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Author:Becsi, Zsolt 

Working Paper
Financial matchmakers in credit markets with heterogeneous borrowers
What happens when liquidity increases in credit markets and more funds are channeled from borrowers to lenders? We examine this question in a general equilibrium model where financial matchmakers help borrowers (firms) and lenders (households) search out and negotiate profitable matches and where the composition of heterogeneous borrowers adjusts to satisfy equilibrium entry conditions. We find that enhanced liquidity causes entry by all borrowers and tends to benefit low-quality borrowers disproportionately. However, liquid credit markets may or may not be associated with higher output and welfare. The result is determined by whether the effect of higher market participation outweighs that of lower average quality. The net effect depends crucially on the source of the liquidity shock (financial matching efficacy, productivity, or entry barriers).
AUTHORS: Becsi, Zsolt; Li, Victor E.; Wang, Ping
DATE: 2000

Working Paper
Endogenous market structures and financial development
Existing theories that emphasize the significance of financial intermediation for economic development have not addressed two important empirical facts: (i) the relationship between financial and real activities depends crucially on the stage of development, and (ii) financial and industrial market structures vary widely across otherwise similar countries. To explain these observations, we develop a dynamic general equilibrium model allowing for endogenous market structures in which financial deepening spurs real activity through intermediate product broadening. We show the possibility of multiple steady-state equilibria and characterize how these equilibria respond to various shocks. In particular, we examine the determinants of financial deepening, product broadening, the saving rate, the loan-deposit interest rate spread, and the degree of competitiveness of financial and product markets. We find that the dynamic interactions between financial and real activities depend critically on the synergy of financial and industrial competitiveness.
AUTHORS: Becsi, Zsolt; Wang, Ping; Wynne, Mark A.
DATE: 1998

Working Paper
Costly intermediation and the big push
Many existing theories of financial intermediation have difficulty explaining why financial activity can generate large real effects. This paper argues that the large real effects may reflect a multiplicity of equilibria. The multiple equilibria in this paper are generated by the dynamic interactions between the savings decisions of workers and the monopolistically competitive behavior of banks. We characterize the equilibria by showing the comparative-static responses of key aggregates to changes in the pure rate of time preference, investment uncertainty, and bank costs. We find that the results depend crucially on the intertemporal elasticity of labor supply and the aggregate level of employment. Small changes in the financial system may cause the economy to shift between low- and high-employment equilibria. The high-employment, high real interest rate equilibrium is consistent with the development experience of Japan, Korea, and Taiwan with repressed financial systems.
AUTHORS: Becsi, Zsolt; Wang, Ping; Wynne, Mark A.
DATE: 1998

Working Paper
Heterogeneity and the welfare cost of dynamic factor taxes
The welfare costs of dynamic factor taxes are analyzed in a dynamic general equilibrium model with heterogeneous endowments, abilities, and tastes. Conventional functional form restrictions yield formulas for the transition effects and marginal welfare costs of factor taxes. Heterogeneity implies that taxes have feedback or distribution effects, beyond standard efficiency effects, that may lead to nonstandard aggregate dynamics. Also, marginal welfare costs vary systematically with initial distortions and agents' characteristics. Because factor taxes lower wealth inequality, equity gains offset efficiency losses with the offset weakening as initial distortions rise. However, distribution effects reinforce efficiency losses unless preexisting distortions are sufficiently high, in which case some types of heterogeneity yield offsetting distribution effects. Simulations suggest that, for labor taxes, distribution effects dominate dynamics, but not for capital taxes. Also, equity gains dominate efficiency losses and distribution effects for the marginal welfare cost of labor taxes, and vice versa for capital taxes.
AUTHORS: Becsi, Zsolt
DATE: 1999

Working Paper
Fiscal competition and reality: A time series approach
Strategic interjurisdictional behavior and the interaction over time of the mean and dispersion of average tax rates across states are analyzed in a vector autoregression model. Variance decompositions reveal that fiscal competition explains roughly one-third of the time variation of state and local taxes. Impulse response functions identify the type of fiscal competition and the characteristics of leaders and followers. Local tax dynamics agree with Wildasin's (1988) results on expenditure competition with significant short- and medium-run effects but insignificant long-run effects. State tax dynamics conform to tax export competition with significant effects occurring over a relatively short time.
AUTHORS: Becsi, Zsolt
DATE: 1998

Working Paper
Adding bond funds to M2 in the P-star model of inflation
AUTHORS: Becsi, Zsolt; Duca, John V.
DATE: 1994

Working Paper
Wealth effects, heterogeneity and dynamic fiscal policy
AUTHORS: Becsi, Zsolt
DATE: 1993

Journal Article
Indicators of the general price level and inflation
This article examines whether price indexes, such as the CPI, the PPI, and the implicit price deflator for GDP (PGDP), tell a consistent story about the general price level and inflation rate. To this end, Zsolt Becsi analyzes the time series properties of these indexes. He finds that the PGDP has a stable long-term relationship with both of the other price indexes. Some evidence suggests that PGDP and CPI inflation have common long-run trends, while PPI inflation has no discernible stable long-run relationship with either PGDP or CPI inflation. ; Some theories suggest that the price level relevant for monetary policy is broader than price indexes of final goods and services such as the PGDP. This article investigates whether the PGDP captures movements in other price or inflation series. There is weak evidence that the PGDP shares common trends with the price levels and inflation rates of some intermediate goods and assets. Overall, these results suggest that PGDP makes a good indicator of the general price level for monetary policy because it reflects shocks to a broad range of other series.
AUTHORS: Becsi, Zsolt
DATE: 1994-10

Journal Article
The long (and short) on taxation and expenditure policies
Much of the 1992 presidential campaign focused on which fiscal policies would best promote economic growth. In this article, Zsolt Becsi develops an analytical and graphical framework to evaluate the long- and short-run effects of a variety of taxation and expenditure policies. ; Becsi shows that many tax schemes in their macro-economic effects are essentially taxes on labor or capital or both. While taxes on labor and capital both tend to depress private consumption and output in the long run, Becsi shows that a revenue-neutral reduction of capital taxes and increase in labor taxes are likely to be contractionary in the short run and expansionary in the long run. ; Becsi discusses several ways of spending the peace dividend from a reduction in defense expenditures. He shows that use of the dividend to reduce capital taxes causes consumption to rise in the long run with ambiguous effects on output. In the short run, output and consumption will move in opposite directions, but whether output rises or falls is uncertain. Using the peace dividend to increase public investment will also promote a long-run rise of consumption with ambiguous long-run output effects, but without short-run contractionary effects.
AUTHORS: Becsi, Zsolt
DATE: 1993-09

Journal Article
Have state and local taxes contributed to the South's economic rise?
AUTHORS: Becsi, Zsolt
DATE: 1996-07

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