Long‐Term Debt and Optimal Policy in the Fiscal Theory of the Price Level

The fiscal theory says that the price level is determined by the ratio of nominal debt to the present value of real primary surpluses. I analyze long‐term debt and optimal policy in the fiscal theory. I find that the maturity structure of the debt matters. For example, it determines whether news of future deficits implies current inflation or future inflation. When long‐term debt is present, the government can trade current inflation for future inflation by debt operations; this tradeoff is not present if the government rolls over short‐term debt. The maturity structure of outstanding debt acts as a “budget constraint” determining which periods' price levels the government can affect by debt variation alone. In addition, debt policy—the expected pattern of future state‐contingent debt sales, repurchases and redemptions—matters crucially for the effects of a debt operation. I solve for optimal debt policies to minimize the variance of inflation. I find cases in which long‐term debt helps to stabilize inflation. I also find that the optimal policy produces time series that are similar to U.S. surplus and debt time series. To understand the data, I must assume that debt policy offsets the inflationary impact of cyclical surplus shocks, rather than causing price level disturbances by policy‐induced shocks. Shifting the objective from price level variance to inflation variance, the optimal policy produces much less volatile inflation at the cost of a unit root in the price level; this is consistent with the stabilization of U.S. inflation after the gold standard was abandoned.     

Liquidity Constrained Markets Versus Debt Constrained Markets

This paper compares two different models in a common environment. The first model has liquidity constraints in that consumers save a single asset that they cannot sell short. The second model has debt constraints in that consumers cannot borrow so much that they would want to default, but is otherwise a standard complete markets model. Both models share the features that individuals are unable to completely insure against idiosyncratic shocks and that interest rates are lower than subjective discount rates. In a stochastic environment, the two models have quite different dynamic properties, with the debt constrained model exhibiting simple stochastic steady states, while the liquidity constrained model has greater persistence of shocks.     

Liquidity and Trading Dynamics

In this paper, we build a model where the presence of liquidity constraints tends to magnify the economy's response to aggregate shocks. We consider a decentralized model of trade, where agents may use money or credit to buy goods. When agents do not have access to credit and the real value of money balances is low, agents are more likely to be liquidity constrained. This makes them more concerned about their short‐term earning prospects when making their consumption decisions and about their short‐term spending opportunities when making their production decisions. This generates a coordination element in spending and production which leads to greater aggregate volatility and greater comovement across producers.     

A POLITICAL ECONOMY THEORY OF FISCAL POLICY AND UNEMPLOYMENT

This paper presents a political economy theory of fiscal policy and unemployment. The underlying economy is one in which unemployment can arise but can be mitigated by tax cuts and increases in public production. Such policies are fiscally costly, but can be financed by issuing government debt. Policy decisions are made by a legislature consisting of representatives from different political districts. With the available policies, it is possible for the government to completely eliminate unemployment in the long run. However, with political decision making, the economy always has unemployment. Unemployment is higher when the private sector experiences negative shocks. When these shocks occur, the government employs debt‐financed fiscal stimulus plans which involve both tax cuts and public production increases. When the private sector is healthy, the government contracts debt until it reaches a floor level. Unemployment levels are weakly increasing in the economy's debt level, strictly so when the private sector experiences negative shocks. Conditional on the level of workers employed, the mix of public and private output is distorted.     

Inefficient Investment Waves

We show that firms' individually optimal liquidity management results in socially inefficient boom‐and‐bust patterns. Financially constrained firms decide on the level of their liquid resources facing cash‐flow shocks and time‐varying investment opportunities. Firms' liquidity management decisions generate simultaneous waves in aggregate cash holdings and investment, even if technology remains constant. These investment waves are not constrained efficient in general, because the social and private value of liquidity differs. The resulting pecuniary externality affects incentives differentially depending on the state of the economy, and often overinvestment occurs during booms and underinvestment occurs during recessions. In general, policies intended to mitigate underinvestment raise prices during recessions, making overinvestment during booms worse. However, a well‐designed price‐support policy will increase welfare in both booms and recessions.     

Fiscal Rules and Discretion Under Persistent Shocks

This paper studies the optimal level of discretion in policymaking. We consider a fiscal policy model where the government has time‐inconsistent preferences with a present bias toward public spending. The government chooses a fiscal rule to trade off its desire to commit to not overspend against its desire to have flexibility to react to privately observed shocks to the value of spending. We analyze the optimal fiscal rule when the shocks are persistent. Unlike under independent and identically distributed shocks, we show that the ex ante optimal rule is not sequentially optimal, as it provides dynamic incentives. The ex ante optimal rule exhibits history dependence, with high shocks leading to an erosion of future fiscal discipline compared to low shocks, which lead to the reinstatement of discipline. The implied policy distortions oscillate over time given a sequence of high shocks, and can force the government to accumulate maximal debt and become immiserated in the long run.     

LIQUIDITY AND INEFFICIENT INVESTMENT

We study consumer liquidity in a general equilibrium model where the friction is the nonpledgeability of future income. Liquidity helps to overcome the absence of a double coincidence of wants. Consumers over‐hoard liquidity and the resulting competitive equilibrium is constrained inefficient. Fiscal policy following a large negative shock can increase ex‐ante welfare. If the government cannot commit, the ex‐post optimal fiscal policy will be too small from an ex‐ante perspective. The model throws light on the holding of foreign reserves in international markets.     

A Robust Model of Bubbles With Multidimensional Uncertainty

Observers often interpret boom–bust episodes in asset markets as speculative frenzies where asymmetrically informed investors buy overvalued assets hoping to sell to a greater fool before the crash. Despite its intuitive appeal, however, this notion of speculative bubbles has proven difficult to reconcile with economic theory. Existing models have been criticized on the basis that they assume irrationality, that prices are somewhat unresponsive to sales, or that they depend on fragile, knife‐edge restrictions. To address these issues, I construct a rational version of Abreu and Brunnermeier (2003), where agents invest growing endowments into an asset, fueling appreciation and eventual overvaluation. Riding bubbles is optimal as long as the growth rate of the bubble and the probability of selling before the crash are high enough. This probability increases with the amount of noise in the economy, as random short‐term fluctuations make it difficult for agents to infer information from prices.     

OPTIMAL MONETARY POLICY AND FINANCIAL STABILITY IN A NON‐RICARDIAN ECONOMY

I present a model with discontinuous asset‐market participation (DAMP), where all agents are non‐Ricardian, and where heterogeneity among market participants implies financial‐wealth effects on aggregate consumption. The implied welfare criterion shows that financial stability arises as an additional and independent target, besides inflation and output stability. Evaluation of optimal policy under discretion and commitment reveals that price stability may no longer be optimal, even absent inefficient supply shocks: some fluctuations in output and inflation may be optimal as long as they reduce financial instability. Ignoring the heterogeneity among market participants may lead monetary policy to induce substantially higher welfare losses.     

金融危机对金融机构的冲击及政府救助分析

使用基于非对称双指数分布的跳-扩散模型,以资产治理结构理论为框架对金融危机爆发前后以及危机中政府救助前后的债务平均到期时间、冲击到来频率以及违约资产损失率进行设定,从而对金融机构债务/资产比率在不同情况下的变化趋势进行数值模拟,以此分析金融危机对金融机构的冲击以及政府救助金融机构的效果.模拟分析结果发现,金融危机中金融机构的脆弱性主要来自债务/资产比率过高、中短期债务过多以及资产质量过低;政府对危机中金融机构的救助措施以低频大幅注资辅以购买短期债务和劣质资产最为有效.     

变动均值和方差资产配置模型的应用研究

本文在均值-方差模型的基础上,以改善估计误差为主线,选取了10种变动均值-方差的资产配置模型,以等权重策略为基准,运用了确定性等价收益和Alpha值为判断准则,同时考虑了允许卖空限制和非允许卖空的情况,实证研究结果表明：虽然在资本市场中配置模型并不能显著战胜等权重策略,但随着投资范围的扩大,模型开始显现配置效果,尤其在Alpha准则下,变动均值-方差资产配置显著。同时本文还将实证结果和目前我国投资者的实际资产配置情况进行了比较,发现了现实配置结构中的不合理之处,并提出了相应的改善建议。最后对4类常用资产进行了模拟研究,其结果也进一步证实了本文的结论。     

FINANCIAL FRAGILITY,LIQUIDITY, AND ASSET PRICES

We define a financial system to be fragile if small shocks have disproportionately large effects. In a model of financial intermediation, we show that small shocks to the demand for liquidity cause either high asset‐price volatility or bank defaults or both. Furthermore, as the liquidity shocks become vanishingly small, the asset‐price volatility is bounded away from zero. In the limit economy, with no shocks, there are many equilibria. However, if banks face idiosyncratic liquidity shocks, then the only equilibria that are robust to the introduction of small aggregate risk involve stochastic consumption as well as volatile asset, prices. (JEL: D5, D8, G2)     

SOVEREIGNS,UPSTREAM CAPITAL FLOWS,AND GLOBAL IMBALANCES

We construct measures of net private and public capital flows for a large cross‐section of developing countries considering both creditor and debtor side of the international debt transactions. Using these measures, we demonstrate that sovereign‐to‐sovereign transactions account for upstream capital flows and global imbalances. Specifically, we find that (i) international net private capital flows (inflows minus outflows of private capital) are positively correlated with countries' productivity growth, (ii) net sovereign debt flows (government borrowing minus reserves) are negatively correlated with growth only if net public debt is financed by another sovereign, (iii) net public debt financed by private creditors is positively correlated with growth, (iv) public savings are strongly positively correlated with growth, whereas correlation between private savings and growth is flat and statistically insignificant. These empirical facts contradict the conventional wisdom and constitute a challenge for the existing theories on upstream capital flows and global imbalances.     

Illiquide Assets in der Portfoliooptimierung

When optimizing a portfolio, which comprises liquid as well as illiquid assets, under the constraint of a liquidity requirement, one has to take into account the particular characteristics of illiquid assets. Illiquid assets in this context have the constituting property that they can only be sold as a whole and – if sold on a short term basis – selling leads to losses. Performing the analysis of a single period model in a mean downside risk framework with one liquid and one illiquid asset, significant differences are proven in comparison to the results of an optimization concerning solely liquid assets. For example, although the return on assets is safe in the first scenario, the portfolio value is already risky due to the uncertain liquidity requirement and situations arise where the allocation to both the liquid and the illiquid asset is optimal. Furthermore, when asset returns are uncertain, the expected portfolio value depends on the assets’ variances and can even be increased by positive correlations.     

资产流动性与债务期限结构——来自中国上市公司的经验证据

目前,资产流动性对债务期限结构的影响在理论上存在很大争议,主要有"正向影响"、"负向影响"和"倒U型影响"三种观点。本文以我国沪深两市A股市场1998-2009年间12110个公司年度观测值为样本,采用资产交易强度衡量资产流动性,实证检验了上述三种观点。结果表明,资产流动性越高的公司债务期限越长,即资产流动性正向影响债务期限结构,支持了较高的资产流动性能够增加公司清算价值从而延长债务期限的经典理论。     

Leverage and Default in Binomial Economies: A Complete Characterization

Our paper provides a complete characterization of leverage and default in binomial economies with financial assets serving as collateral. Our Binomial No‐Default Theorem states that any equilibrium is equivalent (in real allocations and prices) to another equilibrium in which there is no default. Thus actual default is irrelevant, though the potential for default drives the equilibrium and limits borrowing. This result is valid with arbitrary preferences and endowments, contingent or noncontingent promises, many assets and consumption goods, production, and multiple periods. We also show that only no‐default equilibria would be selected if there were the slightest cost of using collateral or handling default. Our Binomial Leverage Theorem shows that equilibrium Loan to Value (LTV) for noncontingent debt contracts is the ratio of the worst‐case return of the asset to the riskless gross rate of interest. In binomial economies, leverage is determined by down risk and not by volatility.     

基于均值-CVaR模型的企业年金资产配置

基于均值-CVaR模型,根据<企业年金试行办法>中对企业年金基金投资方面的规定,以货币市场工具、中长期国债和金融债、可转债及股票4类投资工具为约束条件,构建了企业年金基金投资的资产配置模型;根据我国金融市场和企业年金基金的具体情况,计算出不同企业年金替代率下,4类投资工具的最优资产配置比例和相应资产配置的风险度量指标--年收益率的CVaR值;并在资产回报率服从正态分布假设下,分析了最优资产配置比例的变化.     

WHY DO EMERGING ECONOMIES BORROW SHORT TERM?

We argue that one reason why emerging economies borrow short term is that it is cheaper than borrowing long term. This is especially the case during crises, as during these episodes the relative cost of long‐term borrowing increases. We construct a unique database of sovereign bond prices, returns, and issuances at different maturities for 11 emerging economies from 1990 to 2009 and present a set of new stylized facts. On average, these countries pay a higher risk premium on long‐term than on short‐term bonds. During crises, the difference between the two risk premia increases and issuance shifts towards shorter maturities. To illustrate our argument, we present a simple model in which the maturity structure is the outcome of a risk‐sharing problem between an emerging economy subject to rollover crises and risk‐averse international investors.     

Using Asset Prices to Measure the Persistence of the Marginal Utility of Wealth

We derive a lower bound for the volatility of the permanent component of investors' marginal utility of wealth or, more generally, asset pricing kernels. The bound is based on return properties of long‐term zero‐coupon bonds, risk‐free bonds, and other risky securities. We find the permanent component of the pricing kernel to be very volatile; its volatility is about at least as large as the volatility of the stochastic discount factor. A related measure for the transitory component suggest it to be considerably less important. We also show that, for many cases where the pricing kernel is a function of consumption, innovations to consumption need to have permanent effects.