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Author:Martin, Fernando M. 

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

Working Paper
How to Starve the Beast: Fiscal Policy Rules

Countries have widely imposed fiscal rules designed to constrain government spending and ensure fiscal responsibility. This paper studies the effectiveness and welfare implications of revenue, deficit and debt rules when governments are discretionary and profligate. The optimal prescription is a revenue ceiling coupled with a balance budget requirement. For the U.S., the optimal revenue ceiling is about 15% of output, 3 percentage points below the postwar average. Most of the benefits can still be reaped with a milder constraint or escape clauses during adverse times. Imposing a single fiscal ...
Working Papers , Paper 2019-026

Journal Article
Revisiting GDP Growth Projections

Based largely on predicted trends for labor force participation, GDP is projected to grow at an average annual rate of 2.2 percent over the next decade.
Economic Synopses , Issue 5 , Pages 1-2

Journal Article
Private Investment and the Great Recession

Unlike other components of private investment, residential investment has not yet recovered and remains well below its pre-recession level.
Economic Synopses , Issue 1

Working Paper
Rehypothecation and Liquidity

We develop a dynamic general equilibrium monetary model where a shortage of collateral and incomplete markets motivate the formation of credit relationships and the rehypothecation of assets. Rehypothecation improves resource allocation because it permits liquidity to flow where it is most needed. The liquidity benefits associated with rehypothecation are shown to be more important in high-inflation (high interest rate) regimes. Regulations restricting the practice are shown to have very different consequences depending on how they are designed. Assigning collateral to segregated accounts, as ...
Working Papers , Paper 2015-3

Journal Article
Market Power and Asset Contractibility in Dynamic Insurance Contracts

The authors study the roles of asset contractibility, market power, and rate of return differentials in dynamic insurance when the contracting parties have limited commitment. They define, characterize, and compute Markov-perfect risk-sharing contracts with bargaining. These contracts significantly improve consumption smoothing and welfare relative to self-insurance through savings. Incorporating savings decisions into the contract (asset contractibility) implies sizable gains for both the insurers and the insured. The size and distribution of these gains depend critically on the insurers? ...
Review , Volume 98 , Issue 2

Working Paper
Dynamic optimal insurance and lack of commitment

This paper analyzes dynamic risk-sharing contracts between profit-maximizing insurers and risk-averse agents who face idiosyncratic income uncertainty and may self-insure through savings. We study Markov-perfect insurance contracts in which neither party can commit beyond the current period. We show that the limited commitment assumption on the insurer's side is only restrictive when he is endowed with a rate of return advantage and the agent has sufficiently large initial assets. In such a case, the consumption profile is distorted relative to the first-best. In a Markov-perfect equilibrium, ...
Working Papers , Paper 2011-029

2021: The Year of High Inflation

Inflationary pressure appears to have been widespread last year. And pent-up demand by consumers with plenty of savings may pressure prices further.
On the Economy

Working Paper
Information disclosure and exchange media

When commitment is lacking, intertemporal trade is facilitated with the use of exchange media?interpreted broadly to include monetary and collateral assets. We study the properties of a model commonly used to motivate monetary exchange, extended to include a physical asset whose expected short-run return is subject to a news shock, but whose expected long-run return is stable. The nondisclosure of news enhances the asset?s property as an exchange medium, and generally improves social welfare. When a nondisclosure policy is infeasible, the framework admits a role for government debt, including ...
Working Papers , Paper 2012-012

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 distortionary 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

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