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Working Paper
Playing with Money

Experimental studies in monetary economics usually study infinite horizon models. Yet, the time constraints of the laboratory sessions in which these models are conducted create finite horizons that imply monetary equilibria cannot exist. Moreover, laboratory subjects do not treat the probabilistic termination rule typically used in a manner consistent with the discount factor that the rule is intended to replace. Thus, it is unclear whether these experiments evaluate subjects' use of money to ameliorate trading frictions as an equilibrium phenomenon, their inability to understand backward ...
Working Paper , Paper 19-2

Working Paper
Optimal Vaccine Policies: Spillovers and Incentives

We offer a novel theoretical framework to study optimal vaccination policies. The key features of the model are that agents: 1) differ both in their potential exposure (x) to others and vulnerability (y​) to severe illness, 2) exert negative externalities through interaction, and 3) can take voluntary preventative measures, for instance self-isolation. Our main result is a complete characterization of the second-best policy. Three striking features emerge. First, it is non-monotone – people with intermediate y are vaccinated more than those with either low or high y. Second, it exhibits ...
Working Paper , Paper 21-06

Working Paper
What Do Sectoral Dynamics Tell Us About the Origins of Business Cycles?

We use economic theory to rank the impact of structural shocks across sectors. This ranking helps us to identify the origins of U.S. business cycles. To do this, we introduce a Hierarchical Vector Auto-Regressive model, encompassing aggregate and sectoral variables. We find that shocks whose impact originate in the "demand" side (monetary, household, and government consumption) account for 43 percent more of the variance of U.S. GDP growth at business cycle frequencies than identified shocks originating in the "supply" side (technology and energy). Furthermore, corporate financial shocks, ...
Working Paper , Paper 19-9

Working Paper
Fiscal policy and default risk in emerging markets

Emerging market economies typically exhibit a procyclical fiscal policy: public expenditures rise (fall) in economic expansions (recessions), whereas tax rates rise (fall) in bad (good) times. Additionally, the business cycle of these economies is characterized by countercyclical default risk. In this paper we develop a quantitative dynamic stochastic small open economy model with incomplete markets, endogenous fiscal policy and sovereign default where public expenditures and tax rates are optimally procyclical. The model also accounts for the dynamics of other key macroeconomic variables in ...
Working Paper , Paper 09-01

Working Paper
Assessing the effectiveness of the Paulson \"Teaser Freezer\" plan : evidence from the ABX index

How did investors holding assets backed by subprime residential mortgages react when Treasury Secretary Paulson announced the so-called "teaser freezer" plan to modify mortgages in December 2007? We apply event-study methodology to the ABX index, the only source of daily securities prices in subprime mortgage markets. Our results show investors in the ABX initially perceived that the plan would improve conditions in the subprime housing markets, but results from a longer event window show this positive effect was swamped by continued deterioration in housing markets. The positive effects of ...
Working Paper , Paper 09-07

Working Paper
A federal funds rate equation

This paper presents evidence that indicates that U.S. interest rate policy during most of the 1980s can be described by a reaction function in which the federal funds rate rises if real GDP rises above trend GDP, if actual inflation accelerates, or if the long-term bond rate rises. Money growth when included in the reaction function is significant, indicating that money also influenced policy. The results presented here however indicate that in recent years the Fed has discounted the leading indicator properties of money. In contrast, the bond rate has been a key determinant of the funds rate ...
Working Paper , Paper 95-03

Working Paper
The cyclical price of labor when wages are smoothed

I conduct an empirical investigation of the cyclicality of the price of labor. Firms employ workers up to the point where workers' marginal revenue product equals the price of labor. If the labor market is a spot market, then the price of labor is the wage. But often workers are contracted for more than one period. The price of labor captures both the wage at the time of hiring and the impact of labor market conditions at the time of hiring on future wages. The price of labor and not wage is allocational for employment. Because it is not directly observed in the data, I construct the price of ...
Working Paper , Paper 10-13

Working Paper
Stored value cards: costly private substitutes for currency

A model in which both currency and stored value cards are used to make payments is presented. I compare steady-state equilibria with and without stored value cards. Stored value cards are beneficial because they help alleviate the deadweight loss due to inflation. When the nominal interest rate is greater than the government's resource cost of providing currency, the alternative means of payment may have larger real resource costs than the currency it replaces. Stored value results in either a net increase or a net decrease in economic welfare depending upon whether average costs are below or ...
Working Paper , Paper 96-03

Working Paper
Rent seeking bureaucracies and oversight in a simple growth model

Following recent cross-country empirical work, research on public policy and growth has come to examine the impact of inefficient or corrupt bureaucracies. Most of this work has emphasized the interactions of bureaucracies with private markets. By contrast, this paper focuses on the relationship between rent-seeking bureaucracies and their political authority. We show that when oversight is relatively costly, as in many developing economies, the political authority exercises little monitoring of its agencies which reduces the effectiveness of productive government spending. Moreover, when the ...
Working Paper , Paper 98-03

Working Paper
Multibank holding companies and bank behavior

The most dramatic development in banking in recent years has been the rise of bank holding companies. More than 1,750 of these banking operations now control most of America's bank assets and deposits.
Working Paper , Paper 75-01

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