects intermediation activity with the issuance of payments media, a connection that has not been made in earlier literature. We also describe conditions under which equilibrium outcomes may be volatile when private liabilities circulate. Finally, we use our model to suggest a resolution of the ...
Working Paper
On government credit programs
Credit rationing is a common feature of most developing economies. In response to it, the governments of these countries often operate extensive credit programs and lend, either directly or indirectly, to the private sector. We analyze the macroeconomic consequences of a typical government credit program in a small open economy. We show that such programs increase long-run production if the economy is in a development trap and that such programs often lead to endogenously arising aggregate volatility. On the other hand, they may eliminate certain indeterminacies created by endogenous credit ...
Working Paper
The effects of open market operations in a model of intermediation and growth
We examine a standard model of capital accumulation in which spatial separation and limited communication create a role for money and shocks to portfolio needs create a role for banks. In this context we examine the existence, multiplicity, and dynamical properties of monetary equilibria with positive nominal interest rates. Moderate levels of risk aversion can lead to the existence of multiple monetary steady states, all of which can be approached from a given set of initial conditions. In addition, even if there is a unique monetary steady state, monetary equilibria can be indeterminate, ...
Working Paper
The use of debt and equity in optimal financial contracts
We consider an environment in which risk-neutral firms must obtain external finance. They have access to two kinds of linear, stochastic investment opportunities. For one, return realizations are costlessly observed by all agents. For the other, return realizations are costlessly observed only by the investing firm; however, they can be (privately) observed by outsiders who bear a fixed verification cost. Thus, the second investment opportunity is subject to a standard costly state verification (CSV) problem of the type considered by Townsend (1979), Gale and Hellwig (1985), or Williamson ...
Working Paper
The co-evolution of the real and financial sectors in the growth process
We produce a theoretical framework that helps explain the co-evolution of the real and financial sectors of an economy in the growth process, as described by Gurley and Shaw. According to them, self-financed capital investment first gives way to debt finance and later to the emergence of equity as an additional instrument for raising funds externally. As the economy develops further, the aggregate ratio of debt to equity will generally fall. We analyze that portion of their account concerning the evolution of equity markets. We show that in an important sense, debt and equity are ...