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Author:Antinolfi, Gaetano 

Working Paper
The optimal inflation target in an economy with limited enforcement
We formulate the central bank's problem of selecting an optimal long-run inflation rate as the choice of a distorting tax by a planner who wishes to maximize discounted utility for a heterogeneous population of infinitely-lived households in an economy with constant aggregate income. Households are divided into cash agents, who store value in currency alone, and credit agents who have access to both currency and loans. The planner's problem is equivalent to choosing inflation and nominal rates consistent with a resource constraint along with an incentive constraint that ensures credit agents prefer the superior consumption-smoothing power of loans to that of currency. We show that the optimum rate of inflation is positive, and the optimum nominal interest rate is higher than the inflation rate, if the social welfare function weighs credit agents no more than their population fraction.
AUTHORS: Antinolfi, Gaetano; Azariadis, Costas; Bullard, James B.
DATE: 2007

Working Paper
The optimal inflation target in an economy with limited enforcement
We formulate the central bank?s problem of selecting an optimal long-run inflation rate as the choice of a distorting tax by a planner who wishes to maximize discounted stationary utility for a heterogeneous population of infinitely-lived households in an economy with constant aggregate income and public information. Households are segmented into cash agents, who store value in currency alone, and credit agents who have access to both currency and loans. The planner?s problem is equivalent to choosing inflation and nominal interest rates consistent with a resource constraint, and with an incentive constraint that ensures credit agents prefer the superior consumption- smoothing power of loans to that of currency. We show that the optimum inflation rate is positive, because inflation reduces the value of the outside option for credit agents and raises their debt limits.
AUTHORS: Antinolfi, Gaetano; Azariadis, Costas; Bullard, James B.
DATE: 2012

Working Paper
Repos, fire sales, and bankruptcy policy
The events from the 2007?09 financial crisis have raised concerns that the failure of large financial institutions can lead to destabilizing fire sales of assets. The risk of fire sales is related to exemptions from bankruptcy's automatic stay provision enjoyed by a number of financial contracts, such as repo. An automatic stay prohibits collection actions by creditors against a bankrupt debtor or his property. It prevents a creditor from liquidating collateral of a defaulting debtor, since collateral is a lien on the debtor's property. In this paper, we construct a model of repo transactions, and consider the effects of changing the bankruptcy rule regarding the automatic stay on the activity in repo and real investment markets. We find that exempting repos from the automatic stay is beneficial for creditors who hold the borrowers' collateral. Although the exemption may increase the size of the repo market by enhancing the liquidity of collateral, it can also lead to subsequent damaging fire sales that are associated with reductions in real investment activity. Hence, policymakers face a trade-off between the benefits of investment activity and the benefits of liquid markets for collateral..
AUTHORS: Antinolfi, Gaetano; Carapella, Francesca; Kahn, Charles M.; Martin, Antoine; Mills, David C.; Nosal, Ed
DATE: 2012

Journal Article
Dollarization as a monetary arrangement for emerging market economies
Official dollarization refers to the adoption of the U.S. dollar as legal tender in place of the national currency. Some Latin American countries have recently dollarized, and others have seriously considered dollarization. This article discusses the reasons behind the surge of interest in dollarization and provides a review of the new academic literature on the topic. It discusses in detail some of the factors that are commonly considered to be the important costs and benefits of dollarizing. The paper also provides an analysis of the existing liability dollarization in several countries and its relation with official dollarization. Finally, it briefly looks at dollarization from the perspective of the United States.
AUTHORS: Antinolfi, Gaetano; Keister, Todd
DATE: 2001

Speech
The optimal inflation target in an economy with limited enforcement
Presented at Indiana University.
AUTHORS: Antinolfi, Gaetano; Azariadis, Costas; Bullard, James B.
DATE: 2008

Speech
The optimal inflation target in an economy with limited enforcement
Presented at New Perspectives on Monetary Policy Design. Sponsored by the Bank of Canada and the Centre De Recerca en Economia Internacional. Barcelona, Spain.
AUTHORS: Bullard, James B.; Antinolfi, Gaetano; Azariadis, Costas
DATE: 2008

Journal Article
Monetary policy as equilibrium selection
Can monetary policy guide expectations toward desirable outcomes when equilibrium and welfare are sensitive to alternative, commonly held rational beliefs? This paper studies this question in an exchange economy with endogenous debt limits in which dynamic complementarities between dated debt limits support two Pareto-ranked steady states: a suboptimal, locally stable autarkic state and a constrained optimal, locally unstable trading state. The authors identify feedback policies that reverse the stability properties of the two steady states and ensure rapid convergence to the constrained optimal state.
AUTHORS: Antinolfi, Gaetano; Bullard, James B.; Azariadis, Costas
DATE: 2007

Working Paper
Transparency and Collateral: The Design of CCPs' Loss Allocation Rules
This paper adopts a mechanism design approach to study optimal clearing arrangements for bilateral financial contracts in which an assessment of counterparty risk is crucial for efficiency. The economy is populated by two types of agents: a borrower and lender. The borrower is subject to limited commitment and holds private information about the severity of such lack of commitment. The lender can acquire information at a cost about the commitment of the borrower, which affects the assessment of counterparty risk. When truthful revelation by the borrower is not incentive compatible, the mechanism designer optimally trades off the value of information about the lack of commitment of the borrower with the cost of incentivizing the lender to acquire such information. Central clearing of these financial contracts through a central counterparty (CCP) allows lenders to mutualize their counterparty risks, but this insurance may weaken incentives to acquire and reveal informatio n about such risks. If information acquisition is incentive compatible, then lenders choose central clearing. If it is not, they may prefer bilateral clearing to prevent strategic default by borrowers and to economize on costly collateral. Central clearing is analyzed under different institutional features observed in financial markets, which place different restrictions on the contract space in the mechanism design problem. The interaction between the costly information acquisition and the limited commitment friction differs significantly in each clearing arrangement and in each set of restrictions. This results in novel lessons about the desirability of central versus bilateral clearing depending on traders' characteristics and the institutional features defining the operation of the CCP.
AUTHORS: Antinolfi, Gaetano; Carapella, Francesca; Carli, Francesco
DATE: 2019-08

Working Paper
Economic volatility and financial markets: the case of mortgage-backed securities
The volatility of aggregate economic activity in the United States decreased markedly in the mid eighties. The decrease involved several components of GDP and has been linked to a more stable economic environment, identified by smaller shocks and more effective policy, and a diverse set of innovations related to inventory management as well as financial markets. We document a negative relation between the volatility of GDP and some of its components and one such financial development: the emergence of mortgage-backed securities. We also document that this relationship changed sign, from negative to positive, in the early 2000's.
AUTHORS: Antinolfi, Gaetano; Brunetti, Celso
DATE: 2013

Working Paper
Transparency and Collateral : Central versus Bilateral Clearing
Bilateral financial contracts typically require an assessment of counterparty risk. Central clearing of these financial contracts allows market participants to mutualize their counterparty risk, but this insurance may weaken incentives to acquire and to reveal information about such risk. When considering this trade-off, participants would choose central clearing if information acquisition is incentive compatible. If it is not, they may prefer bilateral clearing, when this choice prevents strategic default while economizing on costly collateral. In either case, participants independently choose the efficient clearing arrangement. Consequently, central clearing can be socially inefficient under certain circumstances. These results stand in contrast to those in Achary and Bisin (2014), who find that central clearing is always the optimal clearing arrangement.
AUTHORS: Antinolfi, Gaetano; Carapella, Francesca; Carli, Francesco
DATE: 2018-03-08

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