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Author:Alvarez, Fernando 

Working Paper
Search, self-insurance and job-security provisions

We construct a general equilibrium model to evaluate the quantitative effects of severance payments in the presence of contracting and reallocational frictions. Key elements of the model are: 1) establishment level dynamics, 2) imperfect insurance markets, and 3) variable search decisions. Contrary to previous studies that analyzed severance payments in frictionless environments, we find that severance payments reduce unemployment, produce negative insurance effects and improve levels.
Working Paper Series , Paper WP-98-2

Report
If exchange rates are random walks, then almost everything we say about monetary policy is wrong

The key question asked by standard monetary models used for policy analysis, How do changes in short-term interest rates affect the economy? All of the standard models imply that such changes in interest rates affect the economy by altering the conditional means of the macroeconomic aggregates and have no effect on the conditional variances of these aggregates. We argue that the data on exchange rates imply nearly the opposite: the observation that exchange rates are approximately random walks implies that fluctuations in interest rates are associated with nearly one-for-one changes in ...
Staff Report , Paper 388

Report
Money, interest rates, and exchange rates with endogenously segmented markets

This paper analyzes the effects of money injections on interest rates and exchange rates in a model in which agents must pay a Baumol-Tobin style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money only infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents? consumption, these money injections affect real interest rates and real exchange rates. We show that the model ...
Staff Report , Paper 278

Report
Banking in computable general equilibrium economies: technical appendices I and II

Following are the technical appendixes for ?Banking in Computable Equilibrium Economies? by Javier Daz-Gimnez, Edward C. Prescott, Terry Fitzgerald, and Fernando Alvarez, in Journal of Economic Dynamics and Control 16 (1992), 533?59. Technical Appendix I, by Fernando Alvarez, describes the procedures used to construct the balance sheets reported in Tables 1 and 2 in page 536 and 537 of the paper. Technical Appendix II, by Terry Fitzgerald, describes the computational procedures used in this paper.
Staff Report , Paper 155

Working Paper
Interest rates and inflation

Working Papers , Paper 609

Working Paper
If exchange rates are random walks then almost everything we say about monetary policy is wrong

The key question asked by standard monetary models used for policy analysis is how do changes in short term interest rates affect the economy. All of the standard models imply that such changes in interest rates affect the economy by altering the conditional means of the macroeconomic aggregates and have no effect on the conditional variances of these aggregates. We argue that the data on exchange rates imply nearly the opposite: fluctuations in interest rates are associated with nearly one-for-one changes in conditional variances and nearly no changes in conditional means. In this sense ...
Working Papers , Paper 650

Working Paper
Fixed term employment contracts in an equilibrium search model

Fixed term employment contracts have been introduced in number of European countries as a way to provide flexibility to economies with high employment protection levels. We introduce these contracts into the equilibrium search model in Alvarez and Veracierto (1999), a version of the Lucas and Prescott island model, adapted to have undirected search and variable labor force participation. We model a contract of length J as a tax on separations of workers with tenure higher than J. We show a version of the welfare theorems, and characterize the efficient allocations. This requires solving a ...
Working Paper Series , Paper WP-05-14

Working Paper
Money, interest rates, and exchange rates with endogenously segmented asset markets

This paper analyzes the effects of money injections on interest rates and exchange rates in a model in which agents must pay a Baumol-Tobin style fixed cost to exchange bonds and money. Asset markets are endogenously segmented because this fixed cost leads agents to trade bonds and money only infrequently. When the government injects money through an open market operation, only those agents that are currently trading absorb these injections. Through their impact on these agents? consumption, these money injections affect real interest rates and real exchange rates. We show that the model ...
Working Papers , Paper 605

Working Paper
Mandatory Disclosure and Financial Contagion

This paper analyzes the welfare implications of mandatory disclosure of losses at financial institutions when it is common knowledge that some banks have incurred losses but not which ones. We develop a model that features contagion, meaning that banks not hit by shocks may still suffer losses because of their exposure to banks that are. In addition, we assume banks can profitably invest funds provided by outsiders, but will divert these funds if their equity is low. Investors thus value knowing which banks were hit by shocks to assess the equity of the banks they invest in. We find that when ...
Working Paper Series , Paper WP-2014-4

Report
Time-varying risk, interest rates, and exchange rates in general equilibrium

Under mild assumptions, the data indicate that fluctuations in nominal interest rate differentials across currencies are primarily fluctuations in time-varying risk. This finding is an immediate implication of the fact that exchange rates are roughly random walks. If most fluctuations in interest differentials are thought to be driven by monetary policy, then the data call for a theory which explains how changes in monetary policy change risk. Here we propose such a theory based on a general equilibrium monetary model with an endogenous source of risk variation - a variable degree of asset ...
Staff Report , Paper 371

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