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Author:Martin, Fernando M. 

Working Paper
Markov-Perfect Risk Sharing, Moral Hazard and Limited Commitment

We define, characterize and compute Markov-perfect risk-sharing contracts in a dynamic stochastic economy with endogenous asset accumulation and simultaneous limited commitment and moral hazard frictions. We prove that Markov-perfect insurance contracts preserve standard properties of optimal insurance with private information and are not more restrictive than a long-term contract with one-sided commitment. Markov-perfect contracts imply a determinate asset time-path and a non-degenerate long-run stationary wealth distribution. We show numerically that Markov-perfect contracts provide sizably ...
Working Papers , Paper 2011-030

Journal Article
A view from the fiscal cliff

January?s deal on the so-called fiscal cliff only raised projected revenue moderately and continued to push the spending issue forward unresolved. The economy may have been slowed down by such a drawn-out process, as well as by the uncertainty on the future size of government and on the distribution of the tax burden.
The Regional Economist , Issue Apr

Journal Article
Labor market update

There has been a significant and steady drop in the unemployment rate since late 2009, but unemployment duration remains high and employment as a percentage of the working-age population has not recovered.
Economic Synopses , Issue 7

Journal Article
U.S. Fiscal Policy: Reality and Outlook

Deficits are expected to persist, debt is projected to grow.
Economic Synopses , Issue 10 , Pages 1-2

The Impact of the Fed’s Response to COVID-19 So Far

Since the end of February, the assets of the Federal Reserve have grown by $3 trillion as the Fed has taken measures to alleviate the economic impact of the pandemic.
On the Economy

Working Paper
Seigniorage and Sovereign Default: The Response of Emerging Markets to COVID-19

Monetary policy affects the tradeoffs faced by governments in sovereign default models. In the absence of lump-sum taxation, governments rely on both disortionary taxes and seigniorage to finance expenditure. Furthermore, monetary policy adds a time-consistency problem in debt choice, which may mitigate or exacerbate the incentives to accumulate debt. A deterioration of the terms-of-trade leads to an increase in sovereign-default risk and inflation, and a reduction in growth, which are consistent with the empirical evidence for emerging economies. An unanticipated shock resembling the ...
Working Papers , Paper 2020-017

Journal Article
Fiscal policy in the Great Recession and lessons from the past

The recent behavior of key fiscal policy variables draws some parallels with the U.S. experience in the Civil War and the two world wars. A specific concern is the possibility of high inflation to finance the accumulated debt.
Economic Synopses

Working Paper
Policy and welfare effects of within-period commitment

I study the implications of different institutional frameworks for the conduct of fiscal policy, under the assumption that the government cannot commit to future policy choices. The environments analyzed vary on whether the government is endowed with the ability to commit to beginning-of-period policy announcements or not. If it cannot, then there are two variants, depending on which actions private agents take before observing the government?s policy choice. How the three possible cases rank in terms of tax rates and welfare varies substantially with the economy?s fundamentals and whether ...
Working Papers , Paper 2011-031

Journal Article
Winners and losers in the Great Recession

For a significant number of industries - representing roughly a quarter of the U.S. economy - the most recent recession has been business as usual when judged by pre-recession trends. For a slightly larger group of industries, mostly related to construction, manufacturing, and trade, the contractions have been severe, reinforcing a preexisting process of steady relative decline.
Economic Synopses

Working Paper
Monetary Policy and Liquid Government Debt

We examine the conduct of monetary policy in a world where the supply of outside money is controlled by the fiscal authority-a scenario increasingly relevant for many developed economies today. Central bank control over the long-run inflation rate depends on whether fiscal policy is Ricardian or Non-Ricardian. The optimal monetary policy follows a generalized Friedman rule that eliminates the liquidity premium on scarce treasury debt. We derive conditions for determinacy under both fiscal regimes and show that they do not necessarily correspond to the Taylor principle. In addition, ...
Working Papers , Paper 2018-2




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