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Working Paper
Capital Taxation with Heterogeneous Discounting and Collateralized Borrowing
Biljanovska, Nina; Vardoulakis, Alexandros (2017-05-05)
We study optimal long-run capital taxation in a closed economy with heterogeneity in agents' time-discount factors where borrowing is allowed but restricted by a collateral constraint. Financial frictions distort intertemporal optimization margins and the tax system serves a dual role: first, it is used to finance government consumption; second, it serves to alleviate the distortions arising from the binding collateral constraint. The discrepancy between the private and the social discount factors pushes for a subsidy on capital, while the discrepancy introduced by the collateral constraint ...
Finance and Economics Discussion Series , Paper 2017-053

Report
Optimal Cooperative Taxation in the Global Economy
Chari, V. V.; Teles, Pedro; Nicolini, Juan Pablo (2019-04-18)
We use the Ramsey and Mirrlees approaches to study how fiscal and trade policy should be set cooperatively when governments must raise revenues with distorting taxes. Free trade and unrestricted capital mobility are optimal. Efficient outcomes can be implemented with taxes only on final consumption goods and labor income. We study alternative tax systems, showing that uniform taxation of household asset returns, and not taxing corporate income yields efficient outcomes. Border adjustments exempting exports from and including imports in the tax base are desirable. Destination and residence ...
Staff Report , Paper 581

Working Paper
Some Like It Hot: Assessing Longer-Term Labor Market Benefits from a High-Pressure Economy
Moore, Robert E.; Hotchkiss, Julie L. (2018-06-01)
This paper explores evidence for positive hysteresis in the labor market. Using data from the National Longitudinal Surveys of Youth, we find that negative labor market outcomes during high unemployment periods are mitigated by exposure to a high-pressure economy during the preceding expansion. Breaking total exposure into intensity and duration suggests that these two dimensions have differing impacts. However, the benefits of exposure are not enough to overcome the greater negative impact of high unemployment periods on labor market outcomes of disadvantaged groups, making extension of ...
FRB Atlanta Working Paper , Paper 2018-1

Working Paper
The Effect of Central Bank Credibility on Forward Guidance in an Estimated New Keynesian Model
Martinez-Garcia, Enrique; Cole, Stephen J. (2021-03-20)
This paper examines the effectiveness of forward guidance in an estimated New Keynesian model with imperfect central bank credibility. We estimate credibility for the U.S. Federal Reserve with Bayesian methods exploiting survey data on interest rate expectations from the Survey of Professional Forecasters (SPF). The results provide important takeaways: (1) The estimate of Federal Reserve credibility in terms of forward guidance announcements is relatively high, which indicates muted forward guidance effectiveness relative to the fully credible case. Hence, anticipation effects are attenuated ...
Globalization Institute Working Papers , Paper 375

Working Paper
The Credit Line Channel
Krainer, John; Greenwald, Daniel L.; Paul, Pascal (2020-07-31)
Aggregate bank lending to ﬁrms expands following adverse macroeconomic shocks, such as the outbreak of COVID-19 or a monetary policy tightening, at odds with canonical models. Using loan-level supervisory data, we show that these dynamics are driven by draws on credit lines by large ﬁrms. Banks that experience larger drawdowns restrict term lending more — an externality onto smaller ﬁrms. Using a structural model, we show that credit lines are necessary to reproduce the ﬂow of credit toward less constrained ﬁrms after adverse shocks. While credit lines increase total credit ...
Working Paper Series , Paper 2020-26

Journal Article
Tracking U.S. GDP in Real Time
Bae, Jaeheung; Doh, Taeyoung (2019-07)
Measuring the current state of the U.S. economy in real time is an important but challenging task for monetary policymakers. The most comprehensive measure of the state of the economy?real gross domestic product?is available at a relatively low frequency (quarterly) and with a significant delay (one month). To obtain more timely assessments of the state of the economy, the Federal Reserve Bank of Kansas City has developed a GDP tracking model that combines new econometric methods with two conventional approaches to estimating GDP. {{p}} Taeyoung Doh and Jaeheung Bae review the Kansas City Fed ...
Economic Review , Issue Q III , Pages 5-19

Working Paper
Evergreening
Faria-e-Castro, Miguel; Paul, Pascal; Sanchez, Juan M. (2021-10-22)
We develop a simple model of relationship lending where lenders have an incentive to evergreen loans by offering better terms to less productive and more indebted firms. We detect such lending distortions using loan-level supervisory data for the United States. Low-capitalized banks systematically distort their risk assessments of firms to window-dress their balance sheets and extend relatively more credit to underreported borrowers. Consistent with our theoretical predictions, these effects are driven by larger outstanding loans and low-productivity firms. We incorporate the theoretical ...
Working Papers , Paper 2021-012

Report
Optimal Capital Taxation Revisited
Chari, V. V.; Teles, Pedro; Nicolini, Juan Pablo (2018-09-28)
We revisit the question of how capital should be taxed. We allow for a rich set of tax instruments that consists of taxes widely used in practice, including consumption, dividend, capital, and labor income taxes. We restrict policies to respect promises that the government has made in the previous period regarding the current value of wealth. We show that capital should not be taxed if households have preferences that are standard in the macroeconomics literature. We show that Ramsey outcomes that must respect such promises are time consistent. We show that the presumption in the literature ...
Staff Report , Paper 571

Working Paper
The inflation expectations of firms: what do they look like, are they accurate, and do they matter?
Meyer, Brent; Bryan, Michael F.; Parker, Nicholas B. (2014-12-01)
The purpose of this paper is to answer the three questions in the title. Using a large monthly survey of businesses, we investigate the inflation expectations and uncertainties of firms. We document that, in the aggregate, firm inflation expectations are very similar to the predictions of professional forecasters for national inflation statistics, despite a somewhat greater heterogeneity of expectations that we attribute to the idiosyncratic cost structure firms face. We also show that firm inflation expectations bear little in common with the ?prices in general? expectations reported by ...
FRB Atlanta Working Paper , Paper 2014-27

Working Paper
Banking on seniority: the IMF and the sovereign’s creditors
Erce, Aitor (2014-05-13)
The programs designed by the International Monetary Fund during the Global Financial Crisis have shown more awareness of the importance of domestic demand for the prospects of economic recovery. Yet, the IMF has continued to do little about the late payments made by governments to domestic creditors and suppliers. In contrast, the greater protection historically awarded by the IMF to foreign creditors has endured throughout the recent crisis. The paper suggests that, in order to adequately balance foreign creditor seniority and growth objectives, the IMF may sometimes need to emphasize ...
Globalization Institute Working Papers , Paper 175

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