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Fiscal multipliers in an incomplete markets economy

Abreu, Rodrigo Soares de
Fonte: Fundação Getúlio Vargas Publicador: Fundação Getúlio Vargas
Tipo: Dissertação
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66.61%
This paper studies the behavior of fiscal multipliers in two different economic environments: complete markets and incomplete markets. Based on steady state analysis, output multipliers are found within a range between 0.49 and 0.66, when the markets are complete. Under incomplete markets, output multiplier was found in an interval between 0.75 and 0.94. These results indicates that the market structure, which reflects the degree of risk sharing and the intensity of the precautionary motive faced by individuals, plays a key role in determining the fiscal multipliers. In the second part of the paper, was performed an exercise to analyze the dynamic response of macroeconomic aggregates to an exogenous and unexpected rise in government spending financed by lump-sum taxes. In this case, impact output multipliers varies in a range between 0.64 and 0.68, under complete markets, and within 1.05 and 1.20 when markets are incomplete. The results found under incomplete markets are very close to that found on related literature which usually uses an econometric approach or calibrated/estimated New Keynesian models. These results shows that taking into account the deficiencies in the insurance mechanisms can be an interesting way to reconcile theoretical models with the results found on related current literature...

Approximate Recursive Equilibrium with Minimal State Space

Raad, Rodrigo Jardim
Fonte: Escola de Pós-Graduação em Economia da FGV Publicador: Escola de Pós-Graduação em Economia da FGV
Tipo: Relatório
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This paper shows existence of approximate recursive equilibrium with minimal state space in an environment of incomplete markets. We prove that the approximate recursive equilibrium implements an approximate sequential equilibrium which is always close to a Magill and Quinzii equilibrium without short sales for arbitrarily small errors. This implies that the competitive equilibrium can be implemented by using forecast statistics with minimal state space provided that agents will reduce errors in their estimates in the long run. We have also developed an alternative algorithm to compute the approximate recursive equilibrium with incomplete markets and heterogeneous agents through a procedure of iterating functional equations and without using the first order conditions of optimality.

Essays in incomplete markets; Essays on incomplete markets

Panousi, Vasia
Fonte: Massachusetts Institute of Technology Publicador: Massachusetts Institute of Technology
Tipo: Tese de Doutorado Formato: 104 p.
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This thesis studies the macroeconomics of incomplete markets. Chapter 1 studies the effects of capital taxation in a dynamic heterogeneous-agent economy with uninsurable entrepreneurial risk. Unlike either the complete-markets paradigm or Bewley-type models where idiosyncratic risk impacts only labor income, here it is shown that capital taxation may actually stimulate capital accumulation. This possibility emerges because of the general-equilibrium effects of the insurance aspect of capital taxation. Chapter 2, which is joint work with George-Marios Angeletos, revisits the macroeconomic effects of government consumption in the neoclassical growth model augmented with idiosyncratic investment (or entrepreneurial) risk. Under complete markets, a permanent increase in government consumption has no long-run effect on the interest rate, the capital-labor ratio, and labor productivity, while it increases work hours due to the familiar negative wealth effect. Under incomplete markets, the very same negative wealth effect now causes a reduction in risk taking and investment. This in turn leads to a lower risk-free rate and, under certain conditions, also to a lower capital-labor ratio, lower productivity and lower wages. Chapter 3 uses annual Greek data to test the validity of the Permanent Income Hypothesis (PIH) versus the "Keynesian" view that consumption responds to current income. The PIH is rejected by all tests...

On the role of time allocation in incomplete markets

Taşkın, Temel (1982 - ); Aguiar, Mark
Fonte: University of Rochester. Publicador: University of Rochester.
Tipo: Tese de Doutorado Formato: Number of Pages:xiv, 119 leaves
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Thesis (Ph. D.)--University of Rochester. Dept. of Economics, 2010.; This thesis is a collection of essays on the role of time allocation in incomplete markets. An incomplete market is defined as an environment where individuals are unable to insure against some shocks such as unemployment shocks and health shocks. In such an environment, individuals have partial insurance opportunities with different channels including asset markets, government provided public insurance, family transfers, and adjustment of time allocation. In my thesis, I focus on the role of time allocation as a partial insurance mechanism in incomplete markets. In Chapter 1, I study the role of home production on optimal unemployment insurance policy. Here, time allocation has an important role due to home production decision, and the environment is an incomplete market due to uninsurable unemployment shocks. Individuals can smooth their consumption with more home production during unemployment spells which reduces the cost of unemployment shocks. Therefore, optimal unemployment insurance policies are affected by the fact that individuals partially insure themselves through home production. In order to quantify this effect, I incorporate home production into a quantitative model of unemployment...

Public Intervention in Health Insurance Markets : Theory and Four Examples from Latin America

Jack, William
Fonte: World Bank Publicador: World Bank
Tipo: Artigo de Revista Científica
Português
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46.36%
This article examines rationales for public intervention in health insurance markets from the perspective of public economics. It draws on the literature of organizational design to examine alternative public intervention strategies, including issues of contracting, purchaser provider splits, and regulation of competition. Health insurance reforms in four Latin American countries are then considered in light of the insights provided by the theoretical literature. This article addresses the role of government in spreading and reducing health risks with particular emphasis on the design and organization of the relevant institutions in Latin America.

Policies on Managing Risk in Agricultural Markets

Larson, Donald F.; Anderson, Jock R.; Varangis, Panos
Fonte: World Bank Publicador: World Bank
Tipo: Artigo de Revista Científica
Português
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46.47%
Over the past dozen years, policymakers have largely abandoned long-standing popular approaches for addressing risk in agriculture without fully resolving the question of how best to manage the negative consequences of volatile agricultural markets. The article reviews the transition from past policies and describes current approaches that distinguish between the trade-related fiscal consequences of commodity market volatility and the consequences of price and production risks for vulnerable rural households and communities. Current policies rely more heavily on markets, even though markets for risk are incomplete in numerous ways. The benefits and limitations of market-based instruments are examined in the context of risk management strategies, and innovative approaches to extend the reach of risk markets are discussed.

A Conceptual Model of Incomplete Markets and the Consequences for Technology Adoption Policies in Ethiopia

Larson, Donald F.; Gurara, Daniel Zerfu
Fonte: World Bank, Washington, DC Publicador: World Bank, Washington, DC
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56.47%
In Africa, farmers have been reluctant to take up new varieties of staple crops developed to boost smallholder yields and rural incomes. Low fertilizer use is often mentioned as a proximate cause, but some believe the problem originates with incomplete input markets. As a remedy, African governments have introduced technology adoption programs with fertilizer subsidies as a core component. Still, the links between market performance and choices about using fertilizer are poorly articulated in empirical studies and policy discussions, making it difficult to judge whether the programs are expected to generate lasting benefits or to simply offset high fertilizer prices. This paper develops a conceptual model to show how choices made by agents supplying input services combine with household livelihood settings to generate heterogeneous decisions about fertilizer use. An applied model is estimated with data from a panel survey in rural Ethiopia. The results suggest that adverse market conditions limit the adoption of fertilizer-based technologies...

S-Curve Redux: On the International Transmission of Technology Shocks

ENDERS, Zeno; MÜLLER, Gernot J.
Fonte: European University Institute Publicador: European University Institute
Tipo: Trabalho em Andamento Formato: 675470 bytes; application/pdf; digital
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Using vector autoregressions on U.S. time series, we find that technology shocks induce an ‘S’- shaped cross-correlation function for the trade balance and the terms of trade (S-curve). In calibrating a prototypical international business cycle model to match the S-curve under complete and incomplete financial markets, we find two distinct sets of parameter values. While both model specifications deliver the S-curve, the underlying transmission mechanism of technology shocks is fundamentally different. Most importantly, only in the incomplete markets economy the terms of trade appreciate and thus amplify the relative wealth effects of technology shocks - as suggested by time series evidence.

Value of Information in Competitive Economies with Incomplete Markets

GOTTARDI, Piero; RAHI, Rohit
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: application/pdf; digital
Português
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56.39%
We study the value of information in a competitive economy in which agents trade in asset markets to reallocate risk. We characterize the kinds of information that allow a welfare improvement when portfolios can be freely reallocated. We then compare competitive equilibria before and after a change in information. We show that generically, if markets are sufficiently incomplete, the welfare effects are completely arbitrary: there typically exist changes in information that make all agents better off, or all agents worse off.

Optimal Taxation and Constrained Inefficiency in an Infinite-Horizon Economy with Incomplete Markets

GOTTARDI, Piero; KAJII, Atsushi; NAKAJIMA, Tomoyuki
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: application/pdf; digital
Português
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66.34%
We study the dynamic Ramsey problem of finding optimal public debt and linear taxes on capital and labor income within a tractable infinite horizon model with incomplete markets. With zero public expenditure and debt, it is optimal to tax the risky labor income and subsidize capital, while a positive amount of public debt is welfare improving. A steady state optimality condition is derived which implies that the tax on capital is positive, when savings are sufficiently inelastic to returns. A calibration of our model to the US economy indicates positive optimal taxes and a small but positive optimal debt level.

Risk-Sharing and Retrading in Incomplete Markets

GOTTARDI, Piero; RAHI, Rohit
Fonte: Instituto Universitário Europeu Publicador: Instituto Universitário Europeu
Tipo: Trabalho em Andamento Formato: application/pdf; digital
Português
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66.34%
At a competitive equilibrium of an incomplete-markets economy agents’ marginal valuations for the tradable assets are equalized ex-ante. We characterize the finest partition of the state space conditional on which this equality holds for any economy. This leads naturally to a necessary and sufficient condition on information that would lead to retrade, if such information were to become publicly available after the initial round of trade.

Incomplete markets in infinite horizon: debt constraints versus node prices

Florenzano, Monique; Gourdel, Pascual
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: Trabalho em Andamento Formato: application/pdf
Publicado em /03/1995 Português
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66.34%
The general equilibrium model with incomplete markets is here extended to infinite horizon economies populated. by a finite number of infinitely-lived agents. The crucial issue which divides the infinite horizon setting from the finite horizon setting is in the nature of borrowing constaints which added to spot constraints define a plausible budget set for individual agents. The paper relates seyen altemative definitions of equilibrium and states corresponding equilibrium existence theorems when assets are one-period and purely financial.

Dynamic interest-rate modelling in incomplete markets

Pérez Colino, Jesús
Fonte: Universidade Carlos III de Madrid Publicador: Universidade Carlos III de Madrid
Tipo: info:eu-repo/semantics/doctoralThesis; info:eu-repo/semantics/doctoralThesis Formato: application/pdf
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In the first chapter, a new kind of additive process is proposed. Our main goal is to define, characterize and prove the existence of the LIBOR additive process as a new stochastic process. This process will be defined as a piecewise stationary process with independent increments, continuous in probability but with discontinuous trajectories, and having "càdlàg" sample paths. The proposed process is specically designed to derive interest-rates modelling because it allows us to introduce a jump-term structure as an increasing sequence of Lévy measures. In this paper we characterize this process as a Markovian process with an infinitely divisible, selfsimilar, stable and self-decomposable distribution. Also, we prove that the Lévy-Khintchine characteristic function and Lévy-Itô decomposition apply to this process. Additionally we develop a basic framework for density transformations. Finally, we show some examples of LIBOR additive processes. A no-arbitrage framework to model interest rates with credit risk, based on the LIBOR additive process, and an approach to price corporate bonds in incomplete markets, is presented in the second chapter. We derive the no-arbitrage conditions under different conditions of recovery, and we obtain new expressions in order to estimate the probabilities of default under risk-neutral measure. Additionally...

An interior-point algorithm for computing equilibria in economies with incomplete asset markets

Esteban-Bravo, Mercedes
Fonte: Elsevier Publicador: Elsevier
Tipo: Artigo de Revista Científica Formato: text/plain; application/pdf
Publicado em /03/2008 Português
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46.43%
Computing equilibria in general equilibria models with incomplete asset (GEI) markets is technically difficult. The standard numerical methods for computing these equilibria are based on homotopy methods. Despite recent advances in computational economics, much more can be done to enlarge the catalog of techniques for computing GEI equilibria. This paper presents an interior-point algorithm that exploits the special structure of GEI markets. It is proved that, under mild conditions, the algorithm converges globally at a quadratic rate, rendering it particularly effective in solving large-scale GEI economies. To illustrate its performance, relevant examples of GEI markets are solved

Anatomizing incomplete-markets small open economies: policy trade-offs and equilibrium determinacy

Alonso-Carrera, Jaime; Kam, Timothy
Fonte: Cambridge University Press Publicador: Cambridge University Press
Tipo: Artigo de Revista Científica
Português
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66.56%
We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-markets equilibrium. Market incompleteness exacerbates the domestic-inflation and output-gap monetary-policy trade-off in two ways: its steepness and its resulting endogenous cost-push to the trade-off. The latter depends on an equilibrium combination of structural shocks and on agents' beliefs of future events. Thus, in comparison to its complete-markets and closed-economy limits, standard Taylor-type rules are less capable of inducing determinate rational expectations equilibrium in our environment. Despite the larger policy trade-off under incomplete markets, simple policies that also respond to exchange-rate growth are able to manage expectations that drive the endogenous cost-push term. However, policies that respond directly to expectations may turn out to exacerbate the cost-push trade-off further, and thus, to be more likely to fuel self-fulfilling multiple or unstable equilibria.

Endogenous borrowing constraints and default when markets are incomplete

Braido, Luís H. B.
Fonte: Escola de Pós-Graduação em Economia da FGV Publicador: Escola de Pós-Graduação em Economia da FGV
Tipo: Trabalho em Andamento
Português
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56.39%
Incomplete markets and non-default borrowing constraints increase the volatility of pricing kernels and are helpful when addressing assetpricing puzzles. However, ruling out default when markets are in complete is suboptimal. This paper endogenizes borrowing constraints as an intertemporal incentive structure to default. It mo deIs an infinitehorizon economy, where agents are allowed not to pay their liabilities and face borrowing constraints that depend on the individual history of default. Those constraints trade off the economy's risk-sharing possibilities and incentives to prevent default. The equilibrium presents stationary properties, such as an invariant distribution for the assets' solvency rate.

Two-Sided Altruism in an OLG Model with incomplete markets and default

Maldonado, Wilfredo L.; Orrillo, Jaime
Fonte: Universidade Católica de Brasília Publicador: Universidade Católica de Brasília
Tipo: Artigo de Revista Científica Formato: Texto
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This paper shows the existence of equilibrium and its non-triviality (i.e. there exist, in all periods, both trade and default in the security markets) in an overlapping generation model with incomplete markets. This result is obtained by assuming that agents in the economy exhibit two-sided altruism in the following way: each agent may leave a financial inheritance to his only offspring (forward altruism) in the last period of his life, and in the same period, the descendant may accumulate debts in the name of the agent i.e., the father (backward altruism). Thus, if the descendant does not honor the commitment acquired in the name of his antecessor, he will suffer penalties in his utility function. To avoid the excessive issuance of debt, we shall suppose that the agent (the father) suffers a disutility in proportion to the net value of the debt left to his descendant (the son).

ANATOMIZING INCOMPLETE-MARKETS SMALL OPEN ECONOMIES: POLICY TRADE-OFFS AND EQUILIBRIUM DETERMINACY

Alonso-Carrera, Jamie; Kam, Timothy
Fonte: Cambridge University Press Publicador: Cambridge University Press
Tipo: Artigo de Revista Científica
Português
Relevância na Pesquisa
46.34%
We propose a simple incomplete-markets small-open-economy model that is amenable to analytical dissection of its policy-relevant mechanisms. In contrast to its complete-markets limit, the equilibrium real exchange rate is irreducible from the incomplete-m

Additive habit formation: Consumption in incomplete markets with random endowments

Muraviev, Roman
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
Português
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46.34%
We provide a detailed characterization of the optimal consumption stream for the additive habit-forming utility maximization problem, in a framework of general discrete-time incomplete markets and random endowments. This characterization allows us to derive the monotonicity and concavity of the optimal consumption as a function of wealth, for several important classes of incomplete markets and preferences. These results yield a deeper understanding of the fine structure of the optimal consumption and provide a further theoretical support for the classical conjectures of Keynes (1936).; Comment: To appear in Mathematics and Financial Economics

On statistical indistinguishability of the complete and incomplete markets

Dokuchaev, Nikolai
Fonte: Universidade Cornell Publicador: Universidade Cornell
Tipo: Artigo de Revista Científica
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46.43%
The possibility of statistical evaluation of the market completeness and incompleteness is investigated for continuous time diffusion stock market models. It is known that the market completeness is not a robust property: small random deviations of the coefficients convert a complete market model into a incomplete one. The paper shows that market incompleteness is also non-robust: small deviations can convert an incomplete model into a complete one. More precisely, it is shown that, for any incomplete market from a wide class of models, there exists a complete market model with arbitrarily close paths of the stock prices and the market parameters. This leads to a counterintuitive conclusion that the incomplete markets are indistinguishable from the complete markets in the terms of the market statistics.; Comment: 13 pages