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Working Paper
Can't Pay or Won't Pay? Unemployment, Negative Equity, and Strategic Default
Gerardi, Kristopher S.; Herkenhoff, Kyle F.; Ohanian, Lee E.; Willen, Paul S. (2013-08-01)
This paper exploits matched data from the PSID on borrower mortgages with income and demographic data to quantify the relative importance of negative equity, versus lack of ability to pay, as affecting default between 2009 and 2013. These data allow us to construct household budgets sets that provide better measures of ability to pay. We use instrumental variables to quantify the impact of ability to pay, including job loss and disability, versus negative equity. Changes in ability to pay have the largest estimated effects. Job loss has an equivalent effect on default likelihood as a 35 ...
FRB Atlanta Working Paper , Paper 2013-04

Working Paper
Bond Insurance and Public Sector Employment
Amornsiripanitch, Natee (2022-02-07)
This paper uses a unique data set of local governments’ bond issuance, expenditure, and employment to study the impact of the monoline insurance industry’s demise on local governments’ operations. To show causality, I use an instrumental variable approach that exploits persistent insurance relationships and the cross-sectional variation in insurers’ exposure to high-quality residential mortgage-backed securities. Governments associated with ailing insurers issued less debt, cut expenditures, and hired fewer workers. These effects are persistent. Partial equilibrium calculations show ...
Working Papers , Paper 22-03

Working Paper
Ramsey Taxation in the Global Economy
Chari, V. V.; Teles, Pedro; Nicolini, Juan Pablo (2017-12-11)
We study cooperative optimal Ramsey equilibria in the open economy addressing classic policy questions: Should restrictions be placed to free trade and capital mobility? Should capital income be taxed? Should goods be taxed based on origin or destination? What are desirable border adjustments? How can a Ramsey allocation be implemented with residence-based taxes on assets? We characterize optimal wedges and analyze alternative policy implementations.
Working Papers , Paper 745

Working Paper
Policy regime change against chronic deflation? Policy option under a long-term liquidity trap
Ueda, Kozo; Nakazono, Yoshiyuki; Fujiwara, Ippei (2015-03-01)
This paper evaluates the role of the first arrow of Abenomics in guiding public perceptions on monetary policy stance through the management of expectations. In order to end chronic deflation, a policy regime change must be perceived by economic agents. Analysis using the QUICK survey system (QSS) monthly survey data shows that the reaction of monetary policy to inflation has been declining since the mid 2000s, implying intensified forward guidance well before Abenomics. However, Japan seems to have moved closer to a long-term liquidity trap, where even long-term bond yields are constrained ...
Globalization Institute Working Papers , Paper 233

Working Paper
Evergreening
Faria-e-Castro, Miguel; Paul, Pascal; Sanchez, Juan M. (2023-01)
We develop a simple model of relationship lending where lenders have incentives for evergreening loans by offering better terms to firms that are close to default. We detect such lending behavior using loan-level supervisory data for the United States. Banks that own a larger share of a firm's debt provide distressed firms with relatively more credit at lower interest rates. Building on this empirical validation, we incorporate the theoretical mechanism into a dynamic heterogeneous-firm model to show that evergreening affects aggregate outcomes, resulting in lower interest rates, higher ...
Working Papers , Paper 2021-012

Working Paper
State-Dependent Local Projections
Goncalves, Silvia; Herrera, Ana María; Kilian, Lutz; Pesavento, Elena (2023-04-19)
Do state-dependent local projections asymptotically recover the population responses of macroeconomic aggregates to structural shocks? The answer to this question depends on how the state of the economy is determined and on the magnitude of the shocks. When the state is exogenous, the local projection estimator recovers the population response regardless of the shock size. When the state depends on macroeconomic shocks, as is common in empirical work, local projections only recover the conditional response to an infinitesimal shock, but not the responses to larger shocks of interest in many ...
Working Papers , Paper 2302

Working Paper
Time Averaging Meets Labor Supplies of Heckman, Lochner, and Taber
Graves, Sebastian; Gregory, Victoria; Ljungqvist, Lars; Sargent, Thomas J. (2023-05-29)
We incorporate time-averaging into the canonical model of Heckman, Lochner, and Taber (1998) (HLT) to study retirement decisions, government policies, and their interaction with the aggregate labor supply elasticity. The HLT model forced all agents to retire at age 65, while our model allows them to choose career lengths. A benchmark social security system puts all of our workers at corner solutions of their career-length choice problems and lets our model reproduce HLT model outcomes. But alternative tax and social security arrangements dislodge some agents from those corners, bringing ...
Working Papers , Paper 2023-012

Report
Pareto Improving Fiscal and Monetary Policies: Samuelson in the New Keynesian Model
Aguiar, Mark; Amador, Manuel; Arellano, Cristina (2023-06-16)
This paper explores the positive and normative consequences of government bond issuances in a New Keynesian model with heterogeneous agents, focusing on how the stock of government bonds affects the cross-sectional allocation of resources in the spirit of Samuelson (1958). We characterize the Pareto optimal levels of government bonds and the associated monetary policy adjustments that should accompany Pareto-improving bond issuances. The paper introduces a simple phase diagram to analyze the global equilibrium dynamics of inflation, interest rates, and labor earnings in response to changes in ...
Staff Report , Paper 646

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
Shock Transmission through Cross-Border Bank Lending: Credit and Real Effect
Minoiu, Camelia; Kapan, Tumer; Hale, Galina (2016-02-04)
We study the transmission of financial sector shocks across borders through international bank connections. For this purpose, we use data on long-term interbank loans among more than 6,000 banks during 1997-2012 to construct a yearly global network of interbank exposures. We estimate the effect of direct (first-degree) and indirect (second-degree) exposures to countries experiencing systemic banking crises on bank profitability and loan supply. We find that direct exposures to crisis countries squeeze banks? profit margins, thereby reducing their returns. Indirect exposures to crisis ...
Working Paper Series , Paper 2016-1

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