Jess Benhabib, Pengfei Wang. Financial Constraints, Endogenous Markups, And Self-Fulfilling Equilibria

We show that self-fulfilling equilibria and indeterminacy can easily arise in a simple financial accelerator model with reasonable parameter calibrations and without increasing returns in production. A key feature for generating indeterminacy in our model is the countercyclical markup due to the procyclical loan to output ratio. We illustrate, via simulations, that our financial accelerator model can generate rich business cycle dynamics, including hump-shaped output in response to demand shocks...

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Jess Benhabib. A Note on Regime Switching, Monetary Policy, and Multiple Equilibria

When monetary policy is subject to regime switches conditions for determinacy become more complex. Davig and Leeper (2007) and Farmer, Waggoner and Zha (2009a) have studied such conditons. Using some new results from stochastic processes, we characterize the moments of the stationary distribution of inflation under regime switiching to obtain conditions for indeterminacy that can be easily checked and interpreted in terms of expected values of Taylor coefficients. In the last section, we outline...

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Peter Egger, Mario Larch, Kevin E. Staub, Rainer Winkelmann. The Trade Effects of Endogenous Preferential Trade Agreements

The unprecedented surge of preferential trade liberalization since World War II spurred theoretical and empirical work on the matter alike. Theoretical research illustrated under which conditions preferential trade agreements (PTAs) induce welfare gains for participants.1 Econometric work confirmed that economic and political fundamentals determine preferential trade liberalization through PTA membership very much along the lines hypothesized by economic theory (see Scott L. Baier and Jeffrey H....

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Mathias Hoffmann, Rahel Suter. Systematic Consumption Risk in Currency Returns

We sort currencies into portfolios by countries’ consumption growth over the past year. The excess return of the highest-consumption-growth currency portfolio over the portfolio of lowest-consumption-growth currencies is positive on average, compensating investors for large negative returns during world-wide downturns. This return—our consumption carry factor—prices the cross-section of portfolio-sorted and of bilateral currency returns. Our results rest on minimal theoretical restrictions but...

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Aleksander Berentsen, Alessandro Marchesiani, Christopher J. Waller. Floor Systems for Implementing Monetary Policy: Some Unpleasant Fiscal Arithmetic

An increasing number of central banks implement monetary policy via a channel system or a floor system. We construct a general equilibrium model to study the properties of these systems. We find that a floor system is weakly optimal if and only if the target rate satisfies the Friedman rule. Unfortunately, the optimal floor system requires either transfers from the fiscal authority to the central bank or a reduction in seigniorage payments from the central bank to the government. This is the u...

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John Grable, Kristy Archuleta. Financial money planning team helps families cope in hard times.

When the economy gets rough, family life gets rougher. Economic stress causes individual and family stress, triggering depression, blame games, anger and sometimes violence, according to Kristy Archuleta, assistant professor in the College of Human Ecology’s School of Family Studies and Human Services at Kansas State University. Archuleta, a licensed marriage and family therapist, also is a faculty member in K-State’s Institute of Personal Financial Planning. The institute is exploring ...

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