Search Results
Working Paper
Capital misallocation and aggregate factor productivity
We propose a sectoral?shift theory of aggregate factor productivity for a class of economies with AK technologies, limited loan enforcement, a constant production possibilities frontier, and finitely many sectors producing the same good. Both the growth rate and total factor productivity in these economies respond to random and persistent endogenous fluctuations in the sectoral distribution of physical capital which, in turn, responds to persistent and reversible exogenous shifts in relative sector productivities. Surplus capital from less productive sectors is lent to more productive ones in ...
Journal Article
Credit Cycles and Business Cycles
Unsecured firm credit moves procyclically in the United States and tends to lead gross domestic product, while secured firm credit is acyclical. Shocks to unsecured firm credit explain a far larger fraction of output fluctuations than shocks to secured credit. This article surveys a tractable dynamic general equilibrium model in which constraints on unsecured firm credit preclude an efficient capital allocation among heterogeneous firms. Unsecured credit rests on the value that borrowers attach to a good credit reputation, which is a forward-looking variable. Self-fulfilling beliefs over ...
Working Paper
Earnings and wealth inequality and income taxation: quantifying the tradeoffs of switching to a proportional income tax in the U.S.
This paper quantifies the steady-state aggregate, distributional, and mobility effects of switching the U.S. to a proportional income tax system.
Conference Paper
Discretion, rules and volatility
Speech
The optimal inflation target in an economy with limited enforcement
Presented at Indiana University.
Journal Article
A Taylor Rule for Public Debt
Public debt is an important source of liquidity in economies facing shortages of private credit. It is also a bubble whose current price depends on expectations of what it will buy at future dates. In this article, the author studies how the government must balance the provision of sufficient liquidity against the risk of adverse expectations regarding future debt prices when private liquidity has dried up. The socially optimal balance is captured in a Taylor-like rule that sets a target for real public debt and manages expectations by overreacting to deviations from the target value. ...
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.
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 ...
Working Paper
Private and public circulating liabilities
Changes in the legal and technological environment in the U.S. have created the possibility of private banknote issue, or its electronic equivalent. We wish to understand the implications of this possibility for economic performance. Accordingly, we construct and analyze a dynamic general equilibrium model in which privately-issued liabilities may circulate, either by themselves, or alongside a stock of outside money. In each case we provide results on the existence and multiplicity of equilibria, and we characterize local dynamics in a neighborhood of a steady state. Our results support ...
Working Paper
Endogenous credit limits with small default costs
We analyze an exchange economy of unsecured credit where borrowers have the option to declare bankruptcy in which case they are temporarily excluded from financial markets. Endogenous credit limits are imposed that are just tight enough to prevent default. Economies with temporary exclusion differ from their permanent exclusion counterparts in two important properties. If households are extremely patient, then the first?best allocation is an equilibrium in the latter economies but not necessarily in the former. In addition, temporary exclusion permits multiple stationary equilibria, with both ...