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Working Paper
An endogenous growth model of money, banking, and financial repression
In this paper, we develop an endogenous growth model with financial intermediation to examine the effects of financial repression on growth, inflation, and welfare. By limiting the liquidity provision, binding reserve requirements always suppress economic growth while their effect on inflation is a function, among other things, of the degree of repression. For example, contrary to previous claims, if financial repression is severe enough so that an informal financial sector emerges, liberalization is inflationary. Notwithstanding, liberalization in these cases is always welfare improving. ...
Working Paper
Barriers to international capital flows: when, why, how big, and for whom?
Until recently, the trend in world capital markets has been toward increasing ?globalization.? Recent events in Latin America and Asia have forced a rethinking of the desirability of unrestricted world capital flows. In this paper we ask whether simple restrictions on capital mobility can succeed in reducing the volatility of funds flows, whether such restrictions are consistent with the long-term development of the countries that might impose them, whether such restrictions are beneficial for poorer countries while harming wealthier countries, and whether barriers to capital movements should ...
Working Paper
Government financing in an endogenous growth model with financial market restrictions
In this paper we develop an endogenous growth model with market regulations on explicitly modeled financial intermediaries to examine the effects of alternative government financing schemes on growth, inflation, and welfare. ; We find that in the presence of binding legal reserve requirements, a marginal increase in government spending need not result in a reduction in the rate of economic growth if it is financed with an increase in the seigniorage tax rate. Raising the seigniorage tax base by means of an increase in the reserve requirement retards growth and has an ambiguous effect on ...
Working Paper
On the sustainability of international coordination
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 ...
Working Paper
Fiscal and monetary policy interactions in an endogenous growth model with financial intermediaries
We review some inflationary and growth claims surrounding fiscal and monetary policy interactions. While financial intermediation has long been acknowledged as a key mechanism in the transmission of these interactions, only recently have economists incorporated the explicit modeling of such intermediaries in their analyses. Here we model financial intermediaries explicitly. We find that the relation between growth and inflation depends crucially on the agents' degree of relative risk aversion. Moreover, the degree of relative risk aversion also plays a significant role in the existence and ...
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 ...