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Working Paper
Signal extraction and the propagation of business cycles
Kasa, Kenneth (1995)
This paper studies a class of models developed by Townsend (1993) and Sargent (1991). These models feature dynamic signal extraction problems in which firms with heterogeneous information draw inferences from endogenously generated time series about the value of common persistent shock. Because the information firms receive is partially determined by the expectations of other firms, each firm must 'forecast the forecasts of others'. Moreover, since it is common knowledge that everyone is in the same situation, there occurs an infinite regress in expectations, in which each firm attempts to ...
Working Papers in Applied Economic Theory , Paper 95-14

Working Paper
Inside money and monetary neutrality
Walsh, Carl E.; Hartley, Peter R. (1986)
This paper examines the interaction between the financial and real sectors of the economy within the framework of a stochastic, rational expectation model that distinguishes between inside and outside money. The model also can be used to study the impact of variations in the degree of intermediation, measured by the elasticity of bank deposit supply. In contrast to earlier work which emphasized confusion between monetary and real shocks, we focus on the role played by confusion between inside and outside money and temporary and permanent base money disturbances. Financial sector disturbances, ...
Working Papers in Applied Economic Theory , Paper 86-01

Working Paper
\"Burden sharing\" in sovereign debt reduction
Spiegel, Mark M. (1994)
We examine a concerted debt reduction deal between a sovereign debtor, a private creditor, and an official creditor, who insures the deposits of the commercial bank. Our results show that a weakening of the financial position of the commercial bank reduces the contribution of the commercial bank and increases that of the official creditor, without affecting the net terms faced by the debtor. This result is robust to changes in seniority. Moreover, leaving both creditor values unchanged requires that commercial banks retire debt at "unfairly" high prices, while official creditors make a net ...
Working Papers in Applied Economic Theory , Paper 94-18

Working Paper
Optimal foreign borrowing and investment with an endogenous lending constraint
Glick, Reuven; Kharas, Homi J. (1985)
Working Papers in Applied Economic Theory , Paper 86-02

Working Paper
Expectations, traps and discretion
Chari, V. V.; Christiano, Lawrence J.; Eichenbaum, Martin S. (1996)
We argue that discretionary monetary policy exposes the economy to welfare-decreasing instability. It does so by creating the potential for private expectations about the response of monetary policy to exogenous shocks to be self-fulfilling. Among the many equilibria that are possible, some have good welfare properties. But, others exhibit welfare decreasing volatility in output and employment. We refer to the latter type of equilibria as expectation traps. In effect, our paper presents a new argument for commitment in monetary policy because commitment eliminates these bad equilibria. ...
Working Papers in Applied Economic Theory , Paper 96-04

Working Paper
An econometric study of the effect of monetary policy on the new single-family housing market
Chen, Dean T. (1971)
Working Papers in Applied Economic Theory , Paper 7

Working Paper
Returns on illiquid assets: are they fair games?
Krainer, John; LeRoy, Stephen F. (1997)
The simplest tests of capital market efficiency are tests of the fair game model: conditional expected returns less the interest rate are equal to zero. The fair game model is thought to obtain only when markets are perfectly liquid. We show that this conjecture is false. In a model of the housing market where heterogeneous agents must search for partners in order to trade, excess returns on housing wealth are fair games if, as is appropriate, returns are defined to include shadow prices measuring illiquidity.
Working Papers in Applied Economic Theory , Paper 97-05

Working Paper
Alternative definitions of the business cycle and their implications for business cycle models: a reply to Torben Mark Pederson
Cogley, Timothy (1998)
Working Papers in Applied Economic Theory , Paper 98-08

Working Paper
Modelling the time series behavior of the aggregate wage rate
Huh, Chan Guk; Trehan, Bharat (1992)
Working Papers in Applied Economic Theory , Paper 92-04

Working Paper
Borrowing restrictions and wealth constraints: implications for aggregate consumption
Walsh, Carl E. (1986)
Recent empirical studies have found that consumption is more sensitive to current income than simple versions of the life-cycle, permanent income hypothesis would predict. The present paper studies a model in which the fraction of consumers exhibiting excess sensitivity is endogenously determined. The presence of income uncertainty and restrictions on borrowing are shown to generate a distribution of consumption across individuals which is consistent with the recent empirical evidence. The aggregate fraction of consumers facing a binding borrowing constraint is shown to exhibit positive ...
Working Papers in Applied Economic Theory , Paper 86-06

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