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Author:Alvarez, Fernando 

Working Paper
The time consistency of monetary and fiscal policies

Are optimal monetary and fiscal policies time consistent in a monetary economy? Yes, but if and only if under commitment the Friedman rule of setting nominal interest rates to zero is optimal. This result is of applied interest because the Friedman rule is optimal for the standard preferences used in applied work, those consistent with the growth facts. (Replaced by Staff Report No: 305)
Working Papers , Paper 616

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
Quantitative asset pricing implications of endogenous solvency constraints

The authors study the asset pricing implications of an economy where solvency constraints are determined to efficiently deter agents from defaulting. The authors present a simple example for which efficient allocations and all equilibrium elements are characterized analytically. The main model produces large equity premia and risk premia for long-term bonds with low risk aversion and a plausibly calibrated income process. The authors characterize the deviations from independence of aggregate and individual income uncertainty that produce equity and term premia.
Working Papers , Paper 99-5

Journal Article
Commentary on "organizational dynamics over the business cycle: a view on jobless recoveries"

Review , Volume 87 , Issue Jul

Working Paper
Labor market policies in an equilibrium search model

We explore to what extent differences in employment and unemployment across economies can be generated by differences in labor market policies. We use a version of the Lucas-Prescott equilibrium search model with undirected search and endogenous labor-force participation. Minimum wages, degree of unionization, firing taxes, and unemployment benefits are introduced and their effects analyzed. When the model is calibrated to US observations it reproduces several of the elasticities of employment and unemployment with respect to changes in policies reported in the empirical literature. We find ...
Working Paper Series , Paper WP-99-10

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

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

Time-varying risk is the primary force driving nominal interest rate differentials on currency-denominated bonds. This finding is an immediate implication of the fact that exchange rates are roughly random walks. We show that a general equilibrium monetary model with an endogenous source of risk variation?a variable degree of asset market segmentation?can produce key features of actual interest rates and exchange rates. The endogenous segmentation arises from a fixed cost for agents to exchange money for assets. As inflation varies, the benefit of asset market participation varies, and that ...
Working Papers , Paper 627

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

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

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

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